Trade facilitation and customs valuation
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Estimating the benefits of the Trade Facilitation Agreement
This section provides quantification of the various channels through which trade facilitation reform and in particular implementation of the Trade Facilitation Agreement (TFA) can benefit the global economy. First of all estimates of how much the implementation of the TFA could reduce trade costs are provided and the group of countries and regions that may see the biggest reductions is identified. Further estimates of the effects of the TFA on exports export diversification and GDP calculated using standard economic approaches are presented. In order to provide a range of estimates various implementation scenarios are considered. The differentiated impact of trade facilitation is analysed in order to provide insights on how the aggregate benefits of TFA implementation are distributed across country groups (developed developing and least-developed countries) enterprises and product groups. Finally the induced effects of trade facilitation on foreign direct investment border revenue collection and reduction in trade-related and other forms of corruption are examined.
Trade facilitation in context
Successive rounds of multilateral trade negotiations culminating in the Uruguay Round in 1994 succeeded in dramatically reducing tariffs and other barriers to international trade but trade costs remained high due in part to administrative burdens and inefficient customs procedures. In a world increasingly characterized by globalized manufacturing just-in-time production and integrated supply chains there has been a growing recognition of the need for global rules to facilitate trade. This section looks at how trade facilitation issues have been dealt with in the WTO and other fora including a review of the negotiations that led to the recent Trade Facilitation Agreement (TFA) a summary of the content of the TFA itself an evaluation of the steps that need to be taken to move forward and a survey of trade facilitation initiatives in regional trade agreements and other international organizations. This discussion is intended to establish the state of trade facilitation reform as it currently stands and to set the stage for the theoretical and empirical discussions to follow.
Introduction
In today’s open and interconnected global economy efforts to streamline speed up and coordinate trade processes as much as efforts to further liberalize trade policies will contribute to the expansion of world trade and help countries to connect to an increasingly globalized production system. While trade agreements in the past were about “negative” integration – countries lowering tariff and non-tariff barriers – the WTO Trade Facilitation Agreement (TFA) is about positive integration – countries working together to simplify processes share information and cooperate on regulatory and policy goals. The World Trade Report 2015 examines why the TFA is so important what its economic impact is projected to be and how the WTO is taking a number of important and novel steps to help countries to maximize its benefits.
Conclusions
Although traditional trade barriers such as tariffs have come down and innovations in transportation and communications technology have shrunk the distance between nations trade costs remain high particularly in developing countries. High trade costs isolate developing countries from world markets limiting their trade opportunities and impeding growth. High trade costs also appear to disproportionately affect small and medium-sized enterprises (SMEs) timesensitive products and goods produced in global value chains. Trade procedures that are more cumbersome than necessary and delay the movement release and clearance of goods constitute a significant part of these trade costs.
The theory and measurement of trade facilitation
This section first provides a conceptual framework for understanding the economic effects of trade facilitation – how improving trade procedures reduces trade costs and how that in turn affects the pattern and volume of trade the allocation of resources and economic welfare. Given that trade facilitation can in principle be implemented unilaterally this section examines the reasons why countries would want to include trade facilitation in a multilateral trade agreement. Finally it examines the indicators – from narrower customs-related ones to broader regulatory and infrastructural areas – that have been developed to measure trade facilitation and identifies what indicators can best be employed to estimate the economic benefits of implementing the WTO’s Trade Facilitation Agreement.
The world economy and trade in 2014 and early 2015
World trade growth remained modest in the opening months of 2015 following three years of weak expansion. Annual increases in merchandise trade in volume terms were very small in that period measuring just 2.5 per cent in 2014 2.5 per cent in 2013 and 2.2 per cent in 2012. The exports of developing and emerging economies grew faster than those of developed countries in 2014 3.1 per cent in the former and 2.0 per cent per cent in the latter. Meanwhile imports of developing countries grew more slowly than those of developed economies 1.8 per cent compared to 2.9 per cent. Seasonally adjusted quarterly trade volume indices for the first quarter of 2015 showed import demand accelerating in developed economies but slowing in developing countries.
Executive summary
Trade facilitation is critical to reducing trade costs which remain high despite the steep decline in the cost of transportation improvements in information and communication technology and the reduction of trade barriers in many countries.
Foreword by the WTO Director-General
When WTO members concluded their negotiations on the Trade Facilitation Agreement (TFA) in Bali in December 2013 they created the first multilateral agreement since the WTO was founded nearly two decades earlier. It demonstrated how global rule-making was functioning effectively to address impediments to today’s global commerce. As much as efforts to further liberalize trade policies the streamlining speeding up and coordinating of trade processes are contributing to the expansion of world trade and helping developing and least-developed countries (LDCs) integrate into today’s global economy.
