NEWS

WIRES

OTHER

Increased Global Trade Depends on Individual Governments

By Phillip Kurata

Unilateral steps to reduce the time and cost needed to ship goods across international borders would cause global trade to surge, according to experts in Washington.

Daniel Ikenson, an economist at the Cato Institute, and Stephen Creskoff, a Washington-based trade attorney, stressed this point at a June 26 seminar in Washington devoted to trade facilitation - the reduction of administrative and logistics barriers that slow down the shipment of goods across international borders. They said trade facilitation, an issue that has not received the attention it deserves, would increase global commerce more than tariff reductions at this point.

To illustrate, Ikenson used an analogy of running water through a garden hose. "If you turn on the water, that is reducing tariffs. If you turn the spigot on all the way, that is zero tariffs. But if your hose is kinked up and tangled, you're not going to get that water flow. Trade facilitation is about unkinking that hose. It's just as important - if not more important - than tariff liberalization," he said.

Tariff reductions come through agreements, bilateral and multilateral, and are at the core of the work of the World Trade Organization (WTO). Trade-facilitation measures, such as speeding up customs-clearance procedures and expediting shipments, can be taken without regard to practices in other countries.

"Unilateral action puts power in the hands of each country to do what is in its own interest. Negotiators in Geneva [the seat of the WTO] and trade bureaucracies in Washington, Brussels and elsewhere are doing good work, but we're not dependent on them," Ikenson said.

Ikenson described the losses incurred by a Yemeni fish exporter, Tariq, because of time-consuming export procedures required by the Yemeni government.

"Tariq can export fresh fish to Germany for $5.10 a kilo. His other market is Pakistan, where he can sell frozen fish for $1.10 a kilo. Because it takes on average 33 days to export from Yemen, he is able to export only 15 percent of his fish to Germany. Eighty-five percent of his fish goes frozen to Pakistan. That costs him about $7 million a year," Ikenson said.

Creskoff said that for each day transit time is reduced, international trade increases by at least 1 percent. For time-sensitive goods, such as strawberries and flowers, this increase in trade may be as much as 7 percent. U.S. trade would climb $29 billion a year as a result of a one-day reduction of transit time, based on World Bank data, he added. This amount exceeds by nearly 50 percent the $20 billion annual trade increase expected from the U.S.-Korea Free Trade Agreement.

While the benefits of trade facilitation are noteworthy for the United States, the benefits are far greater for developing countries, where shipping costs are higher and transit times are longer. For example, a trucker crossing the border between Uzbekistan and Tajikistan must produce 70 documents, multiple signatures and $1,500 to $2,000 in "unofficial" payments. The time between order and delivery for these two Central Asian neighbors is 186 days, Creskoff said.

"Local police set up unofficial checkpoints where they extort payments from truckers. Additional illegal fees are charged for unofficial police escorts," Creskoff said.

As a trade attorney, Creskoff has worked in more than 40 countries to help modernize their customs and trade systems. He said the practice of "unofficial" payments is not without reason when the financial situation of customs officials and police officers is taken into consideration.

"In some countries where customs officials are poorly paid or not paid at all, these officials assess what I characterize as a 'user fee' on shippers crossing their borders. If shippers want to have their goods moved, they pay a fee. If they want to wait a couple of weeks, that's fine too. They don't have to pay a fee, but they're going to wait a long time," Creskoff said.

Comparing two countries that are plugging into the global trade network to develop their economies, China and Cambodia, Creskoff said the disparity in the trade-facilitation practices of the two countries explains why Cambodia is not able to compete with China in the garment industry.

"The Cambodian garment industry is primarily Chinese-owned and -managed, the same people as in China. The Cambodian workers are just as productive as the Chinese workers and are paid less. Why can't Cambodia compete with China?" Creskoff asked.

The answer lies in China's shorter time for and lower costs of its export procedures, he said. In Cambodia, it takes 37 days and $722 to get a container of garments through the export procedures. In China, it takes 21 days and $390.

The lawyer said individual governments, businesses and other enlightened stake holders are the key actors in improving trade facilitation, while global trade negotiations play a marginal role in making improvements.

Source: U.S. Department of State