Global Trade Development Week 7.0: The Global Future of AEO, Customs & Trade (Keynote Address)
31 October 2016
Excellencies, Ladies and Gentlemen,
Good morning,
Thank you for the invitation to participate in the Global Trade Development Week. 7.0. It is my pleasure and honor to be here today, this is my third time in Dubai this year.
Let me start today's address with a personal story: At the turn of the century, while still working for the government of Sweden, I was touring Africa with a business delegation. The aim was to establish business linkages and try to get Swedish companies to source more from African countries. In one country, Mauritius, we met with a large, global retailer in textiles and clothing of Swedish origin. We asked why it wasn't sourcing more from the mainland. It answered that the company would be very interested in this, but that it required short and predictable time frame for delivery. And as long as this could not be guaranteed, it was unable to rely - in its value and distribution chain - on exports from most African countries.
For me, this was an eye-opener. It provided a very concrete real-life example of exactly why customs and trade facilitation are so incredibly important for development.
And, for this reason and many others, I am proud to be here today representing UNCTAD, an institution that has been promoting customs and trade facilitation for a long time - in fact, for more than 50 years.
Just as my own experience in Mauritius showed then, trade facilitation is today well-recognized as a necessary condition for economic betterment through trade. We all feel the impact of trade facilitation in our everyday life as consumers. We expect products to be readily available when shopping. We increasingly shop online and expect the goods to be delivered quickly and at a low cost.
Speed and cost efficiency are features that we value. This is the case in all markets, in developed and developing countries.
How has this efficiency been made possible?
The container revolution and the global connectivity of shipping routes have significantly reduced transport cost over the last 20-30 years. During the same period, we have seen important reduction of tariffs and advancements in openness, especially in developing countries - providing additional stimulus to trade growth.
This did not only increase efficiency in the logistics sector. It paved the way for the emergence of global supply chains, particularly in manufacturing where it is most advantageous, both from a cost and technology perspective. It transformed the relationship between trade and foreign direct investment (FDI), to one in which FDI and trade became mutually reinforcing.
As a result, trade in intermediate goods has dramatically increased. Today, it accounts for 60 percent of global commerce, while 30 percent of global trade is intra-company trade. Companies rely on just-in-time production. Long waiting times for import, export and transit procedures are unacceptable. In a world of production chains, no country and no producer can afford to be the weakest link.
The development in global supply and value chains has also resulted in the rise of news methods of delivery. For instance, a decade ago or so, we did not pay much attention to express shipments. This has changed significantly. And with the rise of e-commerce, through which we find more and more SMEs involved in trade, we should expect further shifts towards trade in small parcels. E-trade holds the promise of revolutionizing the way we trade and who is able to trade. Take the recent press release by UPS: it stated that UPS estimated that cross-border e-commerce is growing at a pace of six times the GDP growth. In the current dire global environment, with sluggish trade and output growth overall, e-commerce is booming. And this is still a form of traditional trade. Consider the future of increased digitalization and digital delivery, or 3D-printing, and you can guess what more fundamental transformations we all are facing.
Trade is transforming and customs - notwithstanding its significant achievements in recent years - must transform with it. More needs to be done. A whole industry has been built to cater for just-in-time production and delivery, both B2B and B2C. This industry is dependent on efficiency in all parts of the supply chain and on being able to keep pace with increased e-commerce worldwide. However, as we all know, red tape, inefficiencies, and corruption in cross-border trade still exist. In many cases the B2G relations have unfortunately not been able to keep up with the B2B and B2C needs.
Overall, such red tape and inefficiencies in customs can add as much as 15% to the price of goods. This obviously undermines the competitiveness of a product.
Developing countries still face particular challenges in this regard.
In developing countries, trade costs are on average 1.8 times higher than in developed countries. And in some Landlocked Developing Countries, trade costs can be as high as 40% of the price of goods.
This undermines the competitiveness of developing countries.
This compromises their possibility to effectively participate in global value chains.
So, improving trade facilitation and customs reforms in developing countries can yield significant payoffs.
In fact, the yields far outweigh the investment costs. For every $1 spent on trade facilitation in an Aid for Trade country, our estimates show that the country's trade volume grows by $6.37 per year through increased trade volumes. Trade facilitation is essential to harnessing the benefits of trade for development.
And the gains from trade facilitation go beyond efficiency gains.
Trade facilitation also has a direct bearing on good governance and efficient governments. Measures that involve new technologies and institutional reforms improve governance and move the informal sector into the formal sector. With less paperwork to process and fewer palms to grease, public revenues go up. This generates new resources for spending on essential services.
With these vast potential benefits for development, it is no wonder why UNCTAD works not only on trade facilitation but also broader customs improvements, example from Customs facilitation.
The UNCTAD Customs Programme -- called ASYCUDA-- has for more than 3 decades supported customs administrations in 113 countries and territories, thus facilitating their international trade.
The ASYCUDA system originated as a means to help countries build and use the data collected at customs ports of entry through databases. The programme's scope has gradually widened to helping countries manage their economic and financial analysis and planning, as well as assisting the private sector in doing business.
The programme has also expanded in terms of its customs management functions. It now also other functions that help countries to measure institutional and trade facilitation benchmarks, to collecting revenues efficiently and producing data critical to risk management analysis, among other things.
Lately, we have also used our know-how on customs automation to launch e-certificates for SPS. We know that non-tariff measures (NTM) can significantly affect trade. And with 96% of world trade subject to one or more NTM, we must apply our experience of tackling unnecessary red tape at the border, and within customs, to behind the border measures. This is the next frontier in trade policy at large.
It is also worth mentioning that in UNCTAD's experience, there is a general misconception that trade facilitation leads to less control, revenue collection and compliance.
But this is wrong.
Specific measures such as customs automation not only speed up trade. They improve controls and customs revenue which has been proven with the implementation of the ASYCUDA system in many countries.
All of this makes trade facilitation a new frontier of competitiveness.
Countries that trade more and have more financial resources are in a better position to invest in reforms that make trade faster and more transparent. At the same time, faster and more transparent trade leads to yet more trade, higher revenues, and greater institutional development.
This underscores the point of ensuring that WTO's Trade Facilitation Agreement (TFA) is fully implemented. The TFA has all the potential of being a game-changer, yet it has still not entered force. As of today, 96 WTO Members have ratified the Agreement, whereas we need 110 Members to ratify before the Agreement can enter force. In this region, only UAE and the Kingdom of Saudi Arabia have ratified the TFA as of today. However, in general, according to a 2015 study GCC countries have an implementation rate of the TFA of about 90% which is very positive. Looking at the wider Arab region the implementation rate is about 50%.
Regional collaboration and integration is important to reap the full benefits of trade facilitation. In this context, it is important to point out that trade facilitation also requires a parallel development of transport facilitation to be efficient, such as regional coordination of infrastructure investments, standardizing regulations and mutual recognition of documents and permits etc.
Ladies and Gentlemen,
UNCTAD believes that it is imperative to promote trade facilitation. Trade facilitation matters because it translates directly into economic gains and human development.
Thus, let me encourage countries that have not yet done so to ratify the WTO TFA as soon as possible, thereby demonstrating their readiness to participate in global value chains and reap the benefits of global trade.
I look forward to follow the discussions during this week and to showcase how UNCTAD can assist in moving forward the trade facilitation and development agenda.
Thank you for your attention.
