Trade policy barriers to account for at least 10% of trade costs in all sectors

Trade policy barriers and regulatory differences are estimated to account for at least 10 per cent of trade costs in all sectors, world trade body, the World Trade Organisation (WTO), has said in a note.

The trade barriers, according to the WTO, include tariff and non-tariff measures, temporary trade barriers, regulatory differences and the costs of crossing borders, as well as other policies that impact trade, such as a lack of investment facilitation or of intellectual property protection.

The report notes that while COVID-19 has motivated both trade-restricting and import-facilitating changes in tariffs and regulatory practices, these measures have so far affected only a small subset of products.

A crisis-induced shift towards the digitalization of customs and regulatory procedures to reduce physical contact could potentially lower the associated trade costs in the long-term.

The report also points to uncertainty as a factor that magnifies the impact of existing trade-related costs, weighing on trade finance flows and dampening the appetite of businesses to invest in researching new markets, acquiring language skills and prospective partners, and conforming with foreign standards.

It notes that in the first quarter of 2020, a widely used measure for the global level of uncertainty registered levels 60 per cent higher than those triggered by the Iraq War and the Severe Acute Respiratory Syndrome (SARS) outbreak in 2003.

In mid-March, a separate index of financial market volatility came close to highs last seen in 2008 after the failure of Lehman Brothers.

“Looking ahead, the report notes that many governments have implemented measures to mitigate pandemic-related disruptions to economic activity, for instance by exempting certain transport crew from travel restrictions, or by enhancing the quality of and the access to ICT.

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“While many of the changes in trade costs can be expected to revert once the pandemic is brought under control, the report observes that some effects may persist. For example, aviation industry consolidation and shifts in passenger appetite for air travel could lead to higher air transport costs.

“In addition, government policy choices — which could either reduce or increase trade policy uncertainty — will be important in shaping uncertainty-related trade costs in the future.”

By Laud Nartey||Ghana with additional files from the WTO


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