Result Briefs April 3, 2018

Stronger Open Trade Policies Enable Economic Growth for All

To ensure that trade continues to provide jobs and benefit the poor, the world must do more to bring low-income countries into the global trading system.

World Bank Group


Trade is central to ending global poverty. Countries that are open to international trade tend to grow faster, innovate, improve productivity and provide higher income and more opportunities to their people. Open trade also benefits lower-income households by offering consumers more affordable goods and services. Integrating with the world economy through trade and global value chains helps drive economic growth and reduce poverty—locally and globally. The WBG’s engagements in countries including Bosnia and Herzegovina, Macedonia, and Indonesia have made trade across borders easier, made logistics services more reliable, and streamlined procedures for clearing customs. These projects and others help create a global trading system that is more open, reliable and predictable for all.

Challenge

Although globalization and trade present new opportunities, it is not without challenges. Developing countries may struggle to compete on a global scale for many reasons.

  • Inefficient or inadequate systems of transportation, logistics, or customs;
  • Poor connectivity in telecommunications, financial markets or information technology;
  • Complicated regulatory environments that discourage new investments;
  • Anticompetitive behavior by major market players or cartels that stifle innovation, productivity, or market growth.

The increasing complexity of trade has serious implications for the world’s poor, who often are disproportionately disconnected from global, regional – or even local – markets. Poverty is often concentrated in geographic areas that are poorly connected to active economic centers. Firms and communities in these areas miss opportunities to develop skilled, competitive workforces; they are not integrated in global production chains and are less able to diversify their products and skills.

There are also distributional consequences of increasing trade. While on aggregate, economies gain enormously from increasing trade, as competition increases and many good jobs are created in export sectors—the wages of workers in import-competing industries may suffer or some workers may lose their jobs.

Approach

The WBG is supportive of an open, rules-based, predictable multilateral trading system, with the goal of helping countries participate in and enjoy the benefits of such a system.

Key strategies in this agenda include:

  • Trade facilitation, logistics, and border management: helping countries integrate into global value chains (GVCs) through targeted reforms and investments;
  • Trade agreements: advising countries on their technical details and supporting implementation of commitments made through these agreements;
  • Emphasizing trade and competitiveness at the core of national development strategies
  • Aid for Trade: Among multilateral institutions, the Bank Group is the largest provider of “Aid for Trade,” a multilateral initiative designed to assist developing countries, especially low-income countries, spur growth by integrating into the world economy. 
  • Markets and competition policy: encouraging growth and shared prosperity by opening and transforming markets.

In 2017, trade volumes grew by 4.3%, the fastest rate in 6 years. Behind increased trade levels are countries whose GDP is growing, companies who are trading goods across borders and citizens who can access goods and services at lower prices. To further enhance global trade, the World Bank works with governments to address trade obstacles by designing and implementing policies that maximize competitiveness, increase connectivity, and facilitate trade. In line with twin goals of eradicating extreme poverty and increasing shared prosperity, the World Bank Group helps its client countries improve their access to developed country markets and enhance their participation in the world economy. 

Results

Trade advisory and support work spans 111 Bank lending projects in 57 countries, 219 Bank advisory tasks in 64 countries, and 56 IFC Advisory projects in 35 countries including through the World Bank Trade Facilitation Support Program (TFSP) and the Umbrella Facility for Trade (UF). 

The WBG’s global, regional, and country trade engagements have boosted trade competitiveness, inducing predictability in trade operations, lowering a variety of trade costs, opening and creating markets, and prioritizing inclusive trade integration. Prominent results from IBRD operations include:

Bosnia and Herzegovina: A Bank operation supported reforms to facilitate cross-border trade. The project helped simplify government processes for issuance of export-import licenses, made it easier to obtain permits, and reduced  approval costs. By closing, the project resulted saved businesses an estimated $1.26 million in compliance costs, a reduction of approximately 4 percent.  The reductions in trade-related administrative costs helped strengthen the business environment and reduced the costs of doing business in the country. By reducing trade barriers for businesses, this project enhanced Bosnia and Herzegovina’s trade competitiveness  and facilitated  economic integration with the neighboring European Union market.

