Facilitating Trade, Facilitating Development

by: Otaviano Canuto

Roberto Azevedo, the new head of the World Trade Organization (WTO), made a call yesterday in his debut address for members to strike a deal at the biannual ministerial meeting in Bali next December. Such a deal would include an agreement on "trade facilitation" - besides one on food security. Before you downplay the relevance of that deal, comparing it with the original ambition of the Doha round, let me argue here about its enormous significance if achieved.

In 2001, trade representatives from around the world first arrived in Doha, the capital of tiny Qatar, for the latest round of World Trade Organization (WTO) negotiations. The goal was ambitious: work to reduce trade barriers, while ensuring that developing countries secure their fair share of global trade growth. After several years of negotiations, however, the Doha Round began to stall, with countries not being able to agree on a variety of measures, particularly on issues related to market access and the extent of new liberalization commitments.

At the same time, the macroeconomic effects of the financial crisis began to set in, making matters worse as global trade volumes experienced the largest decline since World War II. Today, more than a decade into the Doha Round and five years into the Great Recession, WTO members are still struggling to resist protectionist sentiments at home, while at the same time trying to make good on their commitment to link trade liberalization with good development outcomes.

Against this background, leaders of the major multilateral development banks last year argued in an op-ed that: "The WTO's best defense of open trade is a good offense." In particular, they argued that a new WTO Trade Facilitation Agreement would be a good way to increase global growth, and simultaneously bolster developing countries' capacity to trade. It would represent a down-payment of major trade negotiations but, most importantly, a beneficial deal in itself.

The idea of trade facilitation is simple: help developing countries implement measures to reduce the cost of trading across borders by improving infrastructure, institutions, services, policies, procedures and market-oriented regulatory systems. And the results are huge: it is estimated that for every dollar of assistance provided to support trade facilitation reform in developing countries - especially on measures to improve border management systems and procedures - there is a return of up to $70 in economic benefits.

Given these returns, the World Bank and its development partners have continued to support a variety of trade facilitation projects in developing countries. In Lao PDR, for instance, the Bank has worked with the government and development partners to establish a Trade Information Portal (see the video here), and has also led a multi-donor-financed program to develop a National Trade Facilitation Strategy and establish a National Trade Facilitation Secretariat. Work is now even under way to help the government create a National Single Window, with the aim of simplifying and automating the customs process. Another great example of the Bank's trade facilitation at work is the East Africa Trade and Transport Facilitation Project, which has drastically reduced border crossing times between Uganda and Kenya - from three days to just three hours.

The success of these projects demonstrates that even with modest resources and limited capacity, the trade facilitation agenda can advance when countries have a strong commitment to the cause and access to sound advice. This is precisely why WTO members should press forward on a new Trade Facilitation Agreement, as developing countries want a credible commitment to support implementation costs such as technical assistance and capacity building. The dividends of trade facilitation can be shared by all, so securing such an agreement should be the focus of all.

Besides the actual benefits derived from the implementation of the trade facilitation agenda, there would be reputational gains to be accrued. As the new head of WTO stated it:

"(…) the perception in the world is that we have forgotten how to negotiate. The perception is ineffectiveness. The perception is paralysis. Our failure to address this paralysis casts a shadow which goes well beyond the negotiating arm, and it covers every other part of our work. It is essential that we breathe new life into negotiations. We must send a clear and unequivocal message to the world that the WTO can deliver multilateral trade deals."

A lot will be at stake between now and December in Bali.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.