OECD Trade Facilitation Indicators Calculating the potential impact of the WTO Trade Facilitation Agreement on trade costs International trade is the engine of the global economy. More people, goods and services are crossing borders than ever before. But trade is changing today, products and the services that go with them are sourced from all over the world. As goods cross borders many times, first as inputs and then as final products, fast and efficient customs and port procedures are essential. Unduly complex processes and documentation raise costs and cause delays, and ultimately, businesses, economies and consumers bear the cost. Conversely, a country where inputs can be imported and goods and services can be exported within quick and reliable timeframes is a more attractive location for foreign firms seeking to invest. To help governments improve their border procedures, reduce trade costs, boost trade flows and reap greater benefits from international trade, OECD has developed a set of trade facilitation indicators that identify areas for action and enable the potential impact of reforms to be assessed. Estimates based on the indicators provide a basis for governments to prioritise trade facilitation actions and mobilise technical assistance and capacity-building efforts for developing countries in a more targeted way. The OECD indicators cover the full spectrum of border procedures from advance rulings to transit guarantees, for 133 countries across income levels, geographical regions and development stages. Analysis of the TFI data shows that trade facilitation measures can benefit all countries whether they are exporting or importing goods by allowing better access to inputs for production and greater participation in the global value chains that characterise international trade today. The potential impact on trade costs of the WTO Trade Facilitation Agreement A WTO Agreement on Trade Facilitation was concluded at the Bali Ministerial in December 2013. The OECD has calculated the potential benefits of the Agreement for various groups of countries, using the original OECD Trade Facilitation Indicators (TFIs) and taking into account the fact that, in reaching agreement, WTO Members set aside a few provisions from their original agenda and cast a number of others on a best endeavours basis. The calculation of the potential impact of the Agreement is based on two distinct scenarios: a) a full implementation scenario where WTO Members would implement all the options contained in the agreement, including those formulated on a best endeavours basis; and b) a limited implementation scenario where WTO Members would implement only the mandatory provisions contained in the agreement, leaving aside discretionary provisions, but where countries that already implement best practices would continue doing so. These two scenarios seek to provide upper and lower bounds of potential trade cost reductions that are likely to be obtained through implementation of the Agreement. This impact will be strongly influenced by the way developing countries will categorize various measures, and by the timeframes they will adopt for implementation. The potential cost reduction from a full implementation of the WTO Trade Facilitation Agreement is 14.1% of total costs for low income countries, 15.1% for lower middle income countries and 12.9% for upper middle income countries. If counties limit themselves to the mandatory provisions of the agreement, the potential reduction reaches 11.7% for LICs, 12.6% for LMICs and 12.1% for UMICs, 2.4, 2.5 and 0.8 percentage points less than if they fully implemented best practices. This scenario reveals significant opportunity costs for low and lower middle income countries, in particular.
Figure 1. Overall potential trade costs reductions by income group Harmonising and simplifying trade documents would reduce trade costs by 3% for low income countries and by 2.7% for lover middle income countries (2.5% and 2.4% respectively in a limited implementation scenario). Streamlining border procedures would bring further trade costs reductions of 2.8% for upper middle income countries and 2.3% for lower middle income countries (2.4% and 2.1% respectively in a limited implementation scenario). Automating trade and customs processes would also reduce trade costs by 2.4% for low income countries, 2.3% for upper middle income countries and 2.1% for lower middle income countries (respectively 1.7%, 1.9% and 1.5% in a limited implementation scenario). Ensuring the availability of trade-related information would generate cost savings of 1.7% for low income countries (1.3% in a limited implementation scenario). Advance rulings on customs matters would also bring cost reductions of 1.3% for upper middle income countries (1.2% in a limited implementation scenario). The opportunity cost is expected to be lower for the group of UMICs because many of the countries already implement some of the measures that are now formulated on a best endeavours basis. Figure 2. Potential trade costs reductions for the top three sets of measures
Country categorisations and timelines The impact of the Agreement will likely range between the above upper and lower bound scenarios. However, realizing actual trade cost reductions will also be influenced by the implementation timelines established by concerned countries when they categorize their commitments. The Agreement adopts a three tiered approach to commitments of developing countries (a. to be implemented immediately, b. calling for extra time and c. requiring technical assistance). Developing countries will notify those three lists upon the entry into force of the Agreement (or one year later in the case of LDCs), so it is only at that date that a more precise picture of commitments for each country and indicative dates for their implementation will be available. Definitive implementation dates for commitments designated as requiring extra time or assistance will only be known one year after the entry into force of the agreement (two years for LDCs). Irrespective of possible categorisations, the assessment of specific indicators, in particular the ones composing the top three for each income group of countries, shows that most of the facilitating elements in areas such as the harmonisation and simplification of trade documents, the availability of trade-related