Trade Facilitation and Better Connectivity for an Inclusive Asia and Pacific

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• Publisher: Asian Development Bank
• Year: 2017
• Print ISBN:
  9789292579333
• eBook ISBN:
  9789292579340
• Topic: Business
• Subtopic: Business General
• Index: Business

Trade facilitation increases trade flows, lowers trade cost, and ultimately contributes to sustainable and inclusive growth. This publication, jointly prepared by the Asian Development Bank and the United Nations Economic and Social Commission for Asia and the Pacific, reviews the state of play of trade facilitation and paperless trade in Asia and the Pacific. It investigates the evolution of trade costs in the region, examines trade facilitation and paperless trade implementation, and highlights the key initiatives and efforts in Central Asia, the Greater Mekong Subregion, South Asia, and the Pacific. It includes impact assessments of trade facilitation implementation and corridor performance on reducing trade costs and increasing trade.

1. INTRODUCTION*

Trade helps drive inclusive growth and poverty reduction. Strong value added from trade-related activities contributes to economic growth and development in developing Asia. Global trade helps reallocate capital and labor toward sectors with comparative advantage. And international trade is one important way to help meet the United Nations Sustainable Development Goals (SDGs). The beneficial links between trade and investment catalyzes economic transformation, job creation, and skill development—which all support SDG 8 (promoting decent work and economic growth), SDG 9 (building resilient infrastructure, promoting inclusive and sustainable industrialization and fostering innovation), SDG 10 (reducing inequality within and among countries), and SDG 17 (revitalized and enhanced global partnership) (Kituyi 2016).

Trade facilitation eases the cross-border movement of goods by cutting costs and simplifying trade procedures (OECD 2005). It rests on four pillars: (i) transparency, (ii) simplification, (iii) harmonization, and (iv) standardization. Transparency promotes openness and accountability; it involves publicizing easily understood regulations so stakeholders can provide feedback prior to enforcement. Simplification eliminates unnecessary elements and duplications, focusing on essential aspects of trade and critical processes. Harmonization aligns national procedures, operations, and documents among trading partners. And standardization aims to develop international best practices (UNECE 2012).

Based on these principles, trade facilitation focuses on five areas: (i) publicizing and administering policies related to trade issues, (ii) establishing rules and procedures for import and export, (iii) creating product standards that conform to World Trade Organization (WTO) guidelines on standards, (iv) building trade-related infrastructure and supplying quality services that effectively reduce trade costs, and (v) balancing rapid customs clearance with adequate security and protection from fraud (ADB 2013, Figure 1).

Figure 1: The Four Pillars and Five Key Areas of Trade Facilitation

Sources: National Board of Trade, Sweden; ADB (2013).

Trade facilitation particularly benefits landlocked and island countries, where it boosts participation in international supply chains. They can diversify production of intermediate and final goods to cater to the global market, benefiting other regions as well.¹

Indeed, everyone gains from easier trading processes (OECD 2005)—trade facilitation raises government revenues by reducing fraud; businesses become more competitive and efficient, raising profits; and consumers save from lower prices. Inefficient trade procedures add significant costs, usually shouldered by the taxpayer or buyer, and it makes investment less attractive.

Trade facilitation increases trade flows and ultimately helps achieve sustainable and inclusive growth (Figure 2). It lowers direct costs by raising efficiency among interacting businesses and administering agencies. Prices fall as they indirectly benefit from simpler, transparent border procedures. Even modest cost reductions show a positive link between trade facilitation and increased trade. All countries stand to gain, especially the developing ones, and those that improve border procedures will benefit most.

Figure 2: Impact of Trade Facilitation

FDI = foreign direct investment, SME = small and medium-sized enterprises.

Source: Authors.

Trade facilitation can have a greater impact on specific product groups, firms, and economies (Box 1). For example, agro-food products have higher cross-border costs than manufactured goods, as they are subjected to special border procedures (costing 1%–15% of product value). Long border delays raise final costs by increasing spoilage.

Box 1: Estimated Gains from Trade Facilitation

Benefits from trade facilitation vary across economies, enterprises, and product groups.

Across economies

• In developed economies, efficiency gains and savings are still achieved:

• Japan: waiting time and incurred costs were lessened by transitioning from paper to electronic data interchange. This translated to a 50% reduction in the number of application forms to be filled out and 200% reduction in the number of items for general declaration from 2001 to 2005.

• New Zealand: the number of trade transactions has significantly increased from 1 million import entries in 2000 to 4 million in 2011 after the implementation of risk management system¹ in its customs transactions.

• Singapore: the single-window system helped minimize documentation costs by more than half. Trade documentation fees went down to as low as $1.80 per application in 2010 from $6.25 before the TradeNet² implementation in 1989.

• In developing countries:

• Bangladesh: the number of signatures required for export and import clearance declined significantly from 25 in 1999 to five in 2014.

• Thailand: the implementation of the National Single Window in 2008 brought savings of about $1.5 billion annually and cut the time to export from 17 days to 14 days.

Enterprises

• In the Philippines, electronic lodgment which started in October 2007 had helped transactions of small and medium-sized enterprises (SMEs) become convenient and efficient through reduced cost and time.

• The customs automation system in Bangladesh implemented in October 2008 has increased SMEs’ integration into international trade, made document processing for exports faster, and improved the goodwill and business reputations of SMEs.

• For large firms in the Republic of Korea, implementation of information technology³ to cargo clearance led to significant cost reductions and substantial reduction, if not eliminate, customs and cargo clearance divisions. SMEs were also able to save labor costs and costs associated with opening trade documents.

