greater than 1.<sup>2</sup> Considering global estimates, a 1 percent reduction in the cost of maritime and air transport services in the developing countries could increase global GDP some US$7 billion (1997 dollars). If trade facilitation is considered in a broader sense to include an improvement in wholesale and retail trade services, an additional US$7 billion could be gained by a 1 percent improvement in the productivity of that sector.<sup>3</sup> Other authors consider more specific categories of trade facilitation effort or a more limited country set. Hertel, Walmsley and Itakura (2001) find that greater standards harmonization for e-business and automating customs procedures between Japan and Singapore increase trade flows in overall between these countries as well as their trade flows with the rest of the world. Hummels (2001) finds that each day saved in shipping time in part due to a faster customs clearance is worth 0.5 percentage point reduction of ad-valorem tariff. Fink, Mattoo, and Neagu (2002a) examines the effect of anticompetitive practices in port services and other transport services on unit shipping cost. Freund and Weinhold (2000) find that a 10 percent increase in the relative number of web hosts in one country would have increased trade flows by one percent in 1998 and 1999. Fink, Mattoo, and Neagu (2002b) find that a 10 percent decrease in the bilateral price of phone calls is associated with an 8 percent increase in bilateral trade. Moenius (2000) finds that bilaterally-shared and country-specific standards on goods trade promotes trade. Otsuki, Wilson, and Sewadeh (2001a, 2001b) find that 10 percent tighter food standards in the European Union would reduce African exports of certain cereals, nuts, and dried foods by a range of 5 to 11 percent, depending on the category.

WMO change these approaches to estimating the effect of trade facilitation on trade flows by constructing four measures of trade facilitation and estimating the independent effects of these four on the trade flows among a broad group of countries in the Asia Pacific region. WMO use cross-country survey data on the business and policy climate in each APEC member to construct numerical measures of trade facilitation for each APEC member for port efficiency, customs environment, regulatory environment and , e-business usage (a proxy for service sector infrastructure important for trade). They find that the elasticity of increased port efficiency of importing countries is larger than the elasticity of improved customs environment or superior service sector infrastructure. A unilaterally applied more stringent regulatory environment will reduce a country’s imports. In simulations, they find that for the APEC economies as a group, improving port efficiency, customs environment and service sector infrastructure measures of the below-APEC-average economies half-way up to the APEC average for each trade facilitation measure yields an increase in trade of some 20 percent. Although on average the port efficiency indicator is the most important for trade facilitation, since each country has a unique set of indicators and pattern of trade, more detailed analysis of the simulation results shows that for some members of APEC, a trade facilitation measure other than ports may be the best to target for capacity building to improve that economy’s trade.

> 2 <u>Assessing APEC Trade Liberalization and Facilitation:  1999 Update, Economic Committee, September</u> 1999, page11.

> 3 See UNCTAD, E-Commerce and Development Report 2001, tables 8-11, page 33-36.

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