RESEARCH AND ANALYSIS

Completing the EU Customs Union. The Effects of Trade Procedure Harmonization (Short version) 1

Yves Bourdet 2 and Maria Persson 3

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The successive rounds of multilateral trade negotiations have contributed to lowering the levels of the European Union’s customs duties to historically low levels. In addition, most quantitative trade restrictions have been removed. The trade impeding effect of other non-tariff barriers, like technical standards, has also been reduced, partly as a result of the completion of the European single market. There remain, however, trade obstacles of a more administrative nature, commonly named trade procedures. The dismantlement or reduction of traditional trade barriers has given these trade procedures a prominent role in the current Doha Round negotiations.

The first objective of this paper was to point out that the EU does not have a harmonized practice when it comes to trade procedures. Measuring the effectiveness of cross-border trade procedures by the time delays that they cause, we have illustrated that these delays vary considerably within the EU. In fact, they go from merely 5 days in the most efficient countries to 25 days in some others. We therefore draw the conclusion that, despite the fact that the EU formally is a customs union, countries in the rest of the world face different trade barriers depending on which EU country they ship their goods to.

The second aim of the paper was to investigate whether these differences in applied trade procedures matter in practice. The time delays caused by trade procedures do indeed have a significantly negative effect on trade volumes. Using a gravity model, we found that a one-percent increase in border delays would on average lead to export volumes being diminished by 0.44 percent. To put this result into an economic perspective, we have also used these figures to illustrate how much trade volumes would change if trade procedures were harmonized across EU countries. We found that harmonization could have substantial trade effects, but also that the levels at which countries converge is critical. If all countries applied import procedures at the level of the currently most efficient EU countries, the average non-member would increase its aggregated exports to the EU by around 20 percent. On the other hand, in a scenario with only partial harmonization where the countries with time delays above the average reduce their time delays to that average while the others do not reform, aggregated exports from outside countries are expected to increase by merely 3 percent on average. In a “worst-case” scenario where countries harmonize trade procedures to the level of the currently least efficient countries — in other words a scenario involving the creation of very much higher trade barriers in many countries — aggregated exports from the average country in the rest of the world would decrease by as much as 68 percent.

What are the policy implications of our results? Well, if the EU wants to live up to being a fully-fledged customs union, arguably, there is reason to consider harmonization of the import procedures as they appear in practice. Since the “worst-case” scenario of a harmonization at the least efficient level hardly seems like a desirable outcome, harmonization coupled with substantial liberalization is certainly the scenario which to most analysts would appear the most beneficial.

Notes:
1.
This is a summary of a longer paper with the same title which is forthcoming in JCMS: Journalof Common Market Studies, 2012, Vol. 50 No. 3. back to text
2. Department of Economics, Lund University. back to text
3. Department of Economics, Lund University and Research Institute of Industrial Economics (IFN) back to text


Yves Bourdet is an Associate Professor of Economics at Lund University. His fields of specialization are international trade, economic development and labor economics.

Maria Persson is an Assistant Professor of Economics at Lund University and an Affiliated Researcher at the Research Institute of Industrial Economics in Stockholm. Her fields of specialization are international trade and economic development

 

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