ISLAMABAD, Sept 23: Reducing logistical, institutional and regulatory barriers to trade will have much greater impact on Asian growth than tariff reduction, says an Asian Development Bank study.

The new ADB study on “Asia’s Long-term Growth and Integration: Reaching beyond Trade Policy Barriers” is part of the Policy Brief Series of ADB’s Economics and Research Department, designed to provide concise non-technical accounts of policy issues.

The study demonstrates that in contrast with the removal of traditional tariff and non-tariff barriers, even modest progress towards improving trade efficiency would have a much greater impact on Asian growth.

It explains that an international attention to trade policy has focused on lowering border transaction costs in the past four decades.

“However, trade policies are only one element of the overall costs of trade for modern international business,” the study says. “Logistical, institutional, and regulatory barriers are often more costly than tariffs.”

As such, reductions in red tape and administrative fees, customs clearance efficiency and transparency, the use of technology to cut costs in transportation and communications, and better physical and institutional infrastructure, will all lead to better trade efficiency and, consequently, faster economic growth.

Simulations show that in a scenario of Asian trade liberalization, where all tariff and tariff equivalent import and export barriers are removed, accompanied by a gradual reduction in other trade costs, every one of the 15 major economies studied would experience a real income and trade level several times higher than in a scenario of trade liberalization alone without a reduction in other trade costs.

For instance, relative to a “business as usual” baseline scenario, the aggregate real income of Japan would increase by 0.9 per cent after 20 years with pure trade liberalization, as opposed to an 8.1 per cent increase if trade liberalization was accompanied by reductions in other trade costs.

In the same simulation, Philippine exports would be 0.9 per cent higher after 20 years with pure trade liberalization, but will jump by 72.6 per cent if trade liberalization was accompanied by improved trade efficiency.

“Indeed, one important conclusion is that structural barriers to trade are a much greater constraint on growth than residual protection levels,” the study says. The study, therefore, recommends that policymakers should put more emphasis on infrastructure, ports and customs efficiency, including simplification and coherence of rules and macroeconomic policy coherence to improve transparency and reduce uncertainty.

“Efforts to reduce trade costs will be critical for developing Asia to maximize growth and the benefits of regional trade integration.”