Workshop on the linkages between Trade, Transport and the Environment World Trade Organization, 9 Nov Centre William Rappard Dr. Andreas Kopp Lead Economist World Bank

Outline Transport costs as trade impediments Threats to trade costs from global environmental developments Options to keep trade costs low 2

Importance of trade policy barriers for international trade Trade policy barriers are compared transport and retail costs – Hong Kong and Switzerland have removed all tariffs – US tariffs are 1.9 per cent as a simple average – Industrialized countries have a simple average of 5 per cent. – Average tariff levels are above 10 per cent for many developing countries 3

Importance of trade policy barriers for international trade Trade policy barriers are low by comparison – Non-tariff barriers are concentrated in a small number of sectors – NTBs are more restrictive than tariffs, in particular barriers to agricultural trade in rich countries 4

Importance of trade costs for international trade Trade costs amount to a tax-equivalent of 170 per cent on production value for rich countries (US) – 55 per cent wholesale and resale distribution costs – 44 per cent border crossing costs – 21 per cent transport costs 12 per cent monetary transport costs 2 per cent time costs 5

Importance of transport costs for international trade High responsiveness of trade to transport costs: a 10 per cent increase in transport costs leads to a 20 per cent reduction in trade volumes on average High transport costs reduces competitiveness in two ways: – Net domestic export prices are reduced – Gross imported input prices are higher 6

Some borders have remained thick 7

Importance of transport costs for international trade 8

High transport costs and thick borders create small eco-geographic entities in the developing world 9

Climate change GHG emissions reduces reflection of sun radiation back into the atmosphere Leads to increase of average temperatures with extreme weather events, drastic consequences with melting of glaciers and pole caps Transport is a main contributor and a main victim of climate change Policy tries to implement measures to cap the temperature increase, e.g. 2° C 10

Threats to trade costs from global environmental developments (?) Business as usual: Transport will become a main emitter 11

Optimistic Scenario of Technical Change 12

IPPC Deep cuts only after

Pessimistic view: Technical change will not be forthcoming 14

Pessimistic view: Technical change will not be forthcoming Even with the implementation of a carbon tax that achieves a stabilization level of 450 ppm or 2° C the transport emissions will increase by 45 percent by 2050 Transport costs would increase due to the increase in the price of fossil fuels and due to a carbon price if agreed internationally 15

Consequences for international trade Prima facie the price increase in transport will increase trade costs. Core transport costs account for 20 percent of total trade costs (which are however high as a percentage of production costs). But 16

The demand for speed leads to a reduction of trade distances reducing the threat of increasing transport costs 17

The value-weight ratio has fallen dramatically reducing the threat of increasing transport costs Trade friction of transport has fallen globally despite persistence of monetary costs Reduced trade friction is due to changed character in trade Overall increase in value-weight ratio of international trade Decrease of the ratio for air, increase for maritime sector 18

Among the external costs of transport GHG emissions are not the most important 19

Imperatives to keep international transport costs low Multimodality in international transport has to be improved International transport has to adapt to changing climate to avoid disruptions 20

Multimodality in international transport has to be improved Modal shift road to rail – International harmonization of technical standards – Competition issues because of dominant incumbent rail firms, often SOEs Modal shift aviation to rail – Depends on spread of high speed rail – Challenge of coordinating passenger and freight services 21

Multimodality in international transport has to be improved Modal shift road to maritime – Better and more intermodal infrastructure facilities to reduce switching costs – Avoid discrimination against maritime sector in pricing carbon 22

Conclusions Climate change is real and requires urgent global action Transport costs are of high importance for international trade Technical change might not do the trick Trends in trade reduce the effect of mitigation measures on transport Carbon prices would not have a dramatic effect on trade costs Improvements in multimodal transport become cost effective with 23

Thank you! 24