Regional Integration and Trade Facilitation

(uniquement en anglais)

Although the definition of “trade facilitation” varies according to the forum in which the term is used, emerging international practice tends to give it a broad reading, including the full set of policies designed to reduce trade transaction costs. It therefore encompasses a range of at- and behind-the-border policy reforms, of which customs and border procedures, which are the focus of the ongoing WTO negotiations in this area, are just one element. Given the wide range of policies covered by trade facilitation, its importance as a potential source of trade gains, and its increasing inclusion in preferential trade agreements (PTAs), the interplay between regionalism and trade facilitation is likely to be a significant feature of the international economy in years to come.

Trade facilitation has a long history in PTAs. For example, one analysis of South-East Asian PTAs found that about 25% had explicit trade facilitation provisions. Indeed, the broad definition of trade facilitation put forward in the previous paragraph is closely associated with one regional initiative in particular, the Asia Pacific Economic Cooperation (APEC). But trade facilitation provisions are also found in a variety of other regional settings. On the one hand, bilateral and regional transit agreements are widespread. These agreements, which can involve private parties, deal with important aspects of trade facilitation, in particular customs and border procedures. The Trans-Kalahari corridor in South-West Africa is an example of a regional approach to this type of trade facilitation. Another example relates to the fact that diseases are easily transmitted across borders, which immediately suggests a regional approache to sanitary and phyto-sanitary measures in a number of areas. Tanzania has signed an agreement with its SADC neighbors on vaccination, surveillance, and control of animal movements, in an effort to limit the spread of highly contagious bovine diseases. More generally, the issues raised by the broad definition of trade facilitation set out above sit well with the scope of “new generation” or “deep” PTAs, which now increasingly cover areas such as customs and border procedures, standards and technical regulations, and even trade-related services such as transport and communications.

The standard economic analysis of regional integration focuses on effects such as trade creation and trade diversion. In essence, the potential for negative economic welfare impacts stems from the imposition of inefficient discrimination among trading partners. The economic impacts of trade facilitation reforms are often different, however. In many cases—for instance, upgrading customs and border procedures—reductions in trade costs are largely non-discriminatory, even if the impetus for reform comes from regional rather than multilateral sources. Many aspects of trade facilitation, such as transparency and simplification of rules and procedures, can be seen as akin to public goods: once provided, they are open to be enjoyed by all trading partners, not just members of a particular regional agreement.

In other areas, for example product standards and technical regulations, trade facilitation through policies such as harmonization does have the potential to introduce discrimination. But regional initiatives such as APEC have shown that harmonization using international standards as a benchmark can greatly reduce this problem. Trade facilitation therefore has strong potential to be part of the toolkit for “multilateralizing” regionalism: close relationships with regional partners provide the momentum for reform, but the beneficiary base is not limited to a single region.

Furthering the case for regional approaches, regional cooperation on many aspects of trade facilitation makes sense from an economic point of view. One force at work is economies of scale. For instance, developing national standards and certification infrastructure requires a high level of financial and technical commitment that may be out of reach for some small, developing countries. Experience from the Association of South-East Asian Nations (ASEAN) suggests that moving forward on a regional basis might be a viable option, through pooling resources, opening markets to private multinational actors, and judicious use of mechanisms like mutual recognition. Another economic benefit from regional cooperation is in the management of externalities — a cost or benefit, not transmitted through prices, incurred by a party not participating in the action causing the cost or benefit — associated with international trade. Poor transit policies by neighboring costal countries is the most obvious example.

How can the interplay of national, regional, and multilateral trade facilitation initiatives best be managed from a global welfare standpoint? The key lies in adopting a kind of subsidiarity principle, i.e. identifying the extent of cross-border spillovers involved in a particular initiative, and in managing it at the same level at which the spillovers occur. Transit arrangements, for example, have strong regional spillovers, particularly where landlocked countries are involved. Region-level management is crucial to ensure that the relevant public good is adequately supplied: a purely national approach would tend to produce a sub-optimal outcome, with particularly harsh consequences for landlocked countries.

Obviously, this approach is no more than a rule of thumb, and can give rise to tensions in particular cases. The reality on the ground is that many aspects of trade facilitation are increasingly being handled at the regional level. It is therefore crucial to ensure that these efforts are as supportive of the multilateral system as possible. In many cases, there is no conflict between the two: as noted above, many regional trade facilitation efforts involve little, if any, effective discrimination among trading partners, due to the use of international standards and systems. In such cases, regional initiatives enable participants to go beyond what is possible at the WTO level, but to do so in a way that does not undermine—and indeed positively supports—ongoing efforts at multilateral trade facilitation. In other cases, care is needed to ensure that regional trade facilitation efforts do not create de jure or de facto discrimination, and thus undermine the goals of the multilateral system.

This note is based on Maur, J.-C. “Trade Facilitation and Regional Cooperation.” In Chauffour, J.-P. and Maur, J.-C. eds. Forthcoming. Preferential Trade Agreement Policies for Development: A Handbook. Washington, D.C.: World Bank.

Note:
1. Maur: Senior Economist, World Bank Institute. [email protected]. Shepherd: Principal, Developing Trade Consultants Ltd. [email protected]. The views expressed in this note are those of the authors only. They do not reflect the views of the World Bank, its Executive Directors, or the countries they represent. back to text