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Aid for Trade facilitation goes beyond cutting red-tape
ODI's Marie-Agnès Jouanjean, Research Officer in the International Economic Development Group, blogs on how negotiators are working hard to ensure a trade facilitation agreement at December’s WTO Ministerial Conference in Bali. This blog is part of a mini-series on how Aid for Trade contributes to progress in development.
At the WTO, the trade facilitation agenda aims to streamline border-management processes - in other words red-tape - to facilitate import and export transactions between countries and reduce the cost of trade. As such, it is an important way to help countries take part in regional and international markets and promote development. In a recent paper, I argued that a combination of logistic and hard infrastructure can help countries to trade more which can help them progress on development. A deal on trade facilitation that includes Aid for Trade is a useful step to tackle the range of non-tariff barriers that impede agricultural trade in particular. But Aid for Trade also has a life beyond any WTO agreement on this issue.
As a result of successful trade negotiations in the past, the level of tariffs is no longer the most stringent barrier to trade. As Robert Baldwin commented back in 1970, the lowering of tariffs ‘revealed all the snags and stumps of non-tariff barriers that still have to be cleared away’. While past negotiations over tariff reductions had a mercantilist twist, making negotiations particularly sensitive, trade facilitation presents a more positive and collaborative perspective on international trade. It aims to address border inefficiencies that increase a country’s trade remoteness, which impedes access to international markets and limits participation in Global Value Chains. For instance, the effect of crossing the Tanzania-Malawi border on trade is equivalent to pushing the two markets an additional 168 km further apart.
There is recognition that reducing red tape through border agency coordination will foster more efficient trade flows. Indeed, to go against such an agreement would be tantamount to defending welfare-reducing inefficiencies. But this does not mean that reaching an agreement is easy. In particular, developing countries have stressed that they would be at a disadvantage compared with developed countries that have very efficient customs infrastructures and services. There are also significant implementation costs and, if the agreement is binding, the international community would have to commit to provide support through Aid for Trade. Yet, any increase in the efficiency of custom services lays bare the myriad of other non-tariff barriers, including differences in regulations as well as other ‘behind-the-border’ constraints to trade.
Today’s trade is still undermined by many barriers that are not related directly to tariffs or trade policies. There are, for example, a range of non-tariff measures that are inspired by public policies. However, they are not necessarily designed to prevent trade. Instead, they often intend to meet legitimate health and safety objectives, muddling the task of disentangling acceptable regulatory objectives from possible protectionist ones.
The WTO recognises the right of governments to implement such public policies as long they are implemented in the ‘least trade-restrictive’ way. Committees have been created within the WTO to foster discussion on these issues. But the complexity and costs of providing evidence that a measure is not the ‘least trade-restrictive’ may explain the stingingly low number of cases of dispute brought to the WTO, in particular under the Sanitary and Phytosanitary agreement, which relates to food, animal and plant health regulations.
Recent World Bank publications have highlighted the persistence of high barriers that reduce regional trade in sub-Saharan Africa, in particular in food staples, and their negative impact on food security. Spatial analyses show that the region’s frontiers cut the market sheds for natural food staples, separating areas in surplus from those in deficit, and incentivising informal trade. Supporting efficient custom procedures in sub-Saharan Africa – where long queues of trucks at the frontiers are now commonplace – is both necessary and beneficial, with various examples of single ‘windows’ showing how successful such initiatives can be in reducing the time it takes to cross a border.
But red tape may not be the most important constraint to regional trade in sub-Saharan Africa. To address trade failures, trade facilitation could be more comprehensive and encompass a broader set of policies. According to the Asia Pacific Economic Cooperation (APEC) forum, trade facilitation includes all policy measures that may affect the efficiency of transport and logistics services value chains. Regional Economic Communities in sub-Saharan Africa are only beginning to address such issues. For instance, truck axle-load limits within East Africa have only just been harmonised. While poor infrastructure, road blocks and the resulting losses due to product spoilage account for a large share of high transport costs, the costs of transport services are also increased artificially by rent-seeking road-transport cartels that benefit from very limited competition. Much of the transport-price burden along African corridors stems from the impact of such political economy dynamics on freight logistics.
Cooperation between governments could allow ‘whole of the supply chain’ approaches to trade facilitation, which would tackle the many layers of barriers that are usually addressed singly but that, taken together, decrease incentives to trade. This will require the participation of the private sector in identifying the most pervasive barriers. Both the OECD Aid for Trade Policy Dialogue 2013 and the WTO Aid for Trade Global Review 2013 emphasised the role of the private sector and demonstrated the potential of such synergies.
These are just a few of the issues to be addressed by trade facilitation negotiations. An agreement on red tape, as being negotiated at the WTO under its Trade Facilitation banner, is only the beginning. Deeper commitments by governments, perhaps with the help of donors through Aid for Trade, are needed to make trade easier and investment in Global Value Chains more alluring to the private sector. De jure, addressing the barriers related to public policies might go beyond the WTO mandate. De facto, however, the WTO is well placed to be a vibrant forum for cooperation and to develop joint actions to address the most severe barriers.