The Impacts of Trade Facilitation on the Economy of Brazil and its Manufacturing Sector Lucas Ferraz Professor of São Paulo School of Economics at Getulio Vargas Foundation Head of Economic Modeling at the Centre for Global Trade and investment EESP/FGV Centre for Global Trade and Investment EESP/FGV
Outline 1. The increasing relevance of time as a trade barrier; 2. The existing empirical literature on the benefits of trade facilitation; 3. Measuring the costs of delays at customs at the product level; 4. The Single Window Program in Brazil and its short/long run Impacts; Centre for Global Trade and Investment EESP/FGV
1.1. The increasing relevance of time as a Trade Barrier In the last several decades, there has been a sharp rise in the international trade of intermediate goods, as a consequence of the global unbundling of production. Nowadays, exports of intermediates correspond to 66% of global exports; At the same time, the cost of air cargo has dropped significantly and the use of air cargo has risen 2.6 times faster than ocean cargo. According to Hummels and Schaur (AER, 2013), it seems reasonable to conclude that the sharp reduction in the cost of linking production sites through fast moving airplanes has been an important factor in growing fragmentation worldwide Centre São for Paulo Global School Trade of Economics and Investment EESP/FGV (CGTI-FGV)
1.2. The increasing relevance of time as a Trade Barrier While many products are time sensitive due to inventory holding costs, perishability and rapid technological obsolescence, these problems become even more important when factories are interconnected through Global Value Chains (Baldwin, 2013; Hummels, 2013, Timer, 2013); According to Djankov (2006), delays in exports may reduce as much as 1% per day of its total amount, of any given country; In addition, a 2009 OECD report shows that total costs of delays at customs may represent anywhere from 1% to 30% of traded cargo s value; Centre São for Paulo Global School Trade of Economics and Investment EESP/FGV (CGTI-FGV)
2.1. The existing empirical literature on the benefits of trade facilitation Most of the existing studies are based on either Gravity Equations or CGE models; Some drawbacks on the existing empirical literature: Gravity models suffer from problems of misspecification due to sample selection bias as well as firm heterogeneity, among others (Helpman, Melitz and Rubenstein, QJE, 2008); Gravity models don t give the big picture, since cross-price effects among sectors and countries are ignored; CGE models may circumvent some of these problems but most of the existing studies are based on ad hoc estimates of trade transaction costs and therefore their results are hardly comparable Centre São for Paulo Global School Trade of Economics and Investment EESP/FGV (CGTI-FGV)
2.2. The existing empirical literature on the benefits of trade facilitation CGE MODELS All the studies measure reductions in ad hoc direct as well as indirect costs (delays) Centre São for Paulo Global School Trade of Economics and Investment EESP/FGV (CGTI-FGV)
3.1. Measuring the costs of delays at Customs at the product level (Hummels and Schaur, AER, 2013) The costs of time: Lengthy shipping times impose inventory-holding and depreciation costs which include spoilage and rapid technological obsolescence; Long lead times between ordering and delivery require firms to commit to product specifications and quantities supplied before uncertain demand is resolved; The authors examine the modal choice decisions of firms engaged in trade and use the trade-off between fast and expensive air transport versus slow and inexpensive ocean shipping to identify the value of time saving Centre São for Paulo Global School Trade of Economics and Investment EESP/FGV (CGTI-FGV)
3.2. Measuring the costs of delays at Customs at the product level (Hummels and Schaur, AER, 2013) In the model, Consumers have CES type preferences over a bundle of differentiated goods: The time of delivery by firms is treated as a product quality dimension, according to: Slow delivery reduces consumer s perception of product quality Centre São for Paulo Global School Trade of Economics and Investment EESP/FGV (CGTI-FGV)
3.3. Measuring the costs of delays at Customs at the product level (Hummels and Schaur, AER, 2013) With real expenditures given by E, utility maximization gives the following domestic demand for the product exported by firm z located in foreign country j: The equation above shows that, for the same prices and consumer s income, demand will be higher for goods that arrive sooner than later... Centre São for Paulo Global School Trade of Economics and Investment EESP/FGV (CGTI-FGV)
