Trade Facilitation, the WTO, and Development: An Overview John S. Wilson, The World Bank Tsunehiro Otsuki, Osaka University

Key Issues for Discussion  Definition and scope of trade facilitation  Benefits of trade facilitation  The role of the WTO  Obstacles facing developing countries in implementing reforms  Designing strategies for reforms

Key Questions 1. What are the key WTO disciplines related to trade facilitation agenda? 2. What are the major constraints confronting developing countries in implementing the WTO agreements in trade facilitation? 3. What are advantages and disadvantages of making uniform applications of rules on trade facilitation? 4. How can the WTO agreements in trade facilitation reflect development needs? 5. What area of trade facilitation should be given priority in the light of feasibility and cost effectiveness?

What is Trade Facilitation?  A narrow sense –A reduction/streamlining of the logistics of moving goods through ports or the logistics of moving goods through ports or the documentation requirements at a customs the documentation requirements at a customs post at the border post at the border  A broad sense –The above plus, improvement in domestic regulatory environment and improvement in domestic regulatory environment and institutions associated with trade institutions associated with trade

Background  High trade logistics costs Trade costs associated with transportation charges, documentation requirements and delay in clearance are becoming important  Globalization Ability of countries to deliver goods and services in time and at low costs is a key determinant of their participation in the global economy

Background

Background Trade Facilitation Trade Expansion Economic Growth  Trade facilitation as an engine of growth

Background

Background  Increasing demand for multilateral rule making and regional or plurilateral coordination regarding trade facilitation –At the WTO One of the four Singapore issues Doha development agenda Doha development agenda –At the WCO Kyoto Convention Kyoto Convention

Background  Limited progress in the WTO negotiation –No consensus made on modalities of negotiations at the Cancun Ministerial Meeting –Limitation in capacity to implement trade facilitation measures –Uncertainty about provision of technical assistance –Inflexibility of agreements

Outline  Empirical evidence –Did trade facilitation work in reality?  Trade facilitation agenda at the WTO –How does the WTO manage trade facilitation?  Developing countries’ concerns   Options to move forward on trade facilitation modalities

Empirical Evidence  Transport costs –Transport cost barriers outweigh tariff barriers for 168 of 216 countries (World Bank 2002). –1% reduction in the fees could increase Asian GDP by $3.3 billion (UNCTAD 2001)

Empirical Evidence  Customs modernization –Switching to electronic documentation save 1.5 to 15% of landed cost of the imported items. (Australian Department of Foreign Affairs and Trade and Chinese Ministry of Foreign Trade and Economic Cooperation 2001) –Standards harmonization for e-business and automating customs procedures between Japan and Singapore increase trade flows between the two countries and trade with the rest of the world (Hertel, Walmsley and Itakura 2001)

Empirical Evidence  Customs corruption –The introduction of electronic data interchange (EDI) system in Chilean customs led to saving of over $1 million per month for a system cost of $5 million (WTO, 2000)

Empirical Evidence  Time cost –One day less in delivery times-by reducing delay in ports and customs- reduces landed costs of goods around the world by 0.5% (Hummels 2001) –1 day less in the trading time will save $240 billion annually in developing countries (Hummels 2001)

Empirical Evidence  Multi-dimensional capacity building –Trade facilitation defined in four dimensions (Wilson, Mann and Otsuki 2004) Port efficiency Port efficiency Customs environment Customs environment Regulatory environment Regulatory environment Service sector infrastructure Service sector infrastructure

Benefit of Capacity Building in Trade Facilitation

Trade Facilitation Agenda in the WTO  One of the four Singapore issues  Reflected in three GATT Articles –V (Freedom of transit) –VIII (Fees and formalities related to importation and exportation) –X (Publication and administration of trade regulations)  Doha Development Agenda

General Trade Principles Reflected in GATT Articles  Transparency  Predictability  Due process  Non discrimination  Simplification  Avoidance of unnecessary restrictions to trade

Doha Development Agenda  Importance of implementation capacity of developing and least-developed countries  Use of special and differential treatment to achieve trade expansion goals

Developing Country Concerns  Cost of implementation –Improved technologies and institutions required for customs reforms –Institutional changes and costs related to dispute settlement cases

Developing Country Concerns  Institutional improvement –Appropriateness of enforcing institutional improvements through rulemaking  Technical assistance –Uncertainty about the actual delivery of promised technical assistance to help countries implement these arrangements

Options to Move Forward on Trade Facilitation Modalities  The importance of negotiations focused on the GATT Articles  Taking into account limited implementation capacity: A Trade Facilitation Program  Commitments for technical assistance and capacity building for trade facilitation  Dispute Settlement Options  Multilateral vs. Plurilateral Approach  Coordination with regional integration initiatives

Scope of Negotiations  A focused agenda on the three GATT articles, not an expansive agenda

A Trade Facilitation Program  Consideration of specific circumstances, needs, and capacities of individual countries –Allowing flexibility in disciplines to be applied –Making Consistency with domestic development priorities

Technical Assistance and Capacity building  Support for existing programs in the WCO, the UNCTAD, the World Bank, and regional development banks –Kyoto Convention –Automated System for Customs Data and Management (ASYCUDA), etc.

Dispute Settlement Options  Compulsory dispute settlement for countries above a certain level of development (in case of not meeting the obligations)  Exemption granted to countries below that level

Other Options  Multilateral vs. Plurilateral Approach  Coordination with regional integration initiatives

Conclusions  Trade facilitation likely contributes to a long- term growth  Collective actions needed  Uniform application of multilateral agreements complemented by capacity building and technical assistance  Flexibility to be given according to levels of development and development goals  A step-by-step building block approach from core principles towards expanded ones