45161 Trade Issue Brief WORLD BANK, WASHINGTON, DC July 2008 Benjamin J. Taylor and John S. Wilsoni Transparency Reform Could Raise Trade by $148 Billion in APEC ii The members of the Asia Pacific Economic Cooperation (APEC) are rapidly approaching the Bogor Declaration's deadline for free trade and investment for industrialized members by the year 2010. As the Group's 2007 Report on the Implementation of APEC Transparency Standards notes, the removal of barriers to trade is in large part only meaningful to the extent that such reforms are accompanied by actions to promote transparency in both at-the- border and behind-the-border procedures (APEC 2007). According to research at the World Bank, the potential intra-regional trade gains in APEC from improved transparency are important--estimated to be approximately $148 billion, or 7.5 percent of 2004 intra-regional trade volume (Helbe, Shepherd, and Wilson 2007). APEC has long been at the forefront of reform efforts in the area of trade facilitation. Following the success of the 2001 Shanghai Declaration in reducing trade costs and APEC member economies' renewed commitment to strive toward an additional 5 percent reduction in cross-border transactions costs by 2010, transparency issues should figure prominently in APEC's immediate trade facilitation initiatives. The Bogor Goals in APEC Partly in response to previous research carried out by APEC leaders signed the Bogor Declaration in 1994, the World Bank, the new Action Plan includes actions establishing a common goal of free trade and aimed at automating customs procedures with a investment in the Asia-Pacific region by the year 2010 paperless single-window program, harmonizing tariff for industrialized countries, and by the year 2020 for structures with the World Commerce Organization's developing economies. Now known as the Bogor HS Convention, and making all information regarding Goals, these targets serve as the primary organizing standards and conformance publicly available. force behind APEC's trade liberalization and facilitation work program. Predictability and Simplification In 2006, this framework led to the achievement of a 5 HSW (2007) base their analysis of the potential for percent reduction in trade costs across the region. By increased transparency in APEC on two main the year 2010, APEC leaders hope to achieve an touchstones for trade facilitation and transparency additional 5 percent reduction in trade costs. To this reform, namely, predictability and simplification. end, a new Trade Facilitation Action Plan has been More predictable trade policy reduces uncertainty, and drafted that places greater emphasis on transparency therefore costs, for business. In assessing the current initiatives and includes a schedule of broader "business transparency of APEC economies, the study looks at facilitation" reforms. According to the APEC the number of tariff lines that are bound through the Committee on Trade and Investment 2007 Annual World Trade Organization and the overall "flatness" of Report, these changes are meant to reflect the fact that tariff structures, the variability of import/export delays, trade facilitation reforms are enhanced when they are the uncertainty surrounding unofficial customs complimented by domestic regulatory and procedural payments, and the amount of favoritism in reforms. administrative decision making. Policies aimed at increasing trade policy transparency Simplifying trade policy makes it easier, and therefore in the APEC region would appear to have the potential less costly, for importers and exporters to identify, assess, and comply with regulation. With regard to the I. Transparency Reforms simplicity of trade policy, the study takes into account Improve importer transparency within the APEC region such that no economy is below the current regional average (0.54) documentary requirements for import/export AUS transactions, the number of border agencies with which CAN CHL firms must interact to complete a cross-border CHN HKG transaction, the extent of "hidden" trade barriers, and IDN JPN the occurrence of unofficial payments. KOR MEX MYS NZL The Model PER PHL RUS SGP HSW (2007) utilize data on the above indicators to THA USA Imports Exports produce summary measures of import and export VNM transparency for each APEC economy. They then use 0 20 40 60 80 100 120 a standard gravity model to assess the increase in trade Change in Trade as % of 2004 baseline flows resulting from transparency reforms, controlling for high impact. Since the three reform scenarios for gross domestic product (GDP), trade considered are not mutually exclusive, transparency restrictiveness, and importer-exporter pair reforms can be seen as an effective complement--not heterogeneity. Since these results measure increases in substitute--to traditional tariff and non-tariff barrier trade between APEC economies only and exclude trade reforms. This notion is bolstered by another study that in raw materials, the actual net effect on trade volumes estimates the welfare effects of increased transparency and welfare effects for APEC economies would likely on APEC economies. be much larger due to the non-discriminatory nature of transparency reforms. Transparency and Welfare The analysis covers three scenarios involving policy Abe and Wilson (AW 2008) build on the results of reforms, which are assumed to bring the particular HSW (2007) by analyzing the GDP and welfare effects indicators for each APEC economy up to the regional associated with increased transparency in APEC using average. The first scenario assumes an improvement in a computable general equilibrium model. The results the import-related transparency index for each APEC are presented as an estimated percentage change in economy so that no country performs below the GDP and an estimated standard variable income regional average. The second scenario assumes a measure of the corresponding welfare improvement. reduction in the applied tariffs so that no APEC member applies a higher level of protection than the AW (2008) estimate the macroeconomic benefits of regional average for each HS chapter. The final reform for each APEC member. As the authors scenario assumes a reduction in the ad valorem explain, increased transparency in trade policy would equivalents of non-tariff barriers so that no APEC bring about expansionary effects as well as efficiency country applies a higher level of protection than the improvements, as a particular economy would be able regional average for each HS chapter. to produce more with a given amount of production factors by implementing reforms that may include, for The largest intra-regional trade impact comes from example, automated customs procedures. Meanwhile, transparency reform and amounts to a 7.5 percent a reduction in trading costs might bring about an effect increase of baseline 2004 trade. By contrast, the tariff that resembles the removal of trade-inhibiting tariffs. and non-tariff barrier simulations yield modest The result would be increases in GDP and welfare, increases of 0.9 and 1.8 percent, respectively. In especially for APEC's developing members, which monetary terms, these effects equate to approximately currently have relatively low scores across most US$148bn, US$18bn, and $US35bn, respectively. transparency indices. 2 necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent. ii This brief draws on research under a project on Trade Facilitation and Economic Development at the World Bank, with support of the U.K. Department for International Development. It is also aligned with work under the Multi- Donor Trust Fund Trade Project on "Trade Costs and Facilitation." (Billions of US$) Conclusion These findings suggest that in moving forward, there is considerable scope for APEC to consolidate and build on progress already made in the area of transparency and trade facilitation. Within APEC's framework of regional cooperation and concerted unilateralism, it will be important for policymakers and stakeholders to develop both a set of substantive goals and concrete policy options that can be implemented considering these priority areas. Mobilizing the financial and technical resources necessary to ensure that any such reform program is feasible and sustainable across such a diverse regional grouping will require member economies to once again demonstrate the creativity and flexibility for which APEC is noteworthy. Further Reading Abe, Kazutomo, and John S. Wilson. 2008. "Welfare and Income Gains with Improved Transparency in APEC: What's at Stake?" World Bank, Washington, DC. Mimeo. APEC. 2007. "Committee on Trade and Investment Annual Report to Ministers, 2007. Singapore. APEC. 2005. "A Mid-Term Stocktake of Progress Towards the Bogor Goals ­ Busan Roadmap to Bogor Goals." Singapore. Helbe, Matthias, Ben Shepherd, and John S. Wilson. 2007. "Transparency, Trade Costs, and Regional Integration in the Asia Pacific." World Bank, Washington, DC. iThe findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not 3