Trade policy barriers such as tariffs and regulations account for at least 14% of trade costs according to estimates from the WTO Trade Cost Index launched on April 30, 2021.
The index measures the cost of trading internationally relative to trading domestically. One striking finding of the Index is that the costs to export are higher for women, smaller businesses, and unskilled workers.
Meanwhile, the WTO attributed this partly to these groups’ concentration in certain sectors such as in services. Also, the index finds that trade costs for services are higher than trade costs for agricultural goods. However, trade costs for manufactured goods are the lowest.
The WTO Trade Cost Index provides for the first time a detailed breakdown of trade costs for both goods and services. The index also shows which groups of producers and consumers bear them the most. It complements other statistics the WTO provides on trade costs such as average tariffs or the number of non-tariff measures.
Trade costs in low and high income economies
Moreover, it gives a sense of the weight of these measures relative to other factors, such as transport and travel costs. Others include information and transaction costs, ICT connectedness, and governance quality. The WTO used estimates of bilateral trade costs for 43 economies and 31 sectors from 2000 to 2018 to compute the index.
Moreover, Trade policy barriers and regulatory differences make up the largest component of trade costs for trade between low-income economies. These trade policy barriers include tariff and non-tariff barriers. More importantly, the data draw attention to the high potential for policy reforms to boost trade among developing countries.
Conversely, Transport and travel costs comprise the largest share of trade costs when high-income economies transact with each other. The data shows similar findings when high-income economies transact with lower-income economies.
Decline in trade costs
Furthermore, the index illustrates the evolution of trade costs over time. Strikingly, the data shows that global trade costs have declined by 15 percent between 2008 and 2018.
Meanwhile, on the export side, the data shows that the most pronounced fall occurred in the newer EU member states. This includes Latvia, Croatia, Bulgaria, Cyprus, and Slovenia.
The TWO states that it will capture the cost of uncertainty in the global market in subsequent updates to the index. One such is the COVID-19 pandemic. Also, it will explore ways to produce timely estimates of trade costs to account for a real-time update of trade measures.
The Economic Research and Statistics Division (ERSD) of the WTO produced the index to complement other statistics of the WTO. It aims is to give a sense of the degree of restrictiveness of some of these measures. It also aims at measuring how trade policy barriers compare to other trade costs, and who bears these costs. Specifically, it covers the incidence of trade costs across economies and sectors, and for different household income groups. Other areas include gender, firms size, and skill groups as well as identify the main factors determining trade costs.
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