1. Trade Facilitation for Development
Gianni Zanini
Lead Economist (Trade)
The World Bank Institute
Moscow, March 20, 2006
Moscow, Russia, March 20, 2006

2. Outline Trade Facilitation – Indicators
Trade Facilitation Reform – Benefits
Customs Modernization
Rules of Origins
Trade Facilitation – The Doha Negotiations
The World Bank and Trade Facilitation
Trade expansion, and its expected benefits, depends not only on trade policy but also on the good functioning of the institutions that impact on the trade transactions. Thus, TF is fundamental to realizing the expanded trade promise of Doha. The WTO agenda constitutes a small part of the challenge on improving trade facilitation, but nonetheless by far the largest development impact emanating from the Singapore issues in the WTO is from TF.
Well functioning national institutions enhance the country’s competitiveness and assist it in taking advantage of the growth potentials offered by the more liberalized trade environment.
Customs are one of these institutions and they are not always fully supportive of trade competitiveness, especially when the increasing sophistication of trade logistics challenges even the more advanced customs services.
Rules of origin are necessary for the application of trade policy instruments--such as tariffs, quantitative restrictions, anti-dumping and countervailing duties, and safeguard measures as well as for requirements relating to origin marking, public procurement, and for statistical purposes—to imports of goods from different countries—non-WTO members, WTO members, and exporting countries enjoying preferential or reciprocal preferences. However, proliferating rules of origin can be designed to restrict trade and have placed increasing burdens on Customs in many countries.

3. Trade Facilitation: What is it?
Simplification, harmonization, and transparency of transit and customs procedures and associated information flows to reduce costs of moving goods between seller and buyer across international borders
More broadly, it may also encompass the physical improvement of infrastructure investment (roads, ports, airports)
Among the problems that add to the costs of trade, especially in manufactures, are:
• Frequent reloading of goods
• Port congestion affecting turnaround time for feeder vessels
• Complicated customs-clearance procedures
• Complex and nontransparent administrative requirements, often pertaining to documentation
• Limited use of automation leading to high costs for processing information
• Uncertainty about the enforceability of legal trade documents such as bills of lading or letters of credit.
Efficient and modern transportation networks and port facilities, streamlined and harmonized regulations, access to information and telecommunications systems, and transparent customs regimes—all can help lower transit costs. But in our operational definition of trade facilitation, we emphasize the improvements in logistics and the simplification of procedures, rather than the physical infrastructure aspects.
Improving trade facilitation requires substantial new investment, additional technical assistance, and coordinated multilateral efforts.

4. Trade Facilitation Information
International Exhibition Logistics Association (
Doing Business Database, Trade Indicators, World Bank (
Global Facilitation Partnership for Trade and Transportation (
Trade Facilitation Negotiations Support Project (

5. Trade Facilitation: Why Reform I
Transit costs > import tariff incidence
Transit costs in developing countries 2-4 times > in OECD
Significant impact on costs of goods
Administrative and customs costs at Brazilizan ports add 20 % (World Bank study of Brazilian ports, 1997
Logistics account for 33 % of shipment costs (Subramanian-Arnold, 2001)
Higher inventory raises costs of production by 20% (Gausch and Kogan, 2001)
½% to 1% of goods value per day in customs (Hummels 2001)
Impact on growth, inequality, exports
The cost of moving goods across international borders is often as important as formal trade barriers in determining the cost of landed goods—and ultimately of market share. Transaction cost barriers outweigh tariff barriers for 168 out of 216 U.S. trading partners (World Bank 2001). For manufactured exports, the cost of trade transactions in developing countries exceeds the cost imposed by tariffs in the EU and the United States.
Moreover, in developing countries, transit costs are routinely 2–4 times higher than in rich countries (Doing Business 2006).
A World Bank (1997) study of the performance of Brazilian ports reported that per-container costs for administrative procedures and customs clearance could be reduced by more than 20 percent (from $1,727 to $1,320) if international best practices were followed. Subramanian and Arnold (2001) broke down the cost of international shipment into five categories: ocean freight, inland transport cost, and three indicators of logistics costs—custom inspection, cargo handling and transfer, and processing of trade documentation. They estimated that logistics accounted for no less than 1/3 of the cost of door-to-door shipment of containerized carpets from Nepal to Germany and teabags from India to the United Kingdom. Another study estimated that every day spent in customs adds nearly 1 percent to the cost of goods (Hummels 2001).
Cross-country evidence suggests that high transport costs tax growth in countries with underdeveloped transport links (World Bank 2001). A doubling of shipping costs is associated with slowdowns in annual growth equivalent to more than ½ % point. Inefficient internal transport systems can widen income inequalities within countries by separating the hinterland regions from the global marketplace. A study that examined the effect of higher shipping and port charges in the garment industry of Bangladesh estimated that exports could rise by 30 percent, raising hard-currency earnings by 125 percent, if port inefficiencies were reduced.

