The Doha Round of trade talks has already died a thousand deaths. But, apart from the bureaucracies in Geneva, Brussels and Washington, few are grieving.
That’s because the world economy is moving forward without a World Trade Organization treaty. While Doha negotiations have sputtered on for seven years, annual global trade flows have increased 70% to $14 trillion, real annual foreign direct investment is up 25% to $1.5 trillion, and the global economy has expanded by 30% to $54.4 trillion, my research into official data shows. This compares with estimated benefits from a full Doha Round success of $287 billion a year.
These trends can continue, particularly if governments implement more domestic “trade facilitation” reforms. This means streamlining the administrative and physical procedures involved in actually moving goods across borders. Experience shows trade facilitation alone could do even more to increase global trade flows than further cuts in tariffs. For example, just a one-day reduction in the average time required to move both outbound and inbound US cargo through customs and to fulfil all other administrative requirements could increase US trade by almost $29 billion per year.
If the time it takes for both imports and exports to fulfil customs and other administrative requirements in India could be reduced to average OECD-country levels, Indian trade with the rest of the world would be expected to increase by $35 billion annually.
While stroke-of-the-pen tariff reduction is indeed an important component of increased trade, those lower tariffs will not improve trade flows if bureaucratic customs procedures and shoddy logistics and communications are still in place. In developing countries, the average customs transaction involves 20-30 parties and requires 40 separate documents to complete, a 2004 UN study showed.
But, good progress has been made on trade facilitation. In the past three years, 55 countries have implemented 68 reforms to streamline procedures. India introduced an online customs declaration system which allows clearance to begin before the ship docks and helped reduce delays for exporters and importers by seven days. Macedonia eliminated duplicate customs procedures, slashing waiting times by 75%. While these actions have encouraged investment and trade, there is still room for improvement.
The World Bank’s latest Doing Business survey offers the anecdote of a Yemeni fish exporter, Tarik, whose fortunes are limited by bureaucratic export procedures. Tarik can sell fresh tuna to Germany for $5.20 per kg, or frozen tuna to Pakistan for $1.10 per kg. He would prefer to sell everything fresh to Germany. But, as it takes on average 33 days to get clearance to export from Yemen, he sells only 300 fresh tonnes to Germany and 1,700 frozen tonnes to Pakistan, at an opportunity cost of about $7 million per year.
The Economist’s Robert Guest once described the process of delivering beer from a port in Cameroon to the interior. A trip that should take three-quarters of a day took four days because the delivery truck was stopped 47 times at roadblocks, where tolls and other fees were extorted from the driver by police.
Trade increases when barriers fall. Tariffs are barriers, but so are corruption, administrative incompetence, superfluous paperwork, transportation monopolies and the use of antiquated technology. Governments are becoming motivated to reduce these barriers as business, employment, investment and growth are all affected by the country’s approach to trade facilitation.
Multilateral agreements from the latest Doha talks, on since 21 July, to reduce tariffs, subsidies and other barriers would be great for everybody. But even if the tottering Doha Round collapses for good, trade and growth can still rise sharply with the right unilateral reforms.
Exclusive to Mint in India. Daniel Ikenson, associate director of the Center for Trade Policy Studies at the Cato Institute, is author of a new study, While Doha Sleeps : Securing Economic Gains through Trade Facilitation. Comments are welcome at email@example.com