Global trading patterns have become increasingly intertwined. So too has global prosperity. Rather than products or services simply originating in one country and being sold in another, value is often added by many countries involved in complex supply chains. This means that one country’s success in enabling trade not only plays a significant part in its own overall competitiveness, and by association, prosperity, but also has implications for the competitiveness of other countries. Moreover, since emerging economies account for 60 percent of the growth in imports of goods and services since 2008, their success in enabling trade has become increasingly relevant. This makes the findings of our biannual study, the Global Enabling Trade Report, all the more interesting.
Since transaction costs increasingly play a part in overall competitiveness, we need to evaluate the broad array of policies that can affect them. Our research, which ranks 132 nations on how successfully they enable trade, takes account not only of border barriers such as tariffs and non-tariff barriers that affect market access at home, but also opportunities given to exporters through agreements and preferential arrangements with others. In addition, a broader set of policies are appraised that include border administration, infrastructure and telecommunications and the regulatory and security regimes that secure property rights and reduce trade transactions costs.
The overall index serves as a useful summary measure and is built on a number of pillars such as market access, border administration, infrastructure and business environment. These can be used by countries to benchmark various aspects of their policies not only against the best, but also others in their region and/or similar stage of development.
This year’s results show the highest-ranking economies in enabling trade to be Singapore (1) and Hong Kong (2). These economies promote trade not only by opening their markets but also by providing world class infrastructure and administrative and regulatory systems.
Not unexpectedly, developed countries generally rank highly. They have lower trade costs not only because ― with noteworthy exceptions in labour-intensive manufacturing and agriculture ― their tariffs are generally low, but also because economic development itself is intimately associated with enhanced capabilities in administration, infrastructure and telecommunications and regulation. Generally, the relatively smaller developed countries where trade is traditionally more important such as Denmark (3), Sweden (4) New Zealand (5) and Finland (6), outperform the larger ones such as the United Kingdom (11), Germany (13,) Japan (18) and France (20). Nonetheless, some developing countries also show impressive performance ― such as Chile (14), thanks to its excellent market access and strong border administration and regulatory systems, Malaysia (24) and Mauritius (36). Gulf states such as the UAE (19), Oman (25), Saudi Arabia (27) and Bahrain (30) do well because they have simple tariff structures and good business environments.
Report results suggest challenges remain for large countries with important global roles. The United States is a laggard in both trade and regulatory policy. It ranks only 23rd overall, doing especially poorly on market access (60), which is low because exporters face relatively high tariffs. America’s business environment also rates poorly (42) for a highly developed economy, both due to relatively poor regulation (32) and high business costs related to security. Moreover, the United States drops by four positions in this year’s assessment.
Meanwhile ASEAN countries have recorded solid gains as a result of the implementation of the ASEAN Trade in Goods Agreement in 2010. Thailand climbed 3 places to 57th, while Indonesia (58) and the Philippines (72) both recorded improvements also.
In the next decade, the consensus forecasts are for strong global growth centered on the developing countries, with the emergence of large middle classes in China and India driving global demand. While China (56) is doing relatively well for a country of its income level, it has nevertheless dropped 8 places from 48 in 2010. Meanwhile, other BRIC countries such as Brazil (86), India (100) and Russia (112) have lots of room for improvement in most dimensions of the index. Given the rising importance of these markets, the drop of China and India remains worrisome for future global economic growth.
In sum, in the years to come, it is expected that the adoption of a broader set of trade enabling policies will become increasingly important, not only to enhance economic development in individual countries, but also in to generate prosperity in their trading partners. Our hope is that by highlighting the significance of these trade determinants and by providing benchmarking measures, the World Economic Forum can assist countries in identifying the areas which need to be improved.
By Robert Lawrence and Margareta Drzeniek
Robert Lawrence is a member of the World Economic Forum Global Agenda Council on the Global Trade System, while Margareta Drzeniek is senior economist, Global Competitiveness Network, World Economic Forum. ― Ed.
