Trade Facilitation and Integrity Go Hand in Hand? More than you think
Evdokia Moïsé, Senior Trade Policy Analyst and Silvia Sorescu, Trade Policy Analyst, Development Division of the OECD Trade and Agriculture Directorate
Good governance and streamlined procedures are essential features of an efficient border process. Cumbersome customs and other border procedures can directly raise trade transaction costs. Weak border governance can lead to hidden costs, resulting in time delays and uncertainties in the delivery of goods across borders. Non-transparent and burdensome procedures can continue to create incentives and opportunities for corruption in the movement of goods from one country to another, thus exacerbating integrity risks and deepening the vicious circle.
Is there a role for trade liberalisation and facilitation in zeroing in on corruption and supporting integrity in trade? Yes – and a greater one than you might think. Trade negotiations have pushed the boundaries of transparency and anti-corruption mechanisms through the inclusion of specific commitments in regional agreements, thus having a dual objective of increasing market integration and reducing market opacity. An OECD review of a wide selection of regional trade agreements (RTAs) showed that these reached new ground both in their scope and their potential for attacking corruption as a barrier to trade. Most of the RTAs signed by OECD countries over the last decade have been with economies outside the OECD area; WTO-plus and WTO-beyond transparency and anti-corruption mechanisms are thus increasingly being advanced in a North-South context.
Countries at all levels of development recognise that corruption distorts resource allocations and undermines the level playing field for businesses. Such provisions have the potential to reduce information asymmetries, enhance the enforceability and accountability of regulations, as well as minimize the opportunities for discretionary behaviour of government officials and institutions. This sets high-standard best practices for future regional integration initiatives.
In addition to pursuing such commitments at regional levels, multilateral and national trade facilitation efforts can create an environment conducive to clean trade and investment by eliminating the high transaction costs related to the complexities of border clearance procedures. The transparency, predictability and simplification of trade procedures have not only the potential to reduce trade costs and promote economic efficiency but also to remove corruption incentives and opportunities.
In December 2013 at the Bali Ministerial Conference, WTO members adopted the Trade Facilitation Agreement (TFA) which contains provisions for expediting the movement, release and clearance of goods. OECD estimates based on its 2015 Trade Facilitation Indicators (TFIs) show that a full implementation of the TFA could reduce worldwide trade costs by between 11.8% and 17.5%. The highest gains would accrue to low and lower-middle income countries. Areas such as the harmonisation and simplification of trade documents and procedures, the availability of trade-related information, or automation are key in reducing trade transaction costs. Implementing elements of good governance and impartiality in border administrations also has the potential to reduce trade costs by between 0.5 and 1.1%, depending on level of development.
One of the building blocks of modern and efficient border administration is integrity, which emphasises the fight against corruption and the enhancement of good governance measures. Trade liberalisation and trade facilitation can provide the best practices to support it.
The OECD is convening the global anti-corruption community to debate on most effective measures to enhance integrity in international trade at the 2016 OECD Integrity Forum “Fighting the Hidden Tariff: Global Trade without Corruption,” on April 19-20, 2016 in Paris, France. The Forum will provide a stocktaking platform for all sectors of society to debate best approaches to prevent, detect, and curb corruption in global supply chains.
Lejárraga, I. (2013), “Multilateralising Regionalism: Strengthening Transparency Disciplines in Trade”, OECD Trade Policy Papers, No. 152, OECD Publishing
OECD (2009), Overcoming Border Bottlenecks: The Costs and Benefits of Trade Facilitation, OECD Trade Policy Studies, OECD Publishing