The TFA is in force: An update on Trade Facilitation and Development

02 May 2017

Written by Jan HoffmannArticle No. 1 [UNCTAD Transport and Trade Facilitation Newsletter N°73 - First Quarter 2017]

In early 2016, we published a study on "Trade Facilitation and Development" which discussed the various relationships between human and institutional development on the one side, and a country's capacity to implement and benefit from the trade facilitation measures of the WTO Trade Facilitation Agreement (TFA) on the other.

With the entry-into-force of the TFA and thanks to the very helpful TFA Facility of the WTO, new data from the notifications of developing countries on their implementation capacities is available.

In this note, I discuss some of the linkages between trade facilitation and development considering the latest notifications.

Trade Facilitation
Trade facilitation and development: The chicken and the egg

"Development" has many dimensions, which can be captured through different indicators, such as GDP per capita or the UNDP's Human Development Index (HDI). It comes as no surprise, that the more developed a country is, the more likely it is to notify that it has the capacity to implement the trade facilitation measures of the TFA. Figure 1, for example, shows that the higher the HDI of a country, the more trade facilitation measures it tends notify as Category A.

Figure 1: Category A notifications and the Human Development Index
Figure 1

For more developed countries, it is easier to invest and implement trade facilitation reforms, which often require IT capacities and complex inter-institutional collaboration. At the same time, countries that have invested in trade facilitation reforms will also have improved their development thanks to the necessary investments in human and institutional capacities and the improved trade competitiveness. Trade facilitation reforms and development mutually benefit each-other.

Which trade facilitation measures matter most?

The TFA includes 12 Articles covering a range of specific trade facilitation measures. As different countries notify different measures, it is possible to group the notifications by Article, and correlate them with other data. Figure 2 illustrates the statistical correlation between the HDI and the Doing Business indicator of the World Bank on the one hand, and the category A notifications on the other.

Figure 2: Category A notifications per Article, and the correlation with the Human Development Index and the Doing Business indicator
Figure 2

It can safely be argued that the correlation between the HDI and trade facilitation is resulting from the fact that more developed countries find it easier to implement the reforms. As regards the Doing Business indicator, it can be argued that the causality goes in the other direction, i.e. if a country has implemented more Customs and other trade facilitation reforms, its Doing Business indicator will go up. As can be seen in figure 2, in fact the two statistical correlations are very similar.

What is interesting from the data is that some trade facilitation measures are more important for these indicators than others. Modern Customs procedures (Article 7) and streamlined formalities (Article 10) appear to have a particularly strong bearing on the ease of doing business.

The data also shows which measures are more likely to be implemented together. This is of interest when planning the sequence of the reforms, as it provides an indication that it is unlikely that some specific measures are put in place without other related measures. For example, risk management, post clearance audits and the separation of release and clearance tend to be implemented together. Table 1 provides the statistical correlation between the notifications of the 12 Articles.

Table 1: Statistical correlation between category A notifications grouped by Article
Table 1

All correlations are positive (the coefficient could vary between -1 and +1). The strongest correlation of +0.83 is between Article 7 (Customs related measures) and Article 10 (formalities). Put differently, those countries that have advanced most with Customs reforms are also more likely to have advanced in the simplification of formalities.

Making trade facilitation, and development, sustainable

If implemented successfully, many trade facilitation reforms have a direct positive bearing on different dimensions of development.

Article 1 of the TFA, for example, covers the publication and availability of information; this is in line with SDG target 16.10 on "public access to information". Article 6 is to avoid "conflicts of interest in the assessment and collection of penalties and duties", which helps to "reduce corruption and bribery" as per SDG target 16.5.

Many trade facilitation measures help the informal sector to better participate in formal foreign trade, thus supporting SDG target 8.3 on the "formalization and growth of micro-, small- and medium-sized enterprises".

For the effective implementation of the TFA, WTO members are required to "establish and/or maintain a national committee on trade facilitation or designate an existing mechanism to facilitate both domestic coordination and implementation of the provisions of [the TFA]". Such a mechanism is crucial for ensuring the political buy-in of the relevant stakeholders from the public and private sector. It also responds to SDG target 17.17 to "encourage and promote effective public, public-private, and civil society partnerships".

At UNCTAD, we support our member countries through the Empowerment Programme for National Trade Facilitation Committees (NTFCs). Setting up and maintaining a sustainable NTFC will help reap the full benefits of trade facilitation for sustainable development.

Jan Hoffmann, Trade Logistics Branch, Division on Technology and Logistics, UNCTAD. [email protected]

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