The Belt and Road Initiative (BRI) is increasing transport connections between Asia and Europe, causing changes to the international trade. Trade between the two continents accounts for more than a quarter of world trade, so better connections and the lower trade costs could result in a significant global impact, a report by ING says.
The Belt and Road refers to land and maritime trade routes between China, Europe, the Middle East, and East Africa. It will renew these routes through large-scale infrastructure projects, as roads, rail links, dry ports and industrial zones are being developed along the Road.
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Namely, trade costs will be reduced to half between countries involved in the BRI, increasing world trade by 12%, with countries in Eastern Europe and Central Asia expected to benefit most.
The impact of the BRI will also depend on where trade costs fall. ING used three scenarios to find where the impacts will occur, assuming in each case that the BRI will in the long run lead to a 50% fall in trade costs. The bank concluded to the following:
- New Eurasian Land Bridge: Countries along the New Eurasian Land Bridge economic corridor (China, Kazakhstan, Russia, Belarus and Poland), which is the route of most current international rail services between China and Europe. Trade costs are also assumed to halve between countries along the New Eurasian Land Bridge economic corridor and the EU15, Cyprus and Malta.
- BRI corridors: countries along all BRI economic corridors, covering the majority of Asia and the EU.
- BRI corridors and partners: as in the BRI corridors scenario plus countries in Europe and Asia which have signed BRI implementation and co operation agreements with China, including Central and Eastern European countries, Indonesia, Singapore, Saudi Arabia and Egypt.
Moreover, as the report notes, the WTO calculated that improvements in trade facilitation could reduce BRI countries’ trade costs by between 12% and 23%. Transport costs are thus an important part of trade costs and the combined effect of trade facilitation improvements estimated by the WTO and a halving in transport costs could reach a 50% reduction in overall trade costs.
Such a large fall in costs is likely to take at least five years, and even longer, as it depends from how long the BRI policy will exist. The BRI projects currently under construction are expected to be completed in the coming five years, so new projects are likely to start in that time.
As a result, if trade costs are slow, effects on world trade growth will be small as well. Respectively, significant falls in trade costs could lead to large impacts on international trade.
See more in the PDF herebelow