World Trade Report 2015
The World Trade Report 2015 examines why the Trade Facilitation Agreement is so important what its economic impact is projected to be and how the WTO is taking a number of important – and novel – steps to help countries to maximize its benefits.
Trade Facilitation Agreement
The Trade Facilitation Agreement is the first multilateral trade agreement to be concluded since the WTO was established 20 years ago. Once it enters into force the Agreement is expected to reduce total trade costs by more than 14 per cent for low-income countries and more than 13 per cent for upper middle-income countries by streamlining the flow of trade across borders. This brochure produced to mark the WTO’s 20th anniversary looks into the provisions of the Agreement and its potential benefits.
Trade and Tariffs
Over the past 20 years global trade in goods has nearly quadrupled reaching US$ 19 trillion in 2013 compared with US$ 5 trillion in 1996. This represents an annual growth rate of 7.6 per cent on average. Over the same period there has been a 15 per cent reduction in average tariffs applied by WTO members. This brochure produced to mark the WTO’s 20th anniversary looks at the evolution of trade and tariffs over the past 20 years.
A New Look at the Extensive Trade Margin Effects of Trade Facilitation
We estimate the effects of trade facilitation on the extensive margins of trade. Using OECD Trade Facilitation Indicators – which closely reflect the Trade Facilitation Agreement negotiated at the Bali WTO Ministerial Conference of December 2013 – we show that trade facilitation in a given exporting country is positively correlated with the number of products exported by destination and with the number of export destinations served by product. To address the issue of causality we employ an identification strategy whereby only exports of new products or exports to new destinations are taken into account when computing the respective margins of trade. Our findings therefore imply a positive causal impact of trade facilitation on the extensive margins of trade. The results are to a large extent robust to alternative definitions of extensive margins to different sets of controls variables and to various estimation methods. Simulating the effect of an increase to the regional or global median values of trade facilitation we are able to quantify the potential extensive margin gains of trade facilitation reform in different regions.
The Long and Winding Road
The paper chronicles the negotiating history of the recently concluded Trade Facilitation Accord. Analysing the various stages of the decade-long effort to get the Agreement off the ground it examines what was at stake in the negotiations how they evolved and why they finally succeeded - despite many obstacles and detours along the way. The study also suggests ways in which the exercise has broken new ground – for Trade Facilitation rule-making at the global level for how WTO Members negotiate agreements and for the world trading system as a whole.
Trade Facilitation Provisions in Regional Trade Agreements Traits and Trends
The paper first surveys the Trade Facilitation landscape at the regional level and analyses the main forces shaping it. It identifies key factors driving regional Facilitation approaches examining their priorities features and underlying philosophies. The study also highlights significant trends in regional Trade Facilitation provisions and analyses their implications. The paper then compares regional and multilateral initiatives looking at areas of convergence and divergence and highlighting where potential gaps exist. It analyses negotiating positions in the respective frameworks and discusses both the benefits and limitations of the resulting Trade Facilitation provisions. Examining the impact of the recently concluded WTO Agreement the study highlights its potential value added.
Using Supply Chain Analysis to Examine the Costs of Non-Tariff Measures (NTMs) and the Benefits of Trade Facilitation
It has become increasingly common to produce goods in a number of geographically dispersed stages linked by international trade. This tendency known by names such as “production fragmentation” “processing trade” and “vertical specialization” has important implications for the analysis of non-tariff measures (NTMs) and trade facilitation. First different types of NTMs or trade facilitation issues are naturally associated with different stages in the movement of goods. Different price gaps can be assigned to these stages making it possible to decompose the overall amount of distortion and to prioritize the policies with the largest potential efficiency gains. Second NTMs may accumulate in long supply chains implying that their trade-distorting effects are greater for goods produced in a fragmented manner than for goods with simple production processes. There is evidence that trade costs are more important for high technology goods or goods undergoing several stages of processing. Issues with product standards may be particularly important for goods with long supply chains. The link between NTMs and supply chains also has implications for economic development and for the relationship between liberalization in services and goods.
Conclusion
The WTO Valuation Agreement is fifteen years old at the time of writing. It is applied by the 153 WTO Members representing all levels of economic development to the full variety of their import trade transactions. If one takes into account the predecessor GATT Valuation Code these valuation rules have been in use in international practice for over thirty years. What then do WTO Members think of the Agreement? What are its major failings if there are any and what improvements can be made? What is the future for common customs valuation rules?