Home .International Trade Are you ready to trade?
Are you ready to trade?
Saturday, 03 July 2010 07:35

 

This is the question that the World Economic Forum (WEF) asks in its Global Enabling Trade Report.  And notwithstanding all the noise about free trade agreements in East Asia, it seems that much of the region is still not ready trade.  This is because there are still many market access restrictions.  But also because there is a whole range of other factors which are important for a country’s capacity to trade.

 

 

 

If you want to enable trade to happen, you need to smooth the path between buyers and sellers, and reduce the cost of the transaction itself.  So, the WEF team assesses the extent to which 121 countries around the world have in place the institutions and policies for enabling trade.  It calculates the “Enabling Trade Index” based on four subindexes: (i) market access (domestic and foreign); (ii) border administration (efficiency of customs administration and import-export procedures, and transparency of border administration); (iii) transport and communications infrastructures; (iv) business environment (regulatory environment and physical security).

 

Two East Asian economies, Singapore and Hong Kong, top the list with the world’s most trade friendly institutions and policies.  Other advanced economies are much further down the list – Canada 6th, Australia 14th, US 16th, Japan 23rd, Taiwan 25th, Korea 26th, and Malaysia 28th.  The middle income economies of East Asia score far less well – China 49th, Thailand 50th, Indonesia 62nd, India 76th, Philippines 82nd, Vietnam 89th and Cambodia 91st.  It is of course natural that poorer countries have less developed institutions and infrastructure than advanced countries.  But based on this data, Australia, US and Japan should lift their game.  And for the other countries to continue climbing the development ladder, it will clearly be necessary to improve their institutions and policies for trade.

 

Let’s have a look at some of the countries.

 

Singapore.  A simple visit to the Lion City is enough to tell you that this is the land of Adam Smith.  Business freedom seems almost total, even if the state of political freedom is quite the reverse.  It comes in near tops for market access, border administration, and regulatory environment.  It could do even better if it could relieve some road congestion (beware of Orchard Road) and improved its ICT infrastructure.

 

Hong Kong.  Like Singapore, the fragrant harbour is a model of economic freedom with excellent infrastructure, although once again traffic congestion is a problem.  But beware of pickpockets in Kowloon.

 

Canada.  O Canada, you post a strong and remarkably consistent performance across the board.

 

Australia.  The Great Southern Land does pretty well with good scores on border administration, transport and communications infrastructure, and the business environment.  But Australia’s free trade hype seems a bit thin when you see the bad scores for trade barriers for non-agricultural products.  Australia applies very high tariffs in this area in comparison with countries at a similar level of development.  Australia comes in just behind Frau Merkel’s Germany which scored 12th and world champion for transport and communications infrastructure.

 

United States.  The land of stars and stripes suffers from bad physical security and some problems with market access.

 

Japan.  The country whose previous Prime Minister was dreaming of an East Asian Community, is still a pretty closed shop.  It has very high barriers to market access, and limited openness to foreign investment and hiring foreign labour.

 

With Taiwan, Korea and Malaysia, you really step down a notch, especially when it comes to market access.  .

 

For the rest of East Asia, there is a progressive deterioration – China (bad market access), Thailand (market access and watch out for your physical security), Indonesia (everything mediocre, and corruption everywhere), India (appalling market access), Philippines (lousy infrastructure, corruption and dangerous), Vietnam (bad market access and infrastructure) and Cambodia (bad border administration andinfrastructure).

 

Conclusion

 

East Asia does trade a lot.  But much of this trade is via supply chains which service US and EU markets, and takes place through export processing zones and special economic zones, which are essentially free of government interference -- except for the necessary bribes to keep the government out of the way.

 

For East Asia to continue to develop, it will need to start trading more within the region.  As this report highlights, there is very much work to do in order to enable these countries to trade more and better.

 

References:

The Global Enabling Trade Report 2009.  World Economic Forum.

www.weforum.org


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