3.4. This idea can be illustrated by the graphic below. For the equilibrium quantity Q *, consumers are willing to pay P * for a good that arrives late. They would pay P 1 for a zero delay good. Therefore, the implicit Ad valorem cost of delay will be (P 1 -P * )/P *. Centre São for Paulo Global School Trade of Economics and Investment EESP/FGV (CGTI-FGV) May /2015
3.5. Measuring the costs of delays at Customs at the product level (Hummels and Schaur, AER, 2013) According to estimates by Hummels and Schaur (2013), each day of delay at customs may cost from 0,6% up to 2,1% of traded cargo s value; Furthermore, time sensitivity of trade in intermediates (parts and components) is over 60% higher in comparison to trade in final goods; Hummels and Schaur (2013) estimate per day costs of delays for thousands of products at the HS6 digit level. This information, in conjunction with bilateral trade flows (World Bank, WITS) and average lengthy of delays in ports for several countries (World Bank, Doing Business), allows one to estimate the ad valorem equivalents of delays at customs. Centre São for Paulo Global School Trade of Economics and Investment EESP/FGV (CGTI-FGV)
Total delays at Brazilian Customs impose an extra tariff on Brazilian imports of 14.2%... 33.70% Equivalente Ad Valorem dos Atrasos Aduaneiros: Importações Totais (2013) 21.00% 19.40% 14.20% 11.00% 10.10% 6.20% 4.20% 4.10% Argentina Russia Africa do Sul Brasil Chile México Alemanha EUA Coréia do Sul São Paulo School of Economics EESP/FGV
The costs of total delays for import procedures at Brazilian customs are more relevant than existing import tariffs Ad Valorem equivalente dos Atrasos x Tarifas de Importação (2013) 33.70% 21.00% 14.20% 6.20% 7.50% 7.80% 10.10% 1.70% 6.20% 5.70% 4.20% 1.30% 1.50% 0.60% Argentina Russia Brasil México Alemanha Japão EUA EA Atrasos Tarifas de Importação São Paulo School of Economics EESP/FGV
Total delays at customs in Brazil impose an extra tax on Brazilian exports of 13.04%... 17.70% Equivalente Ad Valorem dos Atrasos Aduaneiros: Exportações Totais (2013) 14.29% 13.04% 11.63% 11.30% 10.97% 9.14% 7.45% 7.17% 5.05% Russia Africa do Sul Brasil Argentina México Índia Japão Alemanha Coréia do Sul EUA São Paulo School of Economics EESP/FGV
The costs of delays at customs are relatively higher for importers of capital intensive goods in the Brazilian economy São Paulo School of Economics EESP/FGV
Costs of delays are also relatively higher for exporters of capital intensive goods in Brazil São Paulo School of Economics EESP/FGV
4. The Single Window Program in Brazil and its expected short/long run Impacts São Paulo School of Economics EESP/FGV
4.1.The Single Window Program of the Brazilian Governm (2014-2017) By reducing bureaucracy, streamlining customs procedures and centralizing necessary information to import and export, the program aims at: Exports: Reduce from 13 to 8 days average total delays involved in Export procedures at Brazilian Customs; Imports: Reduce from 17 to 10 days average total delays involved in Import procedures at Brazilian Customs; Once successfully implemented, it is expected that reduction in delays at Brazilian customs will have biased effects: Cost reductions will be relatively higher for capital intensive goods; São Paulo School of Economics EESP/FGV
4.2. The Programa Portal Único de Comércio Exterior will create positive externalities over various articles included in the Bali Agreement, anticipating reforms in Brazil: 1. Information Availability 2. Involvement of the trade community 3. Advance rulings 4. Fees and Charges 5. Appeal Procedures 6. Formalities and Documents 7. Formalities and Automation 8. Formalities and Procedures 9. Border Agency Cooperation - internal 10. Border Agency Cooperation - external 11. Governance and Impartiality São Paulo School of Economics EESP/FGV
4.3. Most importantly, it will address the most sensitive articles in the Bali Agreement for both Imports and Exports in Brazil 3 Implicit Ad Valorem Equivalents of the costs of delays for each article in the Bali Agreement: IMPORTS 2.81 2.5 2 1.5 1.48 1.54 1.13 1.45 1.34 1.79 1 0.5 0.71 0.26 0.52 0 Information Availability Involvement of the trade community Advance rulings Appeal Procedures Formalities and Documents Formalities and Automation Formalities and Procedures Border Agency Cooperation - internal Border Agency Cooperation - external Governance and Impartiality São Paulo School of Economics EESP/FGV
