Trade and trade policy of land-locked countries

1
Trade and trade policy ofland-locked countries

• Kym Anderson
• World Bank, Washington DC and
• University of Adelaide, Australia
• Vientiane, Lao PDR, 15-17 June 2005

2
Land-lockedness is not uncommon

• at least since the breakup of the Soviet Union,
  which boosted the global number of LLCs from 26
  to 40
• Asia 5
• Africa 14
• South America 2
• Former Soviet Union -- 14
• Europe -- 5

3
LLCs are typically small and poor

• The exceptions being small but rich ones in W.
  Europe (Andorra, Liechtenstein, Luxembourg,
  Switzerland)
• which suggests smallness alone is not enough
  reason for a LLC to be/remain poor
• As is also true of small island economies (the
  key non-poor exceptions being small but rich Hong
  Kong and Singapore, but also Cyprus, Malta,
  Tahiti and Hawaii)

4
What distinguishes small and poor LLCs is their
economic remoteness

• Economic in the sense of facing above-average
  costs of trading internationally
• Because of the need to transit through
  neighbouring countries
• Bearing in mind that over 90 of the volume of
  global international trade is by sea rather than
  air, road or river
• This means the fob-cif gap is larger for poor and
  remote LLCs, so they tend to trade less than
  other LDCs (recall A. Venables Figure 1)

5
LLCs transport costs are non-trivial

• Especially if the LLC effectively has only one
  transit country (as with Lao and Nepal)
• and if that transit country allows monopoly
  pricing on land transport, or insists on
  duplicate customs inspection
• Even so, Laos average transit cost and time are
  no more than Nepals, and only
• two-thirds that of Kazakstans through Russia
• lt half that of Mongolias through China (see UN
  ESCAPs 2003 study)

6
LLCs have less scope for an independent trade
policy

• e.g. Nepal, Lao, where lower import tariffs in
  the LLC than the transit country simply invites
  smuggling
• Since the LLC typically is the much smaller
  economy, its trade policy is the one that has to
  accommodate to the transit countrys (even though
  that may be inconsistent with the LLCs
  objectives)

7
How can an LLCs economic remoteness be reduced?

• Being less trade-focused is NOT the answer
• On the contrary, it makes sense to adopt LOWER
  governmental trade taxes/bans/NTBs/trade
  administrative procedures
• bearing in mind the natural protection those high
  transport costs provide

8
How can Laos economic remoteness be reduced?
(continued)

• 1. Joining WTO and committing to those lower
  trade barriers reduces the prospect of policy
  reversals, provides rules of transit, and adds
  credibility to any scheduled further trade
  reform, thereby boosting investor confidence
• 2. Bilateral (esp. with Thailand) and ASEAN
  regional cooperation can help too

9
How can Laos economic remoteness be reduced?
(continued)

• 3. But there is much that can be done
  unilaterally by Lao, including as part of its
  DTIS (Diagnostics Trade Integration Study)
  process
• Bearing in mind the on-going forces of
  globalization (which in essence involve a
  lowering of the transactions costs of doing
  business across space and national borders, and
  in some situations the death of distance)

10
How can Laos economic remoteness be reduced?
(continued)

• Laos DTIS process will examine
• Opportunities/prospects for pro-growth, pro-poor
  trade expansion
• External constraints to such trade expansion
• Domestic constraints to trade expansion
• Ways to effectively and efficiently facilitate
  poverty-reducing trade expansion

11
How can Laos economic remoteness be reduced?
(continued)

• Traditionally, LLCs have focused on
• goods with a high value relative to volume/weight
  (e.g. Swiss watches air-freighted fruit
  vegetables)
• services, such as
• Swiss banking and insurance
• Caribbean call centres
• transit services where the LLC is between two
  major traders
• But Laos resource endowments and location need
  to be borne in mind
• e.g. its small distance between Ch or Vn and
  Thailand, but might privately funded toll
  highways contribute?

12
Laos export prospects

• Lao is relatively well endowed, per worker, with
• forests
• minerals
• hydro-electricity sites, and
• potential pasture and tropical tree-crop land
• How might a mining boom, or the Nam Theun 2 hydro
  project, alter the Lao economy?
• See Appendix 2 in Anderson, K., Lao Economic
  Reform and WTO Accession Implications for
  Agriculture and Rural Development, (translated
  into Lao by Ministry of Commerce), and also use
  Figure 1 in A. Venables, Small, Remote and
  Poor, World Trade Review 3(3) 453-45, Nov. 2004

13
Laos domestic constraints to pro-poor trade
expansion

• Institutional/bureaucratic constraints
• Export-import Equilibrium Plan?
• Free market forces are the most efficient way to
  ensure equilibrium (again see Venables Figure 1)
• Hassles to start a business
• Takes nearly 200 days, compared with an average
  of about 50 days in other ASEAN countries
• Other export and import taxes/bans and licensing
  requirements

14
Laos external constraints to pro-poor trade
expansion

• e.g. Thailands cumbersome/costly transit
  procedures (which contribute gt20 of the total
  transit cost incl. land transport)
• see next presentation by Ruth Banomyong