# **Non-technical Summary**

Maritime transport costs significantly impede international trade, and influence geographical patterns of production and income. Even though improvements in technology (notably containerization) have led to a significant decline in unit costs, there has not been a commensurate decline in maritime transport costs. We focus on two explanatory factors: restrictive trade policies of governments and private anti-competitive practices. The former include a variety of cargo reservation schemes, as well as the monopoly rights granted to providers of port and auxiliary services, such as cargo handling. The latter include primarily, but not exclusively, the rate fixing practices of maritime conferences, which enjoy an exemption from competition rules in major traders, like the United States and European Union.

Until recently, paucity of data has precluded a rigorous empirical examination of the role of these factors. An even greater barrier to empirical research has been the absence of comprehensive information on public policies and private practices. Both constraints were relaxed recently. We use a new database, created as part of the World Bank's Trade in Services Project, which contains information on both policy and private rate-fixing arrangements affecting maritime trade with the United States. The US Department of Transportation recently published data on waterborne transport charges, broken down for the first time by type of service-liner, bulk and tanker.

The econometric analysis presented in this paper confirms, first of all, the importance of all the standard determinants of transport prices, ranging from distance to technology. More interestingly, we find that both public policy and private practices exercise a significant influence on maritime transport prices. Of public restrictions, the cargo reservation policies which proliferated in the 1970s and 1980s seem to be largely ineffectual, but the restrictions on the provision of port services significantly raise prices. Most striking is the even more powerful effect that private anti-competitive practices have in keeping prices high. While trade liberalization would lead to an average reduction in transport prices by 9 percent and cost savings of up to $850 million, the breakup of private carrier agreements would cause prices to decline further by 25 percent and additional cost savings of up to $2 billion on goods carried to the US alone. The indirect benefits from the reduction in impediments to trade are also likely to be substantial.

This paper has clear implications for policy. The current round of WTO negotiations on maritime transport, under the General Agreement on Trade in Services (GATS), offers an opportunity not only to negotiate away trade restrictions, but also to develop pro-competitive rules. We propose that the weak GATS provision dealing with business practices be strengthened through the creation of two obligations. The first would require an end to the exemption of collusive agreements in the maritime sector from national competition law. The second would create a right for foreign consumers to challenge anti-competitive practices by shipping lines in the national courts of countries whose citizens own or control these shipping lines. The second obligation is necessary to deal with the possibility of inadequate enforcement by public agencies, and already has a precedent in the WTO rules on intellectual property and government procurement.

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