4.4. Implicit Ad Valorem Equivalents of the costs of delays for each article in the Bali Agreement: EXPORTS 3 2.81 2.5 2 1.5 1.48 1.54 1.13 1.45 1.34 1.79 1 0.5 0.71 0.26 0.52 0 Information Availability Involvement of the trade community Advance rulings Appeal Procedures Formalities and Documents Formalities and Automation Formalities and Procedures Border Agency Cooperation - internal Border Agency Cooperation - external Governance and Impartiality São Paulo School of Economics EESP/FGV
Modeling Issues São Paulo School of Economics EESP/FGV
Dynamic General Equilibrium Model Data base: GTAP 8 (Base year updated to 2013); Perfect competition model which accommodates 134 regions and 57 sectors by region; The dynamic model traces out the convergence path between the initial equilibrium (before policy implementation) and the final long term equilibrium (when all the policy effects have been absorbed by the economy); Policy impacts are measured against a baseline (counterfactual) scenario which reveals how the economy of Brazil would have evolved in the absence of the policy; Centre for Global Trade and Investment EESP/FGV
Additional Information Source for the baseline variables: CEPII (Centre d'etudes Prospectives et d'informations Internationales); Projected variables: Real GDP growth, labor force growth and population growth; Closure: Perfect mobility of labor and capital; Trade balance over GDP and technological parameters are kept constant; Centre for Global Trade and Investment EESP/FGV
Modeling the Efficiency Shocks at Brazilian Customs The GTAP model does not include a representation of customs activities or costs of border procedures; The methodology adopted in this work follows Hertel et al (2001) and assumes that trade facilitation takes the form of technical progress in trading activities; CES type demand equation for good i, exported from country r to destination country s is written i the GTAP model as follows: A technical progress in trading activities due to reduction in delays at customs may be represented by a positive shock on the variable AMS IRS. This corresponds to an upward shift in import demand; Centre for Global Trade and Investment EESP/FGV
Main Macroeconomic Results Centre for Global Trade and Investment EESP/FGV
Additional Cost savings for imports and exports in comparison to the Baseline scenario (US$bi, 2013) 22.8 23.5 24.1 24.8 25.5 26.3 27.1 27.9 28.7 29.6 30.5 31.4 32.4 33.4 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Centre for Global Trade and Investment EESP/FGV
(%) Real GDP growth in comparison to the Baseline Scenario GDP growth over baseline scenario (%) 3 2.5 Brazil 2,53% 2 1.5 1 1,19% Argentina 0,79% 0.5 0,36% 0 2014 2016 2018 2020 2022 2024 2026 2028 2030-0.5 Anos USA BRASIL EU28 ARGENTINA CHINA ROW Centre for Global Trade and Investment EESP/FGV
Additional GDP gains measured in monetary values (US$bi, 2013) Centre for Global Trade and Investment EESP/FGV
Additional gains for investments in comparison to the baseline scenario 8,45% 2,13% Centre for Global Trade and Investment EESP/FGV
Additional Exports + Imports in comparison to the baseline scenario (US$bi 2013) Centre for Global Trade and Investment EESP/FGV
Main Sectorial Results Centre for Global Trade and Investment EESP/FGV
Exports of manufactured goods tend to grow faster than exports of lower value added goods such as agricultures and services, mainly in the short term... Centre for Global Trade and Investment EESP/FGV
The same behavior is expected for sectorial imports... 18 16 15.48% 14 12 11.64% 10 8 6 4 2 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 Agricultura Extrativa Ind. Tranformação Serviços Centre for Global Trade and Investment EESP/FGV
As a result, the share of manufactured goods on both total exports and imports is expected to rise... Centre for Global Trade and Investment EESP/FGV
The reduction in customs delays is expected to increase total imports and exports of manufactured goods by US$70 billions in 2030... Centre for Global Trade and Investment EESP/FGV
In the long run, trade surplus in manufactured goods may reach US$13.5 billions by 2030 Centre for Global Trade and Investment EESP/FGV
Thank you! Lucas.ferraz@fgv.br Head of CGE modeling at Centre for Global Trade and Investment (FGV-EESP) São Paulo School of Economics EESP/FGV
Alguns Indicadores de Oferta para 2010... Km de Rodovias/10.000 hab. 2010 International Benchmark 4,78 Km/10.000 hab BRAZIL 2,53Km/10.000 hab Km de Ferrovias/10.000 hab. 2010 International Benchmark 3,67 Km/10.000 hab BRAZIL 0,61 Km/10.000 hab Km de Hidrovias/10.000 hab. 2010 International Benchmark 1,91 Km/10.000 hab BRAZIL 0,50 Km/10.000 hab Centre for Global Trade and Investment (CGTI-FGV) May/2014