Product groups

• GrapeNet software, launched in India in 2006, to meet international standards and provide traceability of grape exports allowed importers to access certificate-issuing authorities, check inspection reports, laboratory analysis, certificate of residue analysis and other details related to the particular produce boosting India’s exports to the European Union and raising importers’ confidence.

• In Greece, the automated risk-based control in agricultural exports implemented in 2011, significantly reduced the time needed for exports to non-EU countries and the number of inspections while maintaining high-quality of agricultural exports.

1 The comprehensive risk management system allowed customs to assess risks for all transactions within minutes of an entry being made and in advance of the physical arrival of goods.

2 TradeNet is the national single window system of Singapore.

3 Information technology involves hardware/software installation, replacement of paper forms with electronic ones, and revisions related to laws and regulations.

Sources: UNNExT (2010, 2011, 2012, 2014, 2015), Farhad (2014), WTO (2011), De Dios (2009), Yang (2009), Syed, et al. (2009).

Small and medium-sized enterprises (SMEs) are more vulnerable to financial and efficiency costs than large enterprises. The larger the international trade within a firm, the more economies of scale and comparative advantage exist for logistics and administrative coordination. In a highly competitive environment, SMEs have to address the constraints of limited human resources, information, and capital. They are also often classified as high-risk and are required to comply with additional documentation and cargo checks.

This is especially true for non-OECD countries with high trade-to-gross-domestic-product (GDP) ratios—and thus highly sensitive to changes in import and export costs. Developing countries would likely gain from trade facilitation. Those best able to ease border flows with minimal financial resources show how small investments in trade facilitation can bring high relative returns. Additional investments would amplify the benefits.

This report is constructed as follows. Chapter 2 reviews the evolution of trade costs in the region, examines trade facilitation and paperless trade implementation, and highlights key initiatives and efforts in Central Asia, the Greater Mekong Subregion, South Asia, and the Pacific. Chapter 3 analyzes in-depth the impact assessments of trade facilitation implementation and corridor performance on reducing trade costs and increasing trade. Chapter 4 concludes by examining the challenges in implementing trade facilitation measures, presenting the way forward.

2. TRADE FACILITATION AND PAPERLESS TRADE IN ASIA AND THE PACIFIC: STATE OF PLAY*

2.1 Trade costs²

According to the latest data from the ESCAP–World Bank International Trade Cost Database (Table 1), the overall cost of trading goods among the three largest European Union (EU) economies is equivalent to a 42% average tariff on the value of goods traded. The People’s Republic of China (PRC), Japan, and the Republic of Korea (East Asia-3) come closest to matching intra-EU trade costs (51% tariff equivalent), followed by middle-income Association of Southeast Asian Nations (ASEAN) members (76% tariff equivalent). Countries in South Asia, including Bhutan, face the region’s highest trade costs (186% tariff equivalent).

Table 1: Intraregional and Extra-Regional Comprehensive Trade Costs in Asia and the Pacific (excluding tariff costs), 2010–2015

ASEAN-4 = Indonesia, Malaysia, Philippines, Thailand. East Asia-3 = People’s Republic of China, Japan, the Republic of Korea. Central Asia = Georgia, Kazakhstan, Kyrgyz Republic. Pacific = Fiji, Papua New Guinea. SAARC = South Asian Association for Regional Cooperation; SAARC-4 = Bangladesh, India, Pakistan, Sri Lanka. AUS-NZL = Australia, New-Zealand. EU-3: Germany, France, United Kingdom.

Notes: Trade costs may be interpreted as tariff equivalents. Percentage changes in trade costs between 2004–2009 and 2010–2015 are in parentheses.

Source: ESCAP. 2017.

Figure 3 shows the evolution of trade costs of the Asia and Pacific subregions in trading with the three largest developed economies from 1996 to 2014.³ Trade costs in the region have generally declined slowly, but still vary widely across subregions. East Asia-3 has the lowest trade costs and the Russian Federation and the Central Asian economies have maintained a declining trend and now have trade costs comparable to the ones of the South Asian economies (South Asian Association for Regional Cooperation [SAARC] SAARC-4). Trade costs remain highest in the Pacific, although trade costs there are clearly trending downward.

Figure 3: Trade Costs of Asia and Pacific Subregions with Large Developed Economies

ASEAN-4 = Indonesia, Malaysia, Philippines, Thailand. AUS-NZL = Australia and New Zealand. East Asia-3 = People’s Republic of China, Japan, the Republic of Korea; EU-3 = Germany, France, United Kingdom. Pacific-2 = Fiji and Papua New Guinea. Central Asia = Georgia, Kazakhstan, Kyrgyz Republic. SAARC-4 = Bangladesh, India, Pakistan, Sri Lanka.

Note: Trade costs shown are tariff equivalents, calculated as trade-weighted average trade costs of countries in each subregion with the three largest developed economies (Germany, Japan, and the United States).

Source: ESCAP. 2017.

Box 2: The World Trade Organization’s Trade Facilitation Agreement

During the 2013 Bali Minist...

Table of contents

• Front Cover
• Title Page
• Copyright Page
• Contents
• Figures, Tables, and Boxes
• Acknowledgments
• Abbreviations
• Highlights
• 1. Introduction
• 2. Trade Facilitation and Paperless Trade in Asia and the Pacific: State of Play
• 3. Assessing Impacts of Trade Facilitation
• 4. Challenges and the Way Forward
• Appendix
• References
• Back Cover