Evaluating effects of world trade agreements on trade facilitation

Documentation and bureaucratic delays in customs procedures increase the cost of imports substantially. The global economic impact of improved trade facilitation is likely to be positive therefore, reflected in increased trade and investment flows. The distribution of these gains between countries will vary, however, depending on the extent and manner in which the trade facilitation agenda is adopted and implemented.

Trade Facilitation was added to the World Trade Organisation (WTO) Agenda at the Singapore Ministerial Meeting (December 1996) which directed the Council for Trade in Goods (CGE) to undertake work on the simplification of trade procedures in order to assess the scope and need for introducing WTO rules in this area. The objective of trade facilitation is to reduce the transaction costs in trade, and is defined by the WTO as 'the simplification and harmonisation of international trade procedures', with trade procedures being the 'activities, practices and formalities involved in collecting, presenting, communicating and processing data required for the movement of goods in international trade'. Subsequent to the Singapore meeting the CGE considered the following issues: (1) import and export procedures and requirements; (2) physical movement of consignments (transport and transit); (3) electronic facilities and their importance for facilitating international trade; and (4) assessment of scope for WTO rules in area of trade facilitation.

Elements relating to the simplification and harmonisation of trade procedures are included in several of the existing Uruguay Round agreements, including the Agreements on Customs Valuation, Import Licensing, Pre-Shipment Inspection, Rules of Origin, Technical Barriers to Trade, and the [Agreement on the Application of Sanitary and Phytosanitary Measures]. Trade Facilitation therefore is linked to the implementation of actions within existing agreements as well as a number of other measures on the New Round Agenda, related in particular, to technical barriers to trade, trade defence instruments, government procurement, and TRIPs. The special needs of least developed countries are recognised in the Integrated Programmes for Least Developed Countries' Trade Development, by which technical assistance in support of trade facilitation is to be provided.

The European Union is proposing a three pronged approach to trade facilitation within WTO negotiations. The starting point is the implementation of provisions relating to border crossing procedures within existing WTO Agreements. A second initiative is identifying the scope in some existing agreements for further procedural or substantive improvements which would also be trade facilitating. The third is the development of a framework of WTO rules on the simplification of trade procedures. Additionally, provisions on development and capacity building should be integrated into the trade facilitation framework.

A multilateral framework of rules in the area of trade facilitation, which would ensure that domestic procedures were based on the same principles in all countries would require a disputes settlement mechanism, based on the WTO's [Convention on Simplification and Harmonisation of Customs Procedures] ([Kyoto Convention]).

In the existing situation, customs delays etc have resulted in transactions costs being higher than their economic efficiency level. Various very approximate estimates have been made of these. These suggest that transaction costs may be up to 2% of the value of goods shipped in a developed country context (and 'a multiple of this' in a developing country environment).

Developing countries can be expected to gain in economic terms from an improvement in trade facilitation, which leads to lower transactions costs although there are unlikely to be early significant reductions in these transactions costs. The medium term effects in developing countries are more complex. Consumers in these countries and exporters from the countries should benefit significantly but the investment and other costs in establishing efficient border trade transaction systems could be considerable for these countries and the employment and income losses to those engaged in border activities could also be significant. This could significantly reduce the economic welfare gains as well as have some negative social impacts in border areas. However, these negative consequences may be mitigated by supportive measures for developing countries.

To the extent that a liberalisation scenario assumes a quicker and more comprehensive implementation of a trade facilitation agreement, the economic welfare gains to developing countries will be experienced more quickly. However, the speed of their implementation, especially if not accompanied by special supporting measures for developing countries, would have short-term negative economic consequences for these countries, and additional negative social impacts in border areas. The environmental impacts are indeterminate because the determining influences on environmental quality pull in opposite directions. In reality, growing awareness of these problems would probably delay, if not prevent, the implementation of such an agreement.

1. Customs regulations and procedures (including rules of origin and technical regulations and standards) are seen by many developing countries as an impediment to their export trade. The current level of transaction costs attributable to inefficient trade facilitation undermines developing countries' competitiveness. These are additional economic costs linked to the increased of cost of imports.

2. The economic impacts of improved trade facilitation in terms of reduced transaction costs, are likely to accrue in each group of countries, although there will be significant variation in the significance of the impact between the countries in each group, depending on their pattern of trade and the level of efficiency improvement in national trade facilitation procedures and the costs incurred in introducing modern border trade systems (computers etc) to reduce transaction costs.

Type Classification:
F: Exceptional strategies
Related UN Sustainable Development Goals:
GOAL 4: Quality EducationGOAL 16: Peace and Justice Strong Institutions