Macedonia: the WBG supported government efforts to improve the efficiency of trade logistics services (two projects under a programmatic approach). The operation included measures to make inspections more efficient to foster cross-border trade and to support the transport industry to be export-ready by incentivizing fleet upgrades to comply with EU emission standards. Results include a 70 percent reduction in physical border inspections, with reduced transit times for both exports and imports. Furthermore, the compliance rate of new vehicles with Eurozone standards was 100 percent.

Indonesia: to support trade facilitation, the WBG leveraged provisions of development policy lending (DPL) combined with investment project financing (IPF). The DPL supported work to implement procedures, customs, and formulation of reduced and simplified non-tariff barriers. Results include a reduction in the number of days needed to export and import: between 2009 and 2012, time to export was reduced from 21 to 17 days and time to import was reduced from 27 to 23 days. The IPF operation financed investments and technical assistance for the Directorate General of Customs and Excise to strengthen client services through improved customs operations and trade facilitation.  

Bank Group Contribution

The Bank is working with governments to tackle trade-related challenges, with financing commitments by end-2017 totaling over $22.5 billion ($12.6 billion IBRD and $9.9 billion IDA), up from just $3.3 billion in 2004.

The Umbrella Facility for Trade trust fund (UF) was launched in April 22, 2017. The UF is an IBRD-led Tripartite trust fund that has been developed to support analytical and knowledge work on global and regional trade issues in IBRD and IDA countries. Over the next six years, the UF will support four key areas of the WBG’s trade work, specifically:

  • trade competitiveness and diversification;
  • trade facilitation and transport logistics;
  • support for market access and international trade cooperation; and
  • managing shocks and promoting greater inclusion (e.g. trade and poverty; trade-gender linkages).

The UF has received contributions from DFID, SECO, Sida, the Netherlands and Norway. The total envelope over six years is currently estimated to be US$41 million.

The Trade Facilitation Support Program (TFSP), which includes support through an IFC-led Tripartite trust fund, was launched in June 2014 with support from nine development partners – Australia, Canada, EU, Norway, Netherlands, Sweden, Switzerland, UK, USA –totaling US$35 million. The TFSP provides implementation support for IBRD or IDA countries seeking assistance in aligning their trade practices with the World Trade Organization Trade Facilitation Agreement (WTO TFA), which entered into force in February 2017.

Partners

The World Bank Group works with a wide range of stakeholders, including donor and client countries, the private sector, CSOs, multilateral institutions and regional economic communities among others. Among the partners are trade champions that are leaders in promoting an open, rules-based international trading system.

The private sector is increasingly interested in ensuring that free trade is protected and helps support business opportunities including entry and growth for SMEs and MSMEs as well as participation in global value chains.

Donors contribute to WBG trust funds that support trade and investment climate. Among them are DFID, Agence Francaise de Developpement, UNIDO, the Asian Development Bank, Islamic Development Bank, USAID, JICA, the Gates Foundation, WTO, OECD, IMF, Switzerland’s State Secretariat for Economic Affairs, the Swedish International Development and Cooperation Agency, Australian Aid, European Commission, Government of Canada, Norwegian Ministry of Foreign Affairs, UKAID, and the Norwegian Ministry of Foreign Affairs.

The Umbrella Facility for Trade trust fund has received contributions from DFID, SECO, Sida, the Netherlands and Norway.

The Trade Facilitation Support Program (TFSP), which includes support through an IFC-led Tripartite trust fund, received support from nine development partners – Australia, Canada, EU, Norway, Netherlands, Sweden, Switzerland, UK, USA –totaling US$35 million.

Moving Forward

Countries are increasingly turning to the World Bank Group for advice on trade and, more widely, on investment climate reform to ensure competitiveness. The WBG has an opportunity to contribute by sharing the technical evidence that helps developing countries make sound policy decisions on trade and investment climate-related issues that will be critical for future growth and poverty reduction. In February 2017, the World Trade Organization’s Trade Facilitation Agreement entered into force, spearheading a global effort to reduce trade costs and help countries better connect to the global economy. This milestone presents an opportunity for the World Bank Group to further assist countries to design practical reform strategies – and their implementation – to pursue poverty reduction and shared prosperity.