Hello from Brussels. The big news today is the speech coming later from US trade representative Katherine Tai on trade with China. The pre-speech messaging, together with an intervention from commerce secretary Gina Raimondo praising the steel and aluminium tariffs, suggests it’s all too likely to extend the Biden administration’s continuity Trump approach towards China.
The World Trade Organization is set to release the latest of its twice-yearly forecasts this afternoon.
Meanwhile, the various European Commission travelling policy caravans have returned from last week’s Trade and Technology Council in Pittsburgh and from jaunts around Asia promising to revolutionise transatlantic economic co-operation and secure the global semiconductor supply chain. There remains just the trifling issue of exactly how to do it.
Today’s main piece looks at the issue of trade facilitation — ports, product inspections, paperwork and the like — in the light of the scrapping of the World Bank’s Doing Business report, one of the highest-profile sources on the subject.
Charted waters looks at some of the barriers, trade and otherwise, facing the EU’s SMEs.
Never mind the rankings, just show us the results
The World Bank’s annual Doing Business report died a sad death a few weeks ago amid a gathering head of criticism about political interference, but the original idea was a good one. Launched in 2003 as a means of trying to quantify qualitative judgments about countries’ business environments, the trade component, Trading Across Borders, was particularly useful in getting policymakers to take a broader view than just considering tariffs.
It’s pretty obvious to anyone trying to do business in a lot of emerging markets that clogged borders are often far more important a constraint on trade than taxes. You can just look at the experience of sub-Saharan Africa, where a lot of countries cut tariffs significantly as part of the IMF and World Bank’s structural adjustment programmes of the 1980s and 1990s and yet failed to be rewarded with a lot more integration into the global economy.
Technically, and often politically, it’s a lot harder to get a government to clean up a corrupt customs service or computerise goods declarations than change a tariff schedule. Doing Business was predicated on the idea that information on those issues would breed competition between governments. The WTO’s Agreement on Trade Facilitation (TFA) which came into force in 2017 — the closest thing to a substantive multilateral deal since the WTO was created in 1995 — also aimed to give countries best-practice benchmarks. For low-income countries, reform would supposedly have development aid attached.
But here’s the problem. Said measures are always going to be less precise than the percentage rate on a tariff. (What counts as a single procedure when you’re doing the formalities for shipping a 20ft container, anyway?) The OECD (admittedly something of a competitor in this area, as it has its own trade facilitation indicators) points out that reality on the ground often doesn’t match paper regulations. It found that Doing Business figures overlook the big differences in the treatment of different companies in the same country. An attempt to replicate the Doing Business indicators by a Brazilian business association found similar.
And even when they measure what they’re trying to measure, there’s always a danger when indicators turn into targets. Ministers start boasting of improvements in their rankings by designing policies that tick boxes rather than make actual improvements. Even worse, as alleged in the controversy that finally killed Doing Business, it encourages governments to reach for the scale with an eager thumb. Thorsten Beck of the European University Institute points out that this is an application of Goodhart’s Law: that any reliable statistical relationship breaks down when you try to use it for public policy purposes.
Let’s be clear: the principle of trade facilitation is great. Today’s Trade Secrets author once spent a morning in the Zambian Bureau of Standards being talked through the use of spectrometry to measure the quality of cotton fibre: it was fascinating, genuinely. It’s trying numerically to calibrate the effect of policies that’s hard.
Take India. Narendra Modi’s government has been criticised for eschewing opportunities for trade liberalisation such as the Regional Comprehensive Economic Partnership. As we said last week, it’s also gumming up the machinery of governance by being difficult over issue after issue in the WTO.
Does that mean Modi’s government is irredeemably protectionist? It would argue no, pointing at a massive leap in the Doing Business “trading across borders” ranking in 2018 from 146th to 80th, after digitisation of customs, improved trusted-trader schemes, the general services tax and so on.
But the indicators are ambiguous. A paper by two senior Indian customs officials points out that multiple indicators — including two from the World Bank, one from the World Economic Forum and one from the UN — often point in different directions. The Global Trade Alert, a monitoring service run out of the University of St Gallen in Switzerland, says that India has introduced more restrictive than liberalising measures over the past few years.
So what are we supposed to conclude? No one seriously argues that trade facilitation isn’t hugely important. But the Doing Business debacle cautions against believing that measures are precise and objective. Relatedly, the idea of trying to wire trade facilitation into formal trade policy such as the TFA, still less to attach it to aid spending (not the WTO’s purview, anyway) also seems a bit ambitious. It seems more fruitful just to look at how trade is actually happening in each country and what problems with bureaucracy and infrastructure seem to be a hindrance. Harder to assess, but perhaps more realistic. Not everything that’s good in life is easy to measure.
Charted waters
The European Centre for International Political Economy published a great paper last week looking at what EU trade policy can do to turn as many SMEs as possible into, valued at more than $1bn. As is well known, most of these companies originate in the US and, to a lesser degree, China.
The paper finds several reasons for this, including a number of non-tariffs barriers on exporters based within the EU.
The reason why this matters for SMEs more than larger businesses is that overcoming these barriers often involves fixed costs, which — when spread over lower revenues — has a bigger impact on performance. Claire Jones
Trade links
Ahead of Katherine Tai’s speech, the Peterson Institute’s Chad Bown reminds us of how badly the Trump administration’s unilateral dealings with China worked out (our characterisation, not his).
A silver lining for exporters from China’s power crunch: the cost of shipping between the US and China dropped (Nikkei, $) by nearly half in the past four days.
Brexit-related trade problems mean the UK will face some serious supply crunches this Christmas. The Guardian reports that labour shortages are now shifting to almost all parts of the UK economy.
With the WTO today releasing its forecast for global trade, the most recent data on goods trade, from the Dutch research institute CPB, is here.
Japan’s mighty business lobby is complaining (Nikkei, $) of lost deals and missed production targets owing to stringent travel restrictions. Alan Beattie, Francesca Regalado and Claire Jones
Source: Economy - ft.com
