Top 10 economies best set up for trade

The Global Enabling Trade Report 2014 is released ahead of the World Economic Forum on Latin America in Panama.

“We’re back in business” – these are the words of Roberto Azevêdo, the freshly elected director general of the World Trade Organization, uttered in December 2013. He was referring to the adoption in extremis of the Bali Package after an intense, exhausting and suspenseful WTO Ministerial. The package includes the Trade Facilitation Agreement, which aims to simplify and harmonize international trade procedures.

This success – the first in almost 20 years of the WTO – is good news for international trade, the convalescent global economy, and for global welfare. After much debate, the connection between trade, growth and development is now well established. The agreement is also a victory for international governance after repeated failures of the system to come together on a number of global issues, and at a time of extreme geopolitical tensions.

In a difficult global context, trade remains a vector of prosperity, opportunity and peace, as has been the case throughout history. “Peace is the natural effect of trade. Two nations who traffic with each other become reciprocally dependent,” wrote Montesquieu in his influential The Spirit of Laws in 1748.

Yet, many and significant trade barriers still prevent countries, particularly the poorest, from reaping the full gains of trade. The Global Enabling Trade Report 2014 features an index that assesses the capacity of countries to facilitate trade, using 56 indicators distributed in seven categories, or “pillars”: 1) domestic market access; 2) foreign market access; 3) border administration; 4) transport infrastructure; 5) transport services; 6) ICT infrastructure; and 7) the operating environment.

Here we look at the 10 best performers in the latest Enabling Trade Index, which ranks 138 economies in order of their performance:

1. Singapore tops the index for the fourth edition in a row, as a result of an outstanding performance across the board. The city state leads two of the seven pillars of the index, features in the top five of three more, and ranks eighth and 13th in the remaining two. A leading trading platform and a champion of government efficiency, Singapore established the world’s first national single window for trade in 1989.

2. Hong Kong ranked second, and is arguably the world’s most open market: it does not levy any customs tariff on imports or exports. There is also no tariff quota or surcharge, no value-added taxes or general-services taxes. Hong Kong’s exporters do not enjoy a similar level of openness abroad, facing some of the highest tariffs in the world. Hong Kong offers the world’s friendliest operating environment for traders and businesses and boasts world-class transport infrastructure, combined with excellent logistics and transport services.

3. Netherlands features in the top 10 of five pillars. The country boasts the best port infrastructure in the world. The transparency and efficiency of its border administration are excellent, even though customs procedures are, on average, costly. Its overall performance on the index is weakened by its market access.

4. New Zealand’s border administration is among the world’s most efficient and transparent. While corruption gangrenes public administrations around the world, it is essentially absent in New Zealand. Low tariffs and an easy-to-navigate tariff regime provide favourable access conditions to the market. The country’s domestic transport infrastructure could be improved and international air and maritime connectivity is, understandably, limited.

5. Finland ranks fifth, owing to the excellence of its border administration and an operating environment among the most conducive in the world to trade. Finland is also one of the most digitally connected societies in the world. On a less positive note, the quality of transport and logistic infrastructure and services could be enhanced.

6. The United Kingdom ranks sixth, thanks to its world-class border administration and infrastructure. The country ranks second in terms of the availability and use of ICTs and first in terms of internet use for business-to-consumer transactions. A strong protection of property rights (fourth) and an efficient and transparent judicial system make the UK one of the best operating environments in the world. Just as with other advanced economies, however, market access remains a weak spot.

7. Switzerland is another example of a small economy that has built its prosperity on exporting high quality, added-value “Swiss made” products to the four corners of the world. This exporting machine shipped $220 billion worth of goods in 2012 – almost as much as Brazil. Despite being landlocked, Switzerland boasts top-notch transport infrastructure, logistics services and connectivity, as well as extremely efficient border administration. Switzerland’s performance is tainted by the complexity of its tariff schedule, composed of nearly 7,000 distinct tariffs – an unenviable world record.

8. Chile has improved its trade policy, gaining great access to foreign markets and facilitating entrance to the domestic one. Infrastructure remains a weak spot, with the country ranking 64th in terms of availability and use of transport infrastructure. Border administration is efficient and transparent, while Chile’s operating environment benefits from good openness to foreign participation. Protection of property, in particular intellectual property, could be improved.

9. Sweden comes in ninth, benefiting from outstanding ICTs (first, worldwide) and good border administration and favourable operating environment. Logistic and transport services are also well-developed, while the country has room for improvement in terms of transport and hard infrastructure. In line with other EU members, market access (both foreign and domestic) is a weak spot.

10. Germany is 10th. The country’s performance is based on excellent transport infrastructure (fifth) and logistics (third), efficient border administration and an operating environment characterized by strong protection of property rights and high levels of accountability and efficiency within the public administration. Foreign direct investment and hiring of foreign labour remain constrained by restrictive regulations and, as with other EU countries, Germany suffers from restricted access to its domestic market.

Author: Thierry Geiger is Associate Director and Economist for the Global Competitiveness and Benchmarking Network at the World Economic Forum.

Image: A truck carrying cattle drives along a highway near Alice Springs, Australia, April 19, 2004. REUTERS/Tim Wimborne