ICS has commissioned this Study on ‘Protectionism in Maritime Economies’ to provide an assessment of those protectionist/restrictive trade policies and measures that are currently being implemented by governments worldwide, which may be preventing national economies from reaping the full benefits of having access to efficient maritime transport services.
The study focuses on 46 countries from a wide range of geographic regions. These countries include most of the major providers and beneficiaries of maritime transport services, which collectively account for the majority of activity within the global economy.
This study then explores two key areas:
- The costs of protectionism, using a new tool developed for the Study, referred to as the Protectionism in Maritime Economies (PRIME) Index and corresponding ‘PRIME scores’;
- The benefits of liberalisation, exploring alternative scenarios for potential reform.
The ‘Prime Index’
Based on an assessment of their individual levels of restrictiveness, each country covered by the Study – for which comparable data is available – has been attributed a PRIME score (46 countries in total). The PRIME score is a single number which allows general comparisons across the focus countries with comparable data, aggregating the distinct measures of a country’s policies.
Scenarios for Potential Reform
To determine the benefits that would flow from the reduction or removal of trade barriers related to the maritime transport sector, the Study explores four alternative scenarios for potential reform. These range from a highly ambitious scenario in which all countries cut their individual PRIME scores by 50%, to a very modest one in which countries cut, by 10% only, the portion of their individual PRIME scores concerned with tariffs and trade agreements.
The analysis reveals that all countries would be better off in each of the scenarios than they would be without reform, albeit to differing degrees. The data also suggests that to reap the full benefits that the maritime transportation sector has to offer, governments would do well to view domestic reform and multilateral trade negotiations not as mutually exclusive alternatives but as complementary options.
1. Highly Ambitious: All countries would cut their PRIME Scores by 50%: In this, the most ambitious scenario, an average country’s total exports of all goods and services would rise by 21%, which corresponds to an average increase in a country’s GDP of 1.1%. For the individual countries analysed, these GDP gains would range from 0.3% to 3.4%.
2. Modest and Equal Ambition: In this more realistic scenario, all countries cut their PRIME scores by 10% through both negotiated and domestic (across the board) reforms, irrespective of income level. There are still substantial trade gains for all national economies, including increases in real GDP. While benefits would be smaller than under Scenario 1, they are still significant, with GDP gains ranging from 0.1% to 0.3% for most nations, and for a few nations they are in the range of 0.4% to 0.6%.
3. Modest and Unequal Ambition: High-income countries cut their PRIME scores by 10%, and all other countries by 5%. The benefits would be smaller, especially for low- and middle-income economies, because a substantial share of the economic benefits from reform depends on the individual actions by the reforming country. Any decision to cut the PRIME score to a less ambitious degree amounts, in effect, to low- and middleincome nations denying themselves a greater degree of economic benefit.
4. Tariffs and Trade Agreements Only: All countries cut their PRIME score on tariffs and agreements by 10%, through improvements based on changes made to countries’ commitments in trade agreements only. Gains from this narrower scenario are much smaller than under Scenario 2. For an average country, the gains under this scenario are only about 25% of what they would achieve under the more ambitious Scenario 2. If countries limit their reforms to what might be gained from trade negotiations only, they would leave most of the potential gains on the table.
Low- and middle-income countries have the most to gain
The gains for low- and middle-income countries with respect to goods exports would be far higher in the ‘modest and equal ambition’ Scenario 2 (i.e. all countries cut their PRIME scores by 10%) than they would in a ‘modest and unequal ambition’ Scenario 3 (i.e. high-income countries cut their PRIME scores by 10%, and all other countries by 5%).
By contrast, for the high-income countries the different effects of these two scenarios would be modest.
Based on the calculations, countries that receive preferential treatment (i.e. cut their PRIME scores to a lesser degree of ambition) may actually be denying themselves the opportunity to reduce or eliminate policies that discourage investment and stifle efficiency.
All countries would benefit from a reduction of maritime protectionism
The Study’s calculations indicate that, no matter what their level of economic development, all countries would benefit from liberalisation of trade regimes in general, and by reduction of maritime trade protectionism in particular.
The data reveals that policy reform offers substantial gains in terms of trade and GDP. While results vary across countries, a substantial portion of gains on average (between half and twothirds of each country’s gains) can be achieved through unilateral action, even in the absence of global action.
While liberalisation in one country may be second best to global reform, it is greatly preferable to no reform at all. It would be self-defeating for any country to hold its own reforms hostage to the lesser ambitions of its trading partners. The entire world gains when all countries reduce their trade barriers, but individual national economies are still best served by moving as far as they can towards open markets and fair competition in the maritime sector – even if they do so outside of a multilateral framework.
Gains from maritime transport reforms can be maximised
The data presented suggests that countries should view domestic reform and international negotiations as complementary policy approaches. Nations with the highest initial levels of protectionist measures also have as much to gain (if not more) from removing their own barriers as they do from the reforms achieved in multilateral negotiations.
Governments have more to gain by removing or reducing non-tariff restrictions
By translating non-tariff restrictive measures into ‘tariff equivalents’, the Study reveals that nontariff barriers are four times higher than traditional tariff measures would suggest. Therefore, all other things held equal, there is more to be gained by removing or reducing non-tariff restrictions than by focusing on tariffs alone.
Common restrictions stifling maritime trade growth in national economies
The most common trade restrictive policies identified in the Study include, among others, numerical or non-numerical limits on the scope of maritime services that can be supplied through cross-border trade; ‘entry and licensing’ conditions for cross-border trade; and requirements for use of local maritime and port services. Some of the policies identified in the Study are employed by a large minority – sometimes even a majority – of the 46 countries for which PRIME scores are calculated.
Link between costs of protectionist trade measures and exports levels
A reform would increase the average country’s total exports of goods and transport services. In the most ambitious Scenario 1 (all countries cut their scores by 50%), on average total export gains would be around 21.1%, corresponding to an average increase in countries’ real GDP of 1.1%. For individual countries, those GDP gains would range from 0.3% to 3.4%.
Countries with low levels of protectionism generally embrace pro-market policies
A country’s tendency to adopt more open trade policies (i.e. have lower PRIME scores) increases rapidly as it moves up the lowest rungs of the economic ladder. The Study also finds that countries with lower levels of protectionism tend to have more competitive economies.
The data further reveals that trade costs can be especially high in countries where government institutions are weak, underfunded or prone to corruption.
Low levels of protectionism also correlate to countries which have adopted pro-market policies. This is not to suggest that a country that reduces its trade barriers will automatically be rewarded with higher income and competitiveness. This would need to be achieved in tandem with corresponding improvements in the quality of its laws and governance.