Promoting Efficiency in Services Raed Safadi, OECD OECD Global Forum

Promoting Efficiency in Services Raed Safadi, OECD OECD Global Forum on Trade: A trade policy dialogue on the multiple dimensions of market access and development Mexico City, 23-24 October 2006 1

Impact of services barriers on effective rates of protection (ERP) in agriculture and manufacturing Time as a Trade Barrier 2

Impact of Services Barriers on Effective Rates of Protection (ERP) in Agriculture Russia India Venezuela Zambia Chile ERP1 ERP2 ERP3 ERP1 ERP2 ERP3 ERP1 ERP2 ERP3 ERP1 ERP2 ERP3 ERP1 ERP2 ERP3 ( ) ( ) ( ) ( ) (-) (-) ( ) ( ) ( ) ( ) (-) (-) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) (-) ( ) ( ) (-) (-) (-) (-) ( ) (-) (-) ( ) ( ) (-) ( ) ( ) (-) ( ) ( ) (-) ( ) (-) (-) (-) (-) (-) (-) (-) (-) ( ) (-) (-) ( ) ( ) (-) ( ) ( ) ( ) (-) (-) (-) ( ) ( ) ( ) ( ) ( ) ( ) ( ) (-) (-) ( ) ( ) ( ) ( ) (-) (-) ( ) ( ) ( ) (-) (-) (-) ( ) ( ) ( ) (-) (-) (-) (-) (-) (-) ( ) ( ) (-) ( ) (-) (-) ( ) ( ) ( ) ( ) (-) (-) (-) (-) (-) ( ) ( ) ( ) (-) (-) (-) ( ) ( ) ( ) ( ) (-) (-) ( ) (-) (-) Agriculture cereals oil seeds & plants meat & fish milk & dairy vegetable oils & fat sugar beverages & tobacco products food products nec 3

Impact of Services Barriers on Effective Rates of Protection (ERP) in Manufacturing Manufacturing India Chile Albania Venezuela ERP1 ERP2 ERP3 ERP1 ERP2 ERP3 ERP1 ERP2 ERP3 ERP1 ERP2 ERP3 forestry & wood products ( ) ( ) (-) (-) ( ) (-) ( ) ( ) ( ) ( ) ( ) (-) mineral products ( ) ( ) (-) ( ) ( ) (-) ( ) ( ) ( ) ( ) (-) (-) textiles (-) (-) (-) ( ) ( ) (-) ( ) ( ) ( ) ( ) ( ) (-) chemical, rubber, plastic prods ( ) ( ) (-) (-) (-) (-) ( ) ( ) ( ) ( ) ( ) ( ) mineral products (-) (-) (-) ( ) (-) (-) ( ) ( ) ( ) ( ) ( ) (-) base metals & metals ( ) ( ) (-) ( ) (-) ( ) ( ) ( ) (-) ( ) ( ) (-) motor vehicles & parts ( ) ( ) (-) ( ) (-) (-) ( ) (-) (-) ( ) ( ) ( ) transport equipment ( ) (-) (-) ( ) ( ) ( ) ( ) ( ) ( ) (-) (-) (-) electronic equipment (-) (-) (-) ( ) (-) (-) (-) (-) (-) (-) (-) (-) machinery & equipment ( ) ( ) (-) (-) (-) (-) (-) (-) (-) manufacturers ( ) ( ) ( ) (-) ( ) (-) ( ) (-) (-) ( ) ( ) ( ) 4 ( ) ( ) ( )

Time as a trade barrier: Motivation Share of world manufacturing exports Tariffs facing developing countries in manufacturing 1.60% 1.40% Developing LDC EU15 0.8% 0.02% USA 0.7% 0.1% Japan 0.3% 0.1% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% 2000 Africa Source: WTO 2001 2002 2003 2004 Central and South America Source: MacMap 5

Are the main trade barriers behind the border? JIT Lean retailing Offshoring Supply chain management Containerization Speed and scale in trade Time for exports (days) Time for imports (days) High-income 12.6 14 East Asia 25.8 28.6 South Asia 33.7 46.5 Europe & Central Asia 31.6 43 Latin America 30.3 37 Middle East & North Africa 33.6 41.9 Sub-Saharan Africa 48.6 60.5 Source: World Bank 6

ALB Source: GTAP ZWE ZAF VEN URY TZA TUR THA SVN SGP ROM POL PER NZL NGA MWI MOZ MEX MAR LUX LKA JPN IRN IND HUN HKG GBR FIN ESP DNK CZE COL CHL CAN BRA BGR BEL AUS Import content of exports 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 7

Empirical analysis Sectors: – – – – Total merchandise (benchmark) Intermediate industrial products Electronics Fashion clothing Countries: – Importers: Australia, Japan, UK – Exporters: All countries Key variables of interest: – Time for exports – Control of corruption Model: Gravity model 8

Probability to export and time for exports Intermediates to Japan 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 probability to export probability to export Intermediates to Australia 0 20 40 60 80 100 120 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 140 0 20 40 days for exports probability to export probability to export 40 60 80 days for exports 100 120 140 100 120 140 Electronics to UK 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 20 80 days for exports Clothing to UK 0 60 100 120 140 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 0 20 40 60 80 days for exports 9

The impact on exports of a 10% improvement in the control of corruption index 50 45 40 35 30 25 20 15 10 5 0 Total Intermediates Clothing Electronics Australia Japan UK 10

Time and export volumes % increase in exports following 10% reduction in time for exports 25 20 15 Total Intermediate Electronics 10 5 0 Australia Japan UK 11

Policy implications - preliminaries Excessive time for exports and imports constitutes an export market entry barrier for entrepreneurs in low-income countries – and a disincentive to invest in product quality; Time for exports and imports depends on a logistics chain including testing, freight forwarding, transport, port services, customs services, inventory management, tracking The activities in the logistics chain are complementary It is time relative to competitors – not absolute time that matters 12

Policy implications cont. Identify and focus reform on bottlenecks in the logistics chain; Logistics and the DDA: – Trade facilitation – GATS liberalisation of transport, communication, logistics and business services; – Aid for trade Well-designed special economic zones can be a first step when investment needed for adequate country-wide infrastructure is beyond the (aid-augmented) resources of the country in the short term. Reforms are urgently needed! 13