information, or automation were preserved, but some measures are now discretionary. As regards the streamlining of border procedures, elements cast on a best endeavours basis are more numerous. A number of these measures are straightforward and inexpensive thanks to the extensive harmonisation work undertaken in international fora. In most countries they should in principle not require significant amounts of technical assistance and should be possible to implement either immediately or following a modest transitional period. For those measures the OECD s original calculations remain valid, but only WTO Members choosing to exercise all the options available in the text will reap the full benefits calculated. On the other hand, estimates for technically complex or more expensive measures, although valid in the long run, should be revised downwards in the short-to-medium run, taking into account the fact that a significant portion of low and lower-middle income countries might categorize them into the third tier (requiring technical assistance and subsequent extra time for implementation). Implementing trade facilitation measures: costs and challenges The capital investment and operating costs of implementing the trade facilitation measures featured in the OECD indicators are relatively low compared to the potential benefits they bring to the economy. Trade facilitation measures introduce new ways to fulfill traditional mandates of border agencies, thereby making them more efficient and effective. The expense of streamlining and simplifying procedures needs to be viewed against the potentially significant gains in terms of trade cost reductions. Introducing and implementing trade facilitation measures involves costs and challenges in one or more of the following areas: diagnostics, new regulation, institutional changes, training, equipment and infrastructure, and awareness-raising and change management. Of these, equipment and infrastructure are often the most expensive. However, training appears to be the most significant, as trade facilitation is primarily about changing the way border agencies do business. A recent OECD review of the costs and challenges of trade facilitation measures incurred by a number of developing countries found that the total capital expenditure to introduce trade facilitation measures ranged between USD 5 and 25 million, while annual operating costs directly or indirectly related to trade facilitation did not exceed USD 3.5 million. Measures that entail a significant upfront investment to introduce are not necessarily costly to operate once set up the best example is a single window mechanism for submission of documentation. Some measures may be relatively inexpensive to put in place but raise challenges in terms of actual enforcement in practice and in terms of their sustainability in the long run. Overcoming resistance to change requires political will and sufficient time, in addition to technical and financial assistance.
Support for trade facilitation Expenses for purchasing equipment, training officials and putting in place new measures have benefitted from increased technical and financial assistance for trade facilitation over the last decade. Donor support directed to simplifying and modernizing border rules and procedures reached USD 477 million in 2012, an increase of 480% from the 2002-05 base-line average. The largest beneficiary was Africa, which received USD 290 million in 2012, a 26-fold increase over a ten-year period. With just one exception in 2011, when it dipped as a result of the financial crisis, aid for trade facilitation has been growing strongly and bounced back with a 26% increase in 2012. In addition, the equipment and infrastructure needs of trade facilitation reforms have also benefited from the substantial funds directed to trade-related infrastructure, with USD 11.5 billion devoted to transport and storage and USD 617 million devoted to communications in 2011. Figure 3. Aid for Trade Facilitation (USD million, 2012 constant prices) 500 400 300 200 100 0 2002-05 avg. 2006 2007 2008 2009 2010 2011 2012 Source: OECD-DAC Aid activities database (CRS), under the trade policy and regulations; trade facilitation purpose code.
About OECD trade facilitation indicators OECD has developed the following indicators to assess trade facilitation policies: Advance Rulings Appeal Procedures Co-operation External Co-operation Internal Fees and Charges Formalities Automation Formalities Documents Formalities Procedures Governance and Impartiality Information Availability Involvement of the Trade Community Prior statements by the administration to requesting traders concerning the classification, origin, valuation method, etc., applied to specific goods at the time of importation; the rules and process applied to such statements. The possibility and modalities to appeal administrative decisions by border agencies. Co-operation with neighbouring and third countries. Co-operation between various border agencies of the country; control delegation to customs authorities. Disciplines on the fees and charges imposed on imports and exports. Electronic exchange of data; automated border procedures; use of risk management. Simplification of trade documents; harmonisation in accordance with international standards; acceptance of copies. Streamlining of border controls; single submission points for all required documentation (single windows); post-clearance audits; authorised economic operators. Customs structures and functions; accountability; ethics policy. Publication of trade information, including on internet; enquiry points. Consultations with traders. Further reading Read about the methodology, sources and findings from the OECD trade facilitation indicators in these three papers, available on our website: oecd.org/trade/facilitation. The WTO Trade Facilitation Agreement Potential Impact on Trade Costs (OECD report, February 2014) The Costs and Challenges of Implementing Trade Facilitation Measures (OECD Trade Policy Paper No.157, 2013) Trade Facilitation Indicators: The Potential Impact of Trade Facilitation on Developing Countries Trade (OECD Trade Policy Paper No. 144, 2013) Online» Consult OECD work on trade facilitation: oecd.org/trade/facilitation» Sign up for OECD e-mail alerts on trade: oecd.org/oecddirect» Follow OECD Trade on Twitter: twitter.com/oecdtrade