Improving The Nuts and Bolts Of Trade

Streamlining customs reviews would do as much to boost trade as reducing tariffs.

Applause came from Singapore and Taiwan, while a Korean looked askance and the U.S. delegation wasn’t sure what to think. I had spoken to a subcommittee on small business at the 2011 APEC meetings in Honolulu. When asked what sort of special treatment for small business should be put into the Trans Pacific Partnership (TPP) agreements, I apparently shocked the crowd when I replied: “None!”

I made the point that the TPP negotiators need to focus on making trade simpler and easier. It makes no sense to do that for one size of business, but not for another. And small business would benefit greatest from simplification, just because they can’t afford the large staffs of specialists employed by multinationals. We call this “trade facilitation” in the argot of trade policy. Progress is being made, but I am under no illusion that my diatribe was instrumental. Just another voice.

We are still waiting to see what emerges from the TPP talks, but there was a huge development at the World Trade Organization (WTO) ministerial meeting on Bali in December 2013. The most important text to come out of the Doha Round trade talks is the new Agreement on Trade Facilitation. You can read the agreement here, but the short form is that it should lead to faster and more efficient customs clearance at borders around the world.

We all know horror stories of cargo held up at border crossings, airports or seaports – or about “penalties” for a typo on a document – or “fees” to move your perishable goods out of the blazing sun. The new agreement won’t fix everything, but it will help once it is in place in most countries. If nothing else, the requirements for clear and available publication of each country’s rules and regulations will be a boon to efficient business.

There are special provisions in the agreement, though for developing countries rather than small business traders. Previous WTO agreements usually gave the least developed countries extra time to carry out the agreements (say five or ten years), but the trade facilitation agreement took the novel route of asking governments to detail exactly when they will implement which provision to the agreement.

This serves the dual purpose of giving extra time to poorer countries while still holding their feet to the fire. To help out, both the WTO and the World Bank are setting up training and financial programs to make sure that these countries can meet their obligations.

While the WTO’s trade facilitation agreement focuses on customs clearance issues, the World Bank uses a broader definition: trade facilitation encompasses anything that impacts movement of goods, whether it is customs rules, port facilities, adequate highways or railways, or communications infrastructure. The Bank’s economists calculate that if trade could be facilitated worldwide to achieve just half of what Singapore has done, for example, world income would grow by $2.6 trillion. You could take all the world’s tariffs to zero and not achieve such a benefit. Trade facilitation means big money.

The World Bank spent $11.6 billion on trade-related development assistance projects last year – about half of which went specifically to trade facilitation. Why? Just as trade facilitation helps small business traders disproportionately, it also helps poorer countries to earn their income, which – in turn – makes them more viable markets for the rest of us. Here is an example:

Getting bananas from a farm in Cameroon to a super- market in Brussels is not just a question of good roads and shipping. The fruit can also spoil in transit be- cause of logistics failures: too many highway check- points, inefficient customs procedures at the port, slow inspections – all signs of inefficient bureaucracy that, in the end, hurts some of the poorest farmers in the world.

… global import tariffs could be reduced to zero and a Cameroonian farmer would still suffer from process-related hurdles such as filling out excessive paperwork, paying bribes at checkpoints and having goods wait for days at port. These types of barriers are particularly harmful to trade. In fact, reducing supply chain barriers such as border administration inefficiencies and certain infrastructure failures could increase global income up to six times more than removing all import tariffs.

 ~ World Bank, 2013

Fix problems like this and we go a long way towards fixing the global economy – and making trade easier for small businesses. goldbrown2

This article first appeared on his blog on international business, Business Beyond the Reef.

Steve Craven is a former Business Consultant, American diplomat who specialized in commerce, and a U.S. trade negotiator. He currently chairs the Hawaii Pacific Export Council.

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