Trade facilitation

Understanding and use of the term “trade facilitation” varies in the literature and amongst practitioners. "Trade facilitation" is largely used by institutions which seek to improve the regulatory interface between government bodies and traders at national borders. The WTO, in an online training package, has defined trade facilitation as “the simplification and harmonisation of international trade procedures”, where trade procedures are the “activities, practices and formalities involved in collecting, presenting, communicating and processing data required for the movement of goods in international trade”.

In defining the term, many trade facilitation proponents will also make reference to trade finance and the procedures applicable for making payments (e.g. via a commercial bank). For example, UN/CEFACT defines trade facilitation as "the simplification, standardization and harmonisation of procedures and associated information flows required to move goods from seller to buyer and to make payment".

Occasionally, the term trade facilitation is extended to address a wider agenda in economic development and trade to include: the improvement of transport infrastructure, the removal of government corruption, the modernization of customs administration, the removal of other non-tariff trade barriers, as well as export marketing and promotion.

The World Trade Report 2015 provides an overview of the various trade facilitation definitions from academia as well as various international organizations, contrasting them with the scope of the WTO Trade Facilitation Agreement (TFA) concluded in December 2013. The WTO TFA has become the new baseline for trade facilitation, with many countries striving to implement measures going beyond those included in this Agreement in order to maintain a competitive advantage in global markets. Notably, most countries have focused their trade facilitation efforts on establishing electronic single windows and other paperless trade systems to further reduce trade costs.

Driving factors of the trade facilitation agenda

The trade facilitation objectives were introduced in the international agenda basically because of four main factors.

1) The successful implementation of the trade liberalization policy within the WTO frameworks caused the significant reduction of tariff and non-tariff barriers, that is common for developed countries (the average rate of customs duty from 4,5% to 6,5%, the share of duty free HS subheadings in customs tariffs from 29,2% to 53%). This reduced the revenue functions of customs and thus, the possibility of simplifying customs procedures with a moderate level of risk for national revenue opened up for a significant number of states.

2) The reduction of customs tariffs has caused the situation where the amount of import duties has become commensurate or even lower than trade transaction costs (TTC) with regards to compliance with customs and border formalities, since the latter are estimated on various data ranging from 1.5% to 15% of the transaction value. Respectively, trade transaction costs has started to be considered as the main trade barrier in the conditions of liberalized market access.

3) The industrial development in the modern global world based on the Global Value Chains (GVC) has transformed a cross-border movement of goods. Today, up to half of the total imports and exports of developed countries are “intermediate goods”, which are components of the corresponding GVCs. Accordingly, the cost of customs borders for business has increased significantly.

4) The expansion of production processes based on the principles of Just-In-Time (JIT) and of e-commerce shipments, which increased the requirements for the speed release of goods by customs.