Why trade facilitation matters in today’s global economy
When policymakers talk about “trade facilitation”, they are referring to a specific set of measures that streamline and simplify the technical and legal procedures for products entering or leaving a country to be traded internationally. As such, trade facilitation covers the full spectrum of border procedures, from the electronic exchange of data about a shipment, to the simplification and harmonisation of trade documents, to the possibility to appeal administrative decisions by border agencies.
In a globalised world where goods often cross borders many times as both intermediate and final products, trade facilitation helps lower overall trade costs and increase economic welfare, in particular for developing and emerging economies.
In 2013, members of the World Trade Organization (WTO) finalised negotiations of the WTO Trade Facilitation Agreement (TFA), which set multilateral rules that seek to address specific procedural hurdles in order to facilitate trade procedures. The TFA entered into force in 2017, and represents a significant opportunity for countries to reap the economic benefits from improving the speed and efficiency of border procedures.
Trade facilitation benefits businesses and consumers alike, and helps tackle corruption
Whether exporting or importing goods, trade facilitation benefits all countries by allowing better access for businesses to production inputs from abroad and supporting greater participation in global value chains (GVCs). Countries where inputs can be imported and exported in a quick and reliable manner are also more attractive locations for foreign firms seeking to invest and offer consumers lower prices, higher quality products, and a greater array of goods.
Trade facilitation also helps more – and smaller – firms participate in trade. Addressing unnecessary costs related to trade procedures is essential for firms to take full advantage of new market openings. This is specially true for micro-, small- and medium-sized enterprises (SMEs), for which the costs of trading can be disproportionately large.
In addition, trade facilitation is critical for perishable agricultural products and for high-tech manufacturing components, both of which are highly sensitive to delays. Moreoever, trade facilitation is becoming more, not less, important in the digital era. The growing numbers of parcels crossing international borders is both increasing demand, and creating new challenges, for trade facilitation.
Finally, not only does simplification of trading procedures promote economic efficiency, but it also removes incentives and opportunities for border-related corruption, thus supporting good governance and integrity.
OECD Trade Facilitation Indicators help countries benchmark and improve their border procedures
To help governments improve their border procedures, reduce trade costs, boost trade flows and reap greater benefits from international trade, we have developed a set of trade facilitation indicators (TFIs) that identify areas for action and enable the potential impact of reforms to be assessed. The OECD TFIs cover the full spectrum of border procedures for more than 160 economies across different income levels, geographical regions, and levels of development. Each TF indicator is composed of several specific, precise and fact-based variables related to existing trade-related policies and regulations and their implementation in practice.
Using trade cost estimates from the UN ESCAP-World Bank International Trade Costs Dataset, we can assess the potential impact of implementing measures included in the WTO Trade Facilitation Agreement. With this approach, our analysis finds that the TFA could reduce worldwide trade costs by between 10% and 18%, varying across country groupings, but with the largest gains accruing to countries in the lower income groupings.
The OECD TFIs also allow countries to identify their strengths and weaknesses in trade facilitation, prioritise areas for action, and mobilise technical assistance and capacity building in a more targeted way. The TFIs not only measure the actual extent to which countries have introduced and implemented trade facilitation measures in absolute terms, but also their performance relative to others, using a series of quantitative measures on key areas of the border process.
The data underpinning the OECD TFIs are updated every two years, which allows countries to monitor their progress since 2013, when the project was first launched.
What do a clothing designer and a manufacturer of counterfeit medications have in common? For Praew, an up-and-coming clothing designer who runs Lanna Clothes Design in Thailand, and Paul, who manufactures and sells fake medicines to customers around the world, it’s simple: both rely on e-commerce to grow their business and send hundreds of parcels to customers overseas every month.
The compare your country tool allows you to access individual country profiles that provide an overview of trade facilitation performance. The tool offers a dynamic comparison of a selected country with other countries around the world. You can also visualise progress made by the selected country across all TFI areas.
Trade facilitation policy simulator
The trade facilitation policy simulator allows you to quickly obtain an overview of the indicators and the key measures driving the overall performance of a selected country and to compare the selected country with other countries. It also allows for the simulation of potential policy reforms: by modifying the data in specific policy areas, you can obtain an “edited” performance bar, showing the impact of policy modifications on the overall performance of the selected country and on its relative performance in comparison to other countries. The information obtained can be shared, referenced or downloaded.