UAE scores in trade enabling

The UAE has made major efforts to improve the business environment. (NIC GIBSON)

The UAE tops the region in The Global Enabling Trade Report 2008, which aims to present a cross-country analysis of the large number of steps facilitating trade.

Released yesterday by the World Economic Forum for the first time and covering 118 economies worldwide, the report ranks East Asian economies Hong Kong and Singapore as the global top two, followed by Sweden and Norway. Canada, Denmark, Finland, Germany, Switzerland and New Zealand complete the listing of the top 10 countries.

The UAE comes in at 23rd position globally, right after Spain and ahead of South Korea and Estonia.

This very good result at the international level is not surprising when one considers the impressive development of Dubai into the most important transport and logistics hub in the region over recent years, and that the UAE has made significant efforts to improve the business environment for the transport and logistics sector.

The good results in the Enabling Trade Index testify to the UAE's world-class transport infrastructure (23rd), very good infrastructure-related services, and a conducive and secure business environment, characterised in particular by its ease of hiring foreign labour, said a press statement.

The most important obstacle to trading across borders in the UAE remains the restricted access to the country's goods markets through pervasive tariffs (the UAE applies a uniform tariff of five per cent on almost all imported goods). This is reflected in the fairly low 50th rank out of 118 countries on the market access pillar of the ETI. This high incidence of trade barriers appears to be rooted in the low standing of trade on the country's agenda, as witnessed by the very small portion of imports that enters the country duty-free. Here, the UAE ranks 107th out of 118 economies.

The Enabling Trade Index measures the factors, policies and services facilitating the free flow of goods over borders and to destination. The index breaks the enablers into four overall issue areas: (1) market access, (2) border administration, (3) transport and communications infrastructure and (4) the business environment.

Bahrain, at 37th position, right behind Greece and ahead of Turkey and Cyprus, is the second-placed country from the region.

Although Bahrain is fairly open to foreign investment and boasts a fairly good business environment, the country remains, despite its small size, relatively protected from international competition through tariffs.

The low share of duty-free imports and the reluctance to engage in multilateral trade rules coupled with low reliance on export markets points to the low priority of trade by the authorities. Opening up the country to imports would provide significant benefits. The increased competition would make the economy more productive, thereby reducing reliance on primary resources and boosting growth rates.

Tunisia comes in 49th on the ETI, with high marks on the business environment and a fairly efficient border administration. Yet the country's markets remain sheltered from international competition, with some of the highest tariff barriers in the entire sample ranked 114th out of 118 countries.

At the same time, Tunisia's border administration is fairly efficient and its business environment is secure, although additional opening up to FDI and labour migration would benefit the country's trade performance. Equally, investment in infrastructure and the use of ICTs would further enable the country to take advantage of the benefits of trade.

Saudi Arabia ranks 53rd and shows a fairly even performance across all the four subindexes of the ETI. Although Saudi Arabia has very low non-tariff barriers, tariffs are somewhat higher and levied on 81 per cent of all imports, which corresponds to a low 96th rank globally in this category. The country, which recently acceded to the WTO, ratified only a small share of the relevant multilateral trading agreements. Although formal administrative procedures for importing are fairly easy, the overall efficiency of border agencies is not on a par with global standards. Improvements to the business environment would also benefit traders, in particular regarding regulations related to FDI, which appear to deter international businesses from engaging in the country.

Egypt ranks a low 87th for ease of getting goods across the border. The country's relative strengths include a fairly conducive business environment, especially with regard to the ease of hiring foreign labour and the fairly well developed transport infrastructure, including the associated services.

Egypt stands out positively for its maritime connectivity and related services, where it ranks in the top 20, as well as for the quality of its roads. Although importing goods is neither costly nor time-consuming, importers raise concerns about the efficiency of customs and other border agencies. The high tariffs, which apply to 70 per cent of all imported goods, as well as the tariff barriers, constitute the major impediments to enabling trade in Egypt.

According to the executive summary accompanying the report, international trade is widely recognised as an important driver of economic development. Trade is associated with higher growth and poverty reduction.

"It allows countries to reap the benefits of specialisation, ushering competition into domestic markets and increasing choice for consumers and inputs for producers," write authors Robert Z Lawrence of Harvard University and Jennifer Blanke, Sean Doherty and Margareta Drzeniek Hanouz of the World Economic Forum. "It allows the exploitation of economies of scale, fosters innovation encourages better policies."

The report notes that despite the recognised benefits of trade, many obstacles remain. Some of these are intentional, specifically aimed at limiting market access; some have been justified on the grounds of infant industry protection. For the most part, governments wishing to shield those who lose in the short term because of increased foreign competition erect tariffs and other policy-related trade barriers.

Other obstacles to trade are unintended consequences related to the human and physical infrastructure, and to institutional frameworks that have been developed over the years in each country. These barriers have the consequence of limiting the flow of trade, generally lowering welfare at the aggregate.