6. Trade Facilitation: Why Reform II
Walkenhorst and Dihel’s 2002 study of the effects of September 11 on international trade indicates that even countries not directly involved in a terrorist event may expect their income to decline by $75 billion per year as a result of a 1 percent ad valorem increase in frictional costs to trade (transport, handling, insurance, and customs). A one-percentage-point increase in trade costs was estimated to cost Eastern Europe almost ½ % of GDP. Regions with high trade-to-GDP ratios and sectors with elastic import demand incur the greatest trade and income losses in relative terms. Note that these figures were similar to those estimated by the insurance industry by the OECD (2002).
Another OECD study using a general equilibrium model and allowing for country and sectoral differences also found large potential income gains for improvements in trade facilitation [Walkenhorst, Peter and Tadashi Yasui (2003). “ Quantitative Assessment of the Benefits of Trade Facilitation.” TD/TC/WP2003(31)/Final.(13 November). Paris:OECD] no details here because I could not understand the figures in Luc De Wulf’s slides

7. Trade Facilitation: Why Reform III
Source: Doing Business Database (2005), Trade Indicators (reported in World Bank 2006)

8. Easiest and Most Difficult Traders
Note: Russia Rank (Trading Across Borders Indicators): 67

9. Small Role of Physical Infrastructure

10. Days to Import

11. Major Reforms

12. Major Hurdles

13. Less Bureacracy in OECD and Asia

14. Russia - Trading Across Borders
Russia Rank: 67
Source: Doing Business Database 2005

15. IELA; Customs Clearance Days

16. Other Benefits from Reform
1-2% reduction in import prices yields 3.3 percent increase in exports (APEC 1999)
1% cost reduction in maritime and air transport services yields $3.3 billion in Asian GDP (UNCTAD 2001)
10 % increase in web-hosts increases trade by 1% (Freund and Weinhold (2000)
10 % fall in telecom costs increase trade 8% (Fink, Mattoo, Neagu 2002)
The Asia Pacific Economic Cooperation group (APEC 1999) found that a reduction in trade costs ranging from 1 percent of import prices for industrial countries and Korea, Taiwan, and Singapore, to 2 percent for developing countries. from trade-facilitation efforts would expand APEC merchandise exports by 3.3 percent[Assessing APEC Trade Liberalization and Facilitation: 1999 Update, Economic Committee, September 1999, page 11.]
UNCTAD (2001) considers trade facilitation in the broader context of creating an environment conducive to developing e-commerce usage and applications. The results show that a reduction of one percentage point in the cost of maritime and air transport services could increase Asian GDP by $3.3 billion.[i] If trade facilitation is construed to include improvements in wholesale and retail trade services, an additional $3.6 billion could be gained by a one-percentage-point improvement in the productivity of that sector. [i] See UNCTAD, E-Commerce and Development Report 2001, table 8, page 33.
Empirical studies of the impact of enhanced e-commerce and telecommunication access, improved customs procedures, and harmonized or improved standards also demonstrate the benefits of trade facilitation in specific fields.
Freund and Weinhold (2000) found that a 10-percentage-point increase in the relative number of web hosts in one country would have increased trade flows by 1 percent in 1998 and Fink,
Mattoo, and Neagu (2002) found that a 10 percent decrease in the bilateral calling price was associated with an 8 percent increase in bilateral trade.
Freund and Weinhold: E-commerce
10 % increase web-hosts increase trade 1%
Fink, Mattoo, Neagu: Communications costs
10 % fall in telecom costs increase trade 8%
There is limited information on the costs of proving origin, but the available studies suggest that the costs of providing the appropriate documentation to prove origin can be around 3 percent or more of the value of the export shipment for companies in developed countries. The costs of proving origin may be even higher, and possibly prohibitive, in countries where Customs mechanisms are poorly developed. Thus, even if producers can satisfy the rules of origin, in terms of meeting the technical requirements, they may not request preferential access because the costs of proving origin are high relative to the duty reduction that is available. (Herin, 1986)

17. Gains from Raising Trade Facilitation Capacity
Wilson, Mann, Otsuki (World Bank 2003) built a dataset for 75 countries with trade facilitation defined broadly as:
Port efficiency, Customs environment, Regulatory environment and Services infrastructure
Clarify capacity building priorities and gains from collective action vs domestic reform

18. Significant Trade Gains from Raising Capacity Half-way to Global Average
$377 billion increase in 75 countries

19. Trade Gain from Reform by Region
Source: Wilson, Mann and Otsuki (2003)

20. Significant Export Trade Gains
Source: Calculations based on table 4 in Wilson, Mann,
and Otsuki, “Trade Facilitation and Capacity Building: Global Perspective,” 2003, mimeo.

