- Global Competitiveness
Cheaper Exporting Through TechnologyDecember 2, 2013
U.S. federal export rules are complicated and paperwork-intense and the systems implementing these rules are technologically sluggish.
Penny Pritzker, the new Secretary of Commerce, looks to exports for future growth:
“The greatest commercial opportunities for our firms in the 21st century will not only be here at home, but also outside our borders. Simply put, trade must become a bigger part of the DNA of our economy. … However, we are still a nation that under-exports. What that means is too few of our firms are selling goods and services into too few global markets.”
She then poses a question, and solicits some ideas:
“Over the past decade, small businesses’ contribution to our exports has grown from one-fourth to one-third. How can we continue to broaden our base of exporters?”
Here’s an idea that can help a lot: Use modern technology to make exporting from the U.S. cheaper.
To explain, think of the humble shipping container. About 12 million left American ports last year for export markets. How do we get more flowing out? Trade negotiators and policymakers usually turn to troubles abroad for answers: reduce border tariffs on American auto parts, scrap regulatory discrimination against American-raised beef and chicken, and so on.
All those solutions are good, but some of the biggest problems are actually at home: outdated paperwork, bureaucracies daunting for smaller businesses, and consequently higher costs.
The World Bank’s unique Trading Across Borders database, along with some research we’ve done at ProgressiveEconomy helps put some numbers to this. For five years, Trading Across Borders has catalogued the cost of the ports serving the largest city in 185 countries around the world. America’s sample port is New York/New Jersey, by coincidence the port from which the first container ship steamed out in 1956. The full cost of shipping a container of goods from New York to London breaks down as follows:
1–New York port costs: $690. Trading Across Borders reports that it costs $690 to lift the container off the railcar at the port gate, bring it through the port, fill out and file paperwork, and hoist it by crane onto the deck.
2–Transport: $1500. Shipping costs vary with fuel prices, but in a typical year exporters pay about $1,500 to ferry a container the 3,077 nautical miles from the New York to Southampton.
3–London port costs: $455. Over in London, port costs add another $455 to pick the container up off the ship, clear security, carry it through the Southampton docks, load it onto another truck, and send it off to the buyer.
4–European Union tariffs: $350. And finally, the EU’s customs officers collect about $350 in tariffs, assuming the container has a typical mix of American exports to Europe.
So New York port costs turn out to be twice as high as European Union tariffs. By contrast, shipping a container out of London costs only $460 per container. Japan’s Yokohama port costs $445 and Sweden’s Stockholm $375; and Korea’s Busan, the port with the world’s lowest costs, only $170. To put this in perspective, were New York’s costs to fall to the European average, the effect would be identical to the elimination of the EU’s 1.5 percent tariff on American goods.
Why Costs Are High
Why are American costs high? Some factors are unique to New York. But one big reason is that federal export rules are complicated and paperwork-intense, and that the systems implementing these rules are technologically sluggish.
Exporters must comply with national laws for sanctions and sensitive technology controls, wildlife trade, pest control, crime and narcotics, statistical collection, and lots of other topics. Rightly so, but these rules make a complicated world. Altogether, 46 different regulatory agencies oversee exporting. No single office or website provides all the forms an exporter needs to navigate them. Instead exporters must hunt them down one by one – fine for a large company with batteries of lawyers; tough on a small firm just beginning to export.
Making this all the more expensive, maritime shipments still require a physical “manifest” before departure. In practice, with a typical container ship carrying 5,000 or more containers, this manifest is not a simple computer printout, but a Bible-length physical book of 1000 or 2000 pages. Customs stores the book for seven years and then shreds it.
In effect, the American exporters of 2013 are struggling to succeed in the midst of 1970s-vintage paperwork. And fixing this problem requires no complex negotiations with recalcitrant foreigners – just an application of money and energy. Here’s what we need:
First, abolish “paper” work: Rather than filing large physical manifests, we should allow exporters to file every document on-line. Electronic records are cheaper, more environmentally friendly, and easier for regulatory agencies to retrieve at need. This has the aim of U.S. law for 20 years, and importers are nearly there. For exporters, with agencies focused on national security and money limited, progress has been much slower.
Second, create a “Single Window” for exporters: Exporters should have to file only one set of paperwork at one website. Posting all the needed forms for the 46 agencies involved in export regulation, and allowing exporters to file them all at once, would make compliance cheaper and easier – especially for the small businesses the Commerce Department rightly sees as an untapped pool of potential exporters. This system already exists in concept, in the Congressional mandate for “ACE,” the Automated Commercial Environment. The main need now is for Congress to appropriate the money to get exporters caught up as well.
How important is this? Worldwide, the potential of trade facilitation is remarkably large. Earlier this year, the World Bank and World Economic Forum used a computer model to predict that worldwide logistical reform could add 2.8 percent to America’s GDP and $200 billion to America’s exports. This is six times the benefit of eliminating all world tariffs, and of course envisions worldwide reform done through the WTO’s proposed trade facilitation agreement and other measures.
The work here at home in the United States is only one part of the job. But if we’re trying to help answer the Secretary’s question about helping small business, few options can do more than making exporting simpler and cheaper.
And for exporters of all sorts, when matched against agreements and negotiations, modernizing our export system has a great advantage: we need nobody’s permission, and can do it all by ourselves.
Ed Gresser is Director of the ProgressiveEconomy project at the GlobalWorks Foundation.