Regional Efforts in Favor of Trade Facilitation and how it ties in with Aid for Trade

Statement by Mr. Joakim Reiter, Deputy Secretary-General of UNCTAD, at a SIECA event at the WTO in Geneva, 25 May 2016

Allow me to begin by thanking SIECA for organizing this panel.

I am very grateful for your invitation because UNCTAD shares your commitment to trade and transport facilitation.

In fact, UNCTAD has been promoting trade facilitation long before it was tabled at the WTO. We are proud that our work on trade efficiency helped make trade facilitation one of the so-called Singapore Issues.

There are a many reasons why we are convinced that trade facilitation is essential to development.

In a world of deepening global value chains, speed and cost efficiency are more important than ever.

Trade in intermediate goods now accounts for 60 percent of global commerce, and 30 percent of global trade is intra-firm. For firms that rely on just-in-time production, long waiting times at borders are unacceptable.

Unfortunately, trade costs are still – on average – 1.8 times higher in developing than in developed countries.

In some Landlocked Developing Countries, trade costs are as high as 40%. This threatens to keep developing countries out of global value chains – which are key sources of knowledge and technology.

In fact, red tape, inefficiencies, and corruption in cross-border trade can add as much as 15% to the price of goods. This can undermine the competitiveness of developing country exports.

In this context, improving trade facilitation in these countries can yield significant payoffs: A study from 2009 found that for every $1 spent on trade facilitation in an Aid for Trade country, the country’s trade volume grows by $6.37 per year. Trade facilitation is thus essential to harnessing the benefits of trade for development.

But the gains from trade facilitation go beyond efficiency gains.

Trade facilitation also has a direct bearing on good governance. Measures that involve new technologies and institutional reforms improve governance and pull the informal sector into the formal sector. And with less paperwork to dodge and fewer palms to grease, public revenues go up. This generates new resources for spending on essential services.

It’s worth mentioning that in UNCTAD’s experience, there is a misconception that there is a “trade-off” between trade facilitation and revenue collection. The opposite is true: Specific measures such as customs automation not only speed up trade, but empirically improve controls and customs revenue.

All of this makes trade facilitation – as UNCTAD puts it – a new frontier of competitiveness.

Further, the relationship between trade facilitation and development is dynamic: Countries that trade more and have more financial resources are in a better position to invest in reforms that make trade faster and more transparent. At the same time, faster and more transparent trade leads to yet more trade, higher revenues, and greater institutional development.

The challenge for organizations like SIECA and UNCTAD is to push this dynamic process in the right direction. We need to support these virtuous cycles in developing countries so that trade and trade facilitation reforms become mutually supportive.

We can do this on two levels.

First, we can promote trade facilitation on the global level. The WTO’s Trade Facilitation Agreement is like a penalty kick – it would be embarrassing to miss. This agreement would lead to a 15% average reduction of trade costs. It would increase the export performance of developing countries by almost 10 percent, and of developed countries by 4.5 percent. In this way, it would contribute to boosting global merchandise trade by an estimated $1 trillion annually.

In this area, UNCTAD has sent teams of experts around the world to plug compliance gaps in TFA implementation. And we’ve established National Trade Facilitation Committees to leverage the support of the private and public sectors for the agreement.

Progress on the global level is slow but steady.

But we can also support it at the regional level. And that’s what we’re here to talk about today.

The relationship between trade facilitation and regional integration is not always straightforward. On the one hand, the growth of regional trade agreements can lead to convoluted “spaghetti bowls.” This can be an unwelcome development in the sense that it may create more compliance costs for exporters. Firms may face more paperwork in the form of certificates of origin to qualify for preferential market access.

On the other hand, the cooperation required among countries to implement trade facilitation measures can itself help drive regional integration.

Poor trade facilitation partly explains why only 14% of total African trade is intra-regional, compared to 50% for Asia and 70% for Europe.

In fact, when shipping goods between two countries in West Africa, it’s often cheaper to ship them through the Netherlands than directly from one country to the other.

This has serious consequences for competitiveness: without regional markets, African firms cannot capitalize on economies of scale and tend to export fewer capital-intensive goods. Without regional markets, these firms also have fewer ways to access and climb global value chains. And less competition means less quality and higher prices for consumers. By promoting trade facilitation at the regional level, developing countries, particularly those in Africa, can encourage new regional markets.

But even a global deal such as the WTO’s Trade Facilitation Agreement offers several opportunities for regional cooperation. Let give you a few examples.

At a very basic level, neighboring countries can coordinate their procedures at border checkpoints. This might involve common working hours, facilities, and controls. They could also establish mutual recognition schemes for the testing of, for example, food products. This would ensure non-discrimination and impartiality across borders.

Regional groupings could set up joint enquiry points for governments and traders to learn about procedures, restrictions, taxes, and documents. A common regional platform could serve as a kind of “one-stop-shop.” This would increase information and transparency.

Regional efforts to harmonize data models, codes, and document lay-outs can be first steps towards international harmonization.

And we shouldn’t forget that trade facilitation also demands transport facilitation. Countries can plan regionally to coordinate infrastructure investments, standardize regulations (for example, for axle loads), and recognize foreign permits, licenses, and insurance policies.

I’ve given you just a few examples of how regional cooperation can advance trade facilitation.

These discussions get technical very fast. It is precisely for this reason that regional organizations like SIECA are essential. It is at the regional level where many of these issues need to be tackled.

As you know, the special and differential treatment provisions in the Trade Facilitation Agreement provide unique opportunities when planning for implementation. Developing countries can notify specific measures as Category B (to be implemented later) or Category C (requiring financial or technical assistance).

In this context, SIECA could play an important role in supporting regional countries. In order to support regional dimensions of implementation, a regional trade facilitation committee could be considered. This would provide a platform for the exchange of expertise among national experts. It could also benchmark key performance indicators within the region.

The imperatives to promote trade facilitation at both the regional and the global levels are clear.

Trade facilitation matters not for its own sake, or for the narrow objectives of revenue officials or exporters.

Trade facilitation matters because it has an outsized role to play in promoting trade for development.

It’s no exaggeration to say that improved trade facilitation translates directly into economic gains and human development.

Let me stop here.

I have only had time to make some broad remarks about trade facilitation. But I hope that I have raised a few key issues that warrant closer inspection. For this reason, I look forward to the discussions to follow.

Thank you for your attention.