Trade facilitation (TF)* deals with issues such as border infrastructure, customs procedures, non-tariff measures and other. In particular, the shipment process faces four types of procedures: commercial, transport, regulatory and financial. Each process can in turn increase the overall trade cost as it is delayed due to complicated non-transparent and sometimes costly procedures. Even worse is when such delays on every step happen chronically. This increases the costs so much that the firms become less competitive and may decide to slow down the trade flows. How does trade facilitation work in practice?
Well, long delays at the border cause extra costs for the business in terms of losing a customer for future orders. The products might not arrive on time and the customer might not need it anymore or will reduce the price for the goods. If the goods being shipped are agricultural and/or perishable, they simply might not stay as fresh as they are and their value in terms of price paid for them may decrease if products will not spoil. There might be other extra costs as well, such as payment for the trucks, extra gasoline they might need, payments to the truck drivers, parking and so on.
Well, long delays at the border cause extra costs for the business in terms of losing a customer for future orders. The products might not arrive on time and the customer might not need it anymore or will reduce the price for the goods. If the goods being shipped are agricultural and/or perishable, they simply might not stay as fresh as they are and their value in terms of price paid for them may decrease if products will not spoil. There might be other extra costs as well, such as payment for the trucks, extra gasoline they might need, payments to the truck drivers, parking and so on.
According to World Bank Doing Business data, time and costs associated with the logistical process of exporting and importing goods varies substantially in different countries. A section on Trading Across Borders provides numbers on time and costs that are needed within the process of exporting and importing goods – documentary compliance, border compliance, and transport. The latest numbers provide that in most European countries and particularly in Austria it takes no money to export and 1 hour of documentary compliance to export and import. On the other side is Venezuela. Border compliance takes 816 hours (!) and costs 1,475 USD to export and documentary compliance takes 528 hours and costs 375 USD.
Overall we see that all the documentary and border procedures associated with exporting and importing goods take a lot of time in some countries, while no time in other. This is directly connected with the competitiveness of the firms and in turn influences the economies of those countries.
Economic Benefits of TF implementation
Economic Benefits of TF implementation
Cross-border inefficiencies create
consumer losses and do not bring any revenue to a government. Thus, presence of
cross-border inefficiencies is more harmful than tariffs, because the consumer
losses are not made up by the government revenue. When businesses consider to
trade, one of the main criteria they weigh is trade cost. Trade costs include
import/export procedures, costs of delays caused by transportation, technical
requirements, standards home and abroad and corruption at the border.
While it might be challenging to measure the effect of trade
facilitation, the effect of the tariff decrease is easier to account. But, the
easiness to quantify does not necessarily provide the ground to apply the
tariff reduction reform instead. Trade facilitation is a forward-looking reform
as it invests in the simplification and automatization of the cross-border
trade that will pay off with time.
Implementation of TF will benefit government in terms of increased revenues as more goods will be able to cross the border faster and easier, as transactions will be transparent and there will be less or even no room for corruption. TF is aimed at making trade procedures more efficient and so avoid inefficiency losses and reduce trade costs. TF will thus lead to more attractiveness to private sector, particularly SMEs as firms will increase their competitiveness.
Implementation of TF will benefit government in terms of increased revenues as more goods will be able to cross the border faster and easier, as transactions will be transparent and there will be less or even no room for corruption. TF is aimed at making trade procedures more efficient and so avoid inefficiency losses and reduce trade costs. TF will thus lead to more attractiveness to private sector, particularly SMEs as firms will increase their competitiveness.
While tariff reduction brings benefits to the importers, TF decreases
cross-border trade inefficiencies and benefits both importers and exporters. Private
sector does not face unpredictable trade costs and may increase the overall
trade flows. More trade can create more jobs on the labour market. Consumers do
not incur losses and total welfare overall is increased.
* In the WTO Trade Facilitation Agreement (TFA) contains provisions for expediting the movement, release and clearance of goods, including goods in transit. It also sets out measures for effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues. It further contains provisions for technical assistance and capacity building in this area. TFA will enter into force once two-thirds of members have completed their domestic ratification process. (https://www.wto.org/english/tratop_e/tradfa_e/tradfa_e.htm)
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