After some modest tweaks over the years, the trade component of the Commitment to Development Index got a makeover in 2013—not a new face, but a nip and tuck here and there. The latest CDI includes a more direct measure of tacit barriers to trade from the World Bank’s Doing Business indicators on the time and cost to import, exclusive of tariffs. The trade component also now recognizes the growing importance of trade in services—and barriers to it—thanks to another team of World Bank economists that developed the Services Trade Restrictiveness Index.
Differences in agricultural protection still drive the results on trade, however. New Zealand, which along with Australia eliminated most support for agriculture years ago, tops the list on having a pro-development trade policy. Australia is tied for second on trade with the United States, which is markedly better than the mediocre US performance on the overall CDI. Norway, which comes in third in the overall index, is second from the bottom on trade because of its high protection for farmers. Switzerland’s divergence on trade isn’t quite so dramatic, but it goes from just average overall—the same score as the United States actually—to near the bottom on trade, also because of agricultural protection. Japan and South Korea are at the bottom overall, and rank poorly on trade, again because they sharply restrict agricultural imports. For example, Japan and Korea impose tariffs that raise the price of imported rice several-fold.
Examining the European Union countries that dominate the top ranks overall, there’s not a lot of variation when it comes to trade because they have a common trade policy. So most of the them, including the overall leader, Denmark, end up clustered around the middle of the rankings on trade. Sweden, second overall, and the Netherlands, fifth, manage to distinguish themselves a bit by landing near the top on streamlining importation (low tacit barriers) and on having relatively low restrictions on service imports. Interestingly, South Korea does quite well on facilitating imports, coming in third, while Switzerland has the fourth lowest restrictions to services trade. But neither is enough to offset poor performance on agricultural trade.
The reason that stronger marks in certain areas don’t do more to bolster these countries’ performance on trade in the CDI is that traditional trade barriers, with agriculture accounting for most of those barriers, still get 75 percent of the weight in the trade component. The newly added measure of services trade restrictions only gets a 12.5 percent weight. Since trade in services is growing more rapidly than trade in goods, and services now account for roughly a fifth of global exports, these weights might be something that Owen Barder and the CDI team want to reconsider in the future.
Finally, in a world where transpacific and transatlantic “mega-regionals” dominate the trade headlines, the focus on traditional trade barriers, even with the addition of services trade, feels dated. David Roodman, the CDI’s previous leader, consulted with me on how to update it for this year and the services trade index was the best suggestion I could identify.
The truth is that what is really at stake for developing countries today is the viability of the multilateral rules-based trade system. Penalizing countries for negotiating regional trade agreements is one possibility, but that genie is out of the bottle. Trying to come up with an index of the development-friendliness of regional trade agreements is another idea, but that would entail difficult definitional issues and enormous measurement obstacles. There are other indicators of the rich countries commitment to multilateral trade that might be amenable to measurement—do they comply expeditiously with dispute panel rulings against them? Are they more or less likely to comply if the complainant is a developing country, particularly a small one? Do they comply with all reporting and notification requirements, for example on the levels of protection and subsidy they provide to farmers?
The Commitment to Development Index is an organic project and David Roodman and his team always listened intently to feedback, learning and incorporating new ideas. I know that will continue under the leadership of Owen Barder and Petra Krylová and I look forward to seeing where they take it.