21. Unilateral vs Collective Actions
Majority of the trade gains in all four areas are associated with unilateral actions
Collective actions through international agreements will also increase trade
Majority of export gains to developing countries occurred by increased access to OECD market.

22. Terrorism and Trade: Economic Costs…..but
Doubling of terrorist incidents led to a 6% decrease in bilateral trade between targeted economies (Nitsch and Schumacher, 2002).
World welfare declines by $75 billion – 1% increase in trade costs (Walkenhorst and Dihel 2002).

23. ….Security and Automation Can Also Promote Investment and Growth
Private investment rose % of GDP in countries that adopted security measures in ‘best practice’ regions. GDP growth rose by % per year (Poirson 1998)
More automated customs can improve efficiency and accuracy of inspections.
Introduction of automated customs lowers direct costs of customs clearance by the equivalent of 0.2% . Indirect benefits with reduced delays lower costs by 1% (Hertel, Walmsley and Ikatura, 2001).
Prospect of fewer threats and reduction in risk premiums
Delays in clearance of goods through customs that currently impedes competitiveness of developing country trade can also be reduced – contributing to port efficiency
Security promotes investment and growth in developing economies Poirson (1998). Private investment rose 0.5 to 1 % of GDP in countries that adopted security measures in ‘best practice’ regions. Economic growth rose by 0.5 to 1.25 % per year.
More focused and technology-intensive customs inspection, can improve efficiency and accuracy, and boost global trade.
Introduction of automated customs lowers direct costs of customs clearance by the equivalent of 0.2 per cent of the value of traded goods. Indirect benefits with reduced delays lower costs by 1% of merchandize value (Hertel, Walmsley and Ikatura, 2001).
Prospect of fewer threats and reduction in risk premiums is an investment
Delays in clearance of goods through customs that currently impedes competitiveness of developing country trade, can also be reduced – contributing to port efficiency

24. World Bank Strategy Strengthened capacity for AAA
New research and data; more experts
More indicators
Expand lending in FY04-06
Strengthen partnerships (GFP, WTO, WCO, bilateral donors...)
The Bank has been working in close partnership with other international agencies under the umbrella group called Global Facilitation Partnership for Transportation and Trade (GFP). Currently, the Bank has active projects with trade facilitation and logistics components in 49 countries, about one third of our active client countries. These projects span all regions and their components range from tax administration reforms (including customs) in the Soviet Union, export competitiveness projects in Ghana and Bangladesh, transport and trade facilitation projects in Eastern Europe, and a trade finance project in Yugoslavia.
Given the new opportunities inherent in trade opening policies in Doha and elsewhere, the Bank intends to expand the scope of its trade logistics effort to a much larger number of countries through a new Trade Facilitation Initiative. One of the objectives of this program will be to reduce the average time it takes to transit ports and customs to the levels currently attained by the most efficient developing countries. Plans by the Regions indicate that by FY06 about 75 countries, or roughly 50 percent of our client countries, could be implementing projects with trade facilitation components. Lending is anticipated to increase from present levels of US$ billion to more than US$3 billion by FY06.
This Initiative has been launched by the Trade and Infrastructure Departments in agreement and consultation with the Regions, with a combined work-program of US$1.1 million for FY04. It is designed to support the Regions in their project identification and preparation activities in four areas: ports, customs, transit and multimodal transport. To reduce project preparation costs and increase project effectiveness, the Bank is assembling teams of experts and designing a modular approach to project development. These modules include performance indicators, generic terms of reference, consultant rosters, best practice notes and lessons from experience. This is being enhanced through strengthened cross-support in very specialized areas such as security, customs administration, and port reforms. Collaboration is also expanding with the Private Sector Advisory Services Department, most notably with respect to its work on the investment climate.
Partnerships with international organizations and other donors are being strengthened, including France, Netherlands, Switzerland and the United States, in order to enlarge the pool of knowledge, finance and expertise.

25. THANK YOU gzanini@worldbank.org

26. KEY REFERENCES
Wilson John, Catherine Mann, and Tsnushiro Otsuki, (2004), “Assessing the Potential Benefits of Trade Facilitation: A Global Perspective”, World bank Working Paper 3224.
Walkenhorst, Peter and Tadashi Yasui (2003). “ Quantitative Assessment of the Benefits of Trade Facilitation.” TD/TC/WP2003(31)/Final.(13 November). Paris:OECD.
De Wulf Luc and J. Solok , editors , (2004) Customs Modernization Initiatives: Case Studies, Trade and Development Series, World bank, Washington D.C..
De Wulf Luc and Jose Sokol, editors (2005), Customs Modernization Handbook, Trade and Development Series, World Bank, Washington D.C..

27. Thank You www.worldbank.org/trade www.worldbank.org/transport