Trade facilitation and development

Success in export markets for developed and developing country firms is increasingly affected by the ability of countries to support an environment which promotes efficient and low cost trade services and logistics. Policies related to trade facilitation and economic development reflect the idea that trade can be a powerful engine for accelerating economic growth, job creation, and poverty reduction.

World trade has expanded rapidly over the past decades. This has been driven, in large part, by the changing nature of both production and increased competition in international commerce. Another important factor contributing to the growth in trade has been the periodic rounds of successful multilateral trade negotiations. These talks at the World Trade Organization (WTO) have led to a considerable reduction in tariffs on goods crossing national borders. Today, as the role of traditional trade barriers gradually vanishes, the focus of trade policy has shifted to the remaining non-tariff barriers to trade, including trade facilitation.

Trade facilitation involves a wide range of activities centered on lowering trade transaction costs for firms in global commerce. These costs include the price of moving freight from the factory to final destinations. Firms must manage border clearance procedures and pay trade services fees, among many other steps after goods and services are produced. As such, trade facilitation involves much more than trucking goods across national borders or shipping a package by sea transport.

There is an increasing body of empirical evidence about the impact of trade facilitation on export competitiveness and growth. Studies reviewed by the Organisation for Economic Co-operation and Development (OECD, 2002) indicate that trade transaction costs amount to up to 15 percent of the value of traded goods globally. A subsequent OECD study (2003) found trade transactions costs to be higher on agricultural and food products, fish, and forest and wood products (since these products are subject to additional border procedures due to sanitary and phytosanitary requirements). These are products for which many developing countries have an advantage. The same study also reported that small and medium enterprises suffer most from poor trade-related practices and poorer developing countries have a larger share of such enterprises. A number of other studies have illustrated the specifics of why trade facilitation matters and specific sources of trade costs. One study, for example, found that barriers to export performance in Africa are closely related to firm characteristics and policies that raise trade costs. This includes non-transparent customs laws and administration. Much less evidence was found that transport infrastructure, in comparison, had a significant impact on export performance (Clarke, 2005).

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