Lars Karlsson: CapacityNow

I want to wish all readers a Happy Holiday Season. 

I will now take a break over the holidays and I will be back in January 2017!

United States is not the best country to do business in anymore. In fact it has been several years since the United States was at the top of Forbes’ annual list of the Best Countries for Business.

One country headed in the opposite direction is Sweden, which moves up four spots to the top of the charts for the first time (Sweden ranked No. 17 in 2006). Over the past two decades the country has undergone a transformation built on deregulation and budget self-restraint with cuts to Sweden’s welfare state.

Sweden’s government shrank jobless and disability benefits to encourage employment. The lower benefits allowed for tax cuts. The inheritance tax was scrapped in 2005 and the wealth tax was canned two years later. Taxes are still high relative to the rest of the developed world, but taxes paid as a percent of profit are down eight percentage points over the past decade and the country’s tax burden rank in the World Bank’s Ease of Doing Business has improved 11 spots during the time.

Sweden’s $493 billion economy grew 4.2% last year with only Ireland and Luxembourg faring better among countries that placed in the top 25 in our ranking. The Scandinavian nation has a low level of public debt relative to other European Union countries, and it benefits from its free-trade policies. The trade balance surplus was 5.2% of GDP last year. Sweden ranked among the top 10 countries in seven of the 11 categories we measured.

Sweden is home to some of the most venerable, well-known brands in the world, including IKEA, Volvo, Electrolux, Ericsson and H&M. But Sweden has also become a haven for tech startups.

Skype was co-founded by Swede Niklas Zennstrom in 2003. Ebay acquired the video chat application for $2.6 billion in 2005 and Microsoft paid $8.5 billion six years later. Music streaming service Spotify was founded in Sweden a decade ago by Daniel Ek and Martin Lorentzon. The company has 40 million paid users (twice the number of Apple Music) and was in talks to acquire another Swedish music subscription service, SoundCloud, before walking away this month, according to TechCrunch. Spotify is focused on a potential initial offering in 2017 that would be one of the most anticipated IPOs of the year.

Sweden is the home to a pair of companies that created two of the biggest games of this decade. King Digital Entertainment started in 2003 and nine years later launched the addictive Candy Crush Saga mobile game, which was downloaded more than 500 million times. After a 2014 IPO, Activision Blizzard paid $5.9 billion to acquire King this year. Mojang was founded by Markus “Notch” Persson in 2009 and developed the hit block-building game Minecraft. Microsoft paid $2.5 billion for the company in 2014.

This is the 11th straight year Forbes has gauged the world’s economies to measure which are the most inviting for capital investment. We graded 139 countries on 11 factors: property rights, innovation, taxes, technology, corruption, freedom (personal, trade and monetary), red tape, investor protection and stock market performance. The data is based on published reports from Freedom House, Heritage Foundation, Property Rights Alliance, Transparency International, World Bank Group and World Economic Forum (click here for more details on the methodology and the best and worst country on each metric).

New Zealand takes second place in this edition of Forbes’ Best Countries for Business. New Zealand is the smallest economy of the top 10 countries with a GDP of $174 billion, but over the past three decades it has transformed its formerly highly regulated economy into a dynamic free market. New Zealand privatized dozens of government controlled industries like airlines, insurance, banking and telecommunications. It now ranks first for both investor protection and lack of red tape. The country’s GDP rose 3.6% in the second quarter of 2016, one of the top growth rates in the developed world.

Rounding out the top five are Hong Kong, Ireland and the United Kingdom.

Japan, the third-biggest economy in the world at $4.1 trillion, had one of the biggest drops in the rankings, down 13 spots to No. 36, due to declining scores for investor protection and monetary freedom. The Heritage Foundation highlighted the political resistance to scaling back farm subsidies. Japan’s stock market is up 30% since bottoming out in June following Britain’s vote to exit the European Union, but the Nikkei 225 just reached positive territory for the year and is still below its 2015 highs. Japan’s government debt as a percent of GDP is 230%.

Source: Forbes

There are only eight more signatures to go until the WTO Trade Facilitation Agreement (TFA) enters into force. 

My good friend Jan Hoffmann, Chief, Trade Facilitation Section, at UNCTAD wrote this article two months ago why this needs to happen as soon as possible. 

The article below is worth reading many times. There is no doubt that this agreement, the first multilateral trade agreement in decades, has the ability of a being a major game changer. 

There are still a few signatures left before the Bali trade facilitation agreement can enter into force. The sooner these pending ratifications are achieved, the better it will be for global trade, business and development.
Numerous studies show that the agreement is good for trade, business and development. The World Economic Forum has estimated that the benefits of improved global trade facilitation far exceed those of further tariff reduction. An ambitious improvement in selected key components of trade facilitation would lead to an increase of approximately US$ 2.6 trillion (4.7%) in global GDP and US$ 1.6 trillion (14.5%) in global exports.

How many trillion of dollars of trade or GDP exactly are generated depends on a number of assumptions, but there is no doubt that the impact is positive. But why exactly?

In today’s trade-logistics and development context, trade facilitation has become ever more important. And here are seven specific reasons why.