Alguns indicadores de Qualidade e Custo % Paved Roads 2010 International Benchmark 100% % Rodovias Pavimentadas BRAZIL 19% Road Freight (US$/1000.ton.Km) 2010 International Benchmark US$ 14.00 BRAZIL US$ 51.75 Railroad Freight (US$/1000.TKU) 2010 International Benchmark US$ 4,76 BRAZIL US$ 74,67 Centre São for Paulo Global School Trade of Economics and Investment EESP/FGV (CGTI-FGV) May/2014
Alguns indicadores de Qualidade e Custo Cust to export a 20 feet container (US$) 2010 International Benchmark US$ 621 BRAZIL US$1,790 Containerization 2010 International Benchmark 100% Brazil 70% Customs clearance time in airports 2010 International Benchmark 5,4 hours BRAZIL 2,6 days Centre São for Paulo Global School Trade of Economics and Investment EESP/FGV (CGTI-FGV) May/2014
SOBRE OS CUSTOS DE TRANSAÇÃO DO COMÉRCIO INTERNACIONAL Centre São for Paulo Global School Trade of Economics and Investment EESP/FGV (CGTI-FGV) May/2014
Sobre o Custo do Atraso Portuário Mais de 90% do comércio internacional Brasileiro é feito via Portos Entre 1965 e 2004, o comércio global por via aérea cresceu 2,6 mais rápido que por via marítima, corroborando a importância de entregas just in time para as cadeias de suprimentos internacionais Segundo Djankov (2006), o impacto de um dia de atraso pode significar cerca de 1% a menos em exportações para um país. Centre São for Paulo Global School Trade of Economics and Investment EESP/FGV (CGTI-FGV) Dezembro/2014
Racional p/ Custo do Atraso Portuário Centre São for Paulo Global School Trade of Economics and Investment EESP/FGV (CGTI-FGV) Outubro/2014
Tempo médio total gasto com procedimentos de importação e exportação em portos brasileiros Segundo o Doing Business (2014), Tempo médio de exportação no Brasil é de 13 dias (52/189); Tempo médio de importação é de 17 dias (76/189); O Equivalente Tarifário é calculado com base nos produtos que o país comercializa e no tempo total gasto nos portos... São Paulo School of Economics EESP/FGV Dezembro/2014
1. Some Stylized facts on Trade Facilitation: Centre São for Global Paulo School Trade and of Economics Investment EESP/FGV Abril/2014 May/2014
1. According to the World Bank, more than 60% of companies in Latin America consider the inefficiency of Customs to be one of the main obstacles to foreign trade... 1. Contextualização do Tema: Centre São for Global Paulo School Trade and of Economics Investment EESP/FGV Abril/2014
(exports+imports)/gdp (%) 2. There are lots of empirical evidence suggesting that countries with less efficient customs have a lower participation in international trade... Parcela dos entrevistados que consideram ineficiência aduaneira como MAIOR obstáculo ao crescimento do comércio internacional Fonte: OCDE, baseado em dados do Banco Mundial: 10.000 Empresas em 71 países em desenvolvimento Centre São for Paulo Global School Trade of Economics and Investment EESP/FGV EESP/FGV Abril/2014
3. For Brazil, despite significant tariff cuts in the nineties (over 67% in average) import penetration is still one of the lowest in the world... For the economy as a whole, Brazil ranks 133 out of a sample of 133 economies Centre São for Paulo Global School Trade of Economics and Investment EESP/FGV EESP/FGV Abril/2014
4. For Exports over the same period, Brazil has reduced its share on global exports, despite the formation of Mercosur in 1991... 1.7 1.65 Participação do Brasil nas Exportações Globais 1.65% 1.6 1.55 1.5 1.51% 1.45 1.4 1991 2012 Centre São for Paulo Global School Trade of Economics and Investment EESP/FGV EESP/FGV Abril/2014
5. Can import tariffs alone explain Brazilian weak participation in global trade? Import Tariffs: Though still above global average, import tariff levels in Brazil have decreased significantly since the nineties. The import penetration ratio for the whole economy, however, has remained stuck around 10% over the same period; Geography: The Brazilian economy is relatively distant from the most significant trade flows in the world, which makes maritime transport costs relatively high; Transaction costs: In this scenario, minimization of port costs become even more crucial for the improvement of Brazilian trade performance... Centre São for Paulo Global School Trade of Economics and Investment EESP/FGV EESP/FGV Abril/2014
2. The Quality of logistics infrastructure in Brazil and the importance of time... Centre for Global Trade and Investment EESP/FGV
How distant is Brazil from the best practices in the world?? 1. Ranking the logística feito pelo Banco Mundial (2014), coloca o Brasil na 65 o posição, em uma amostra de 160 países; 2. O pior desempenho do país foi sobre a eficiência do gerenciamento alfandegário, ficando em 94 o, perdendo para El Salvador, Paraguai e Equador Centre for Global Trade and Investment EESP/FGV