#1: Trade in manufactured goods. Especially by developing countries increasingly trading in manufactured goods. UNCTAD’s estimates for seaborne trade illustrate the point: Developing countries are no longer just providers of raw materials, but increasingly import higher volumes of inputs so as to produce manufactured goods for export. The share of developing countries in global imports has more than tripled since 1970.

A trade facilitation measure such as Advance Ruling (Article 3 in the TFA) is more relevant for trade in manufactured goods than for raw materials. When the first iWatch arrived at the border and the customs officer had to decide if this was a computer, item of jewellery, a toy or (perhaps) a watch, the importer would certainly have liked to have a binding advance ruling at hand.
#2: Global value chains. Businesses increasingly trade in intermediate goods, with a growing share of intra-company trade. Within logistics expenditures, companies spend more on transport, reducing their inventory holdings. Ideally, deliveries are just in time, and waiting times at the border are either zero or at least predictable.
Any trade facilitation measure that helps to plan and speed up processes, such as pre-arrival processing (Article 7.1 of the TFA), separation of release and clearance (Article 7.3) or the publication of average release times (Article 7.6), is increasingly important for a country’s participation in global value chains.

#3: Regional integration. The number of regional trade agreements continues to rise, as does the number of RTAs that incorporate trade facilitation measures. Regional integration depends crucially on the facilitation of cross-border trade and, at the same time, many cross-border operations depend on cooperation among neighbouring countries.

The trade facilitation agreement specifically includes freedom of transit (Article 11), inter-agency collaboration (Article 8) and customs cooperation (Article 12). The benefits of such measures not only accrue from making trade and transit easier, but also from the regional collaboration efforts that are necessary during their implementation. One of the beauties of the multilateral TFA is that it can help regional integration without requiring a spaghetti bowl of RTAs.

#4: Globalization. The world is flat. In parallel to the growing intra-regional trade (see above), we also observe a diversification of trading partners, including an intensifying South-South trade.

The more businesses want to sell and source abroad, the more they benefit from trade facilitation measures such as internet publication (Article 1.2) or the use of international standards (Article 10.3). In fact, by its pure entry into force, the World Trade Organization agreement in itself helps to standardize and harmonize terminologies and expectations as regards cross-border procedures and documents.

#5: Enforcement and revenue collection. An unfortunate frequent misconception is that of a “balance” or “trade-off” between trade facilitation and risks to the public interest. Please do not believe it. Trade facilitation and the protection of the public from lost revenues or health hazards are not competing policy objectives. On the contrary, a large number of specific trade-facilitation measures clearly help both the ease of doing business and the fight against under-valuation, counterfeit trade or smuggling.

Measures such as advance lodging of information (Article 7.1 of the TFA), post clearance audits (Article 7.5), authorized operators (7.7), risk management (7.4) and many more, not only reduce the need for physical inspections, but also increase the likelihood of catching the bad guys. The more we care about protection and revenue collection, the more we should aim at ratifying and implementing the trade facilitation agreement.

#6: E-Commerce. Be it B2B (business to business) or B2C (business to consumer), more and more often trade involves frequent and small deliveries. The internet has practically no borders.
Specifically, the facilitation of expedited shipments (Article 7.8) is of interest to those of us who buy online.

#7: Development. Beyond the benefits of trade facilitation for trade, practically all specific measures included in the TFA are good for development on their own right. The main reason why I am personally such an enthusiastic supporter of the TFA is that its implementation entails a direct impact on the development of nations. “Development” is more than just GDP per capita; it includes good governance, entrepreneurship and the transition of the informal sector to participate in the formal economy. It also includes the development of human and institutional capacities; and it includes transparency, respect and dignity. I consider it against human dignity if humans have to wait, follow cumbersome procedures or fill out duplicate forms when we know it’s not necessary.
Specific TFA articles help achieve specific Sustainable Development Goals, such as target 16.10, “public access to information”. There’s also target 9.c (“access to internet”) and target 16.5 (“reduce corruption and bribery”). Many trade facilitation measures directly help to meet SDG target 8.3, the “formalization and growth of micro, small and medium-sized enterprises”.
Is it possible?

While the seven good reasons above illustrate the growing demand for trade facilitation, we also benefit from the supply of new tools. Measures such as “single window”, electronic documents or cargo tracking are all easier to implement today than when the facilitation negotiations started at the WTO a decade ago.
Setting up an enquiry point, training customs officers, automating procedures or drafting new regulations all require an initial investment. As regards the subsequent maintenance costs, these should actually be negative – i.e. the improved revenue collection and the cost savings made after the up-front investment outweigh the potential maintenance costs. Also, it is perfectly possible to charge for services such as advance rulings or the use of a single window. In total, if planned well, the human and monetary benefits of TFA implementation will outweigh the costs.

Ratifying the TFA is a huge opportunity. Apart from anything else, it entails the possibility of taking advantage of a range of dedicated capacity-building and private-sector development programmes of the WCO, UNCTAD, the ITC, the GATF and many other agencies and bilateral donors. Ratification is the responsibility of governments, but support and investment is also an opportunity for the private sector: one not to be missed.

Source: Jan Hoffman