Trade Facilitation and Aid for Trade

It is a particular pleasure for me to speak in this forum, and share with you UNCTAD’s extensive experience in the area of trade facilitation and our well established support to land-locked countries.

Mr. Chairman, it is now well recognised that Trade Facilitation is assuming increasing importance in the international agenda, including in the context of the Almaty programme of Action, the WTO negotiations and the Aid for Trade Initiative.

In my presentation, I will first look at trade facilitation and its importance for land-locked developing countries; second, I will discuss the mutual relationship between trade facilitation and development; and thirdly, I will highlight the key role that trade facilitation has to play within the Aid-for-Trade initiative and how I see UNCTAD’s position in this process.

Mr. Chairman, let me start out with the issue of

1: Trade Facilitation and Land-Locked Developing Countries.

The crucial importance of access to overseas markets, and consequently the need to facilitate transit trade, has already been eloquently described by the previous speakers.

At UNCTAD, we strongly believe in a common interest between land-locked countries and their neighbouring transit countries. While on the multilateral level the positions expressed by different delegations sometimes appear to reflect rather antagonistic points of view, in the day-to-day business of transit operations, stakeholders from neighbouring countries do in fact often cooperate very constructively.   Not only do traders in land-locked countries benefit from better access to sea-ports, but also can traders and service providers in the neighbouring transit countries potentially benefit a lot from improving this access.

Let me explain why this is often the case.

Investments into building infrastructure to deliver trade facilitation services  – and by the same token into transport infrastructure such as paved roads, dredged waterways or container yards in seaports – require high trade volumes to be commercially viable. With low trade volumes, transport services are less frequent; there is less competition, and dis-economies of scale lead to higher transport costs. Traders and service operators from neighbouring transit and land-locked countries can thus benefit from joining forces and working together to improve trade facilitation and transport connectivity.

Let me illustrate this common interest for the case of seaports. Today, more and more container ports are operated by private companies. (And, by the way, many of those container port operating companies come from Asian developing countries, including United Arab Emirates, Hong Kong (China) and Singapore.) Once the seaports have adopted a more commercial approach to their business, they develop an active interest in attracting additional cargo from neighbouring countries – including land-locked countries. Walvis Bay in Namibia actively targets the market of land-locked Zambia; private port operators in Karachi aim at cargo from Afghanistan and Central Asia; and newly concessioned ports in Chile and Peru vie for the business of Bolivian importers and Exporters.

These are but a few examples where there is a common interest among land-locked countries and transit countries. And this common interest goes beyond the commercial interests of the transport operators, but also includes the common interests of traders from both countries.

Why should a trader in, say, Ghana, have an interest in helping traders in Burkina Faso? Because by combining the trade volumes of both countries, international shipping costs for traders from both countries will be reduced. Combining trade volumes helps to attract more shipping companies, with larger ships and more frequent and direct services to the port of Accra – and this increase in cargo volumes helps traders from both countries to become more competitive. It also helps the port of Accra to pay for investment in dredging, cranes and ICTs, and it helps national Customs to invest in modern trade facilitation measures in the sea-port and at the border crossings between the two countries.

As you realize, at UNCTAD we like to emphasize this common interest among land-locked and transit countries. We believe this is important to highlight because the benefits of the collaborative approach may not always be immediate and visible, and may weigh less in the cost benefit analysis than are the sometimes high initial costs of investment into infrastructure and trade facilitation.

But why should we only look at the trade of land-locked countries passing through coastal transit countries? Land-locked countries themselves can become transit countries, too. In those cases, we sometimes use the term “ land-linked ”. Within regional integration processes, all countries of a land-linked region can enhance intra-regional trade and benefit from better roads, railways and improved border crossing procedures, avoiding the need to use sea-ports at all. Again, you will realize that at UNCTAD we like to identify win-win situations, and highlight the common interest among our Member countries.

Mr. Chairman, progress in trade liberalization made during the last decades and the new demands for ever faster and more reliable trade logistics services have drawn increasing attention to trade facilitation and transport costs which can be more important than tariffs to determine the cost of traded goods. This can be bad news for land-locked countries as it is more difficult to achieve a global level playing field in those areas than it is for tariffs. According to one study, poor infrastructure accounts for sixty percent of transport costs for land-locked countries. Another study concludes that each singly day of average delay in Customs release times can reduce trade volumes by up to one percent.

This growing importance of trade facilitation has been recognised in the context of the negotiations within the World Trade Organization since 2004 after been incorporated in the WTO agenda in   1996, as a Singapore issue.

In our view, land-locked developing countries can potentially benefit in three ways from a successful conclusion of the trade facilitation negotiations at the WTO:

First: The improvement or clarification of Article V of GATT – Freedom of Transit - should facilitate transit trade, thus easing access to overseas markets especially for land-locked countries.

Second: Like all WTO members, land-locked developing countries would gain from an improved and clarified global framework for trade facilitation, including Article VIII – Fees and Formalities - and X of GATT – Publication of Trade Rules.

And thirdly: Like all developing countries, land-locked developing countries should gain from trade facilitation reforms at home especially if they are combined with technical assistance and capacity building.

This latter point, Mr. Chairman, leads me to the second issue of my presentation, the mutual relationship between trade facilitation and development.

2: Trade Facilitation and Development

Trade facilitation and development go hand in hand.

In the fastest growing developing countries it takes on average 20 days less to clear and transport imported goods to the warehouse than in the average Low-Income developing countries. In the developed countries only five per cent of imported containers are physically inspected, as compared to two thirds of all containers in Africa. The average freight costs for importing a container into sub-Saharan Africa is twice the average for importing a container into an OECD country. And the average time it takes a container to reach the warehouse after arriving in the port of an OECD country is six days – compared to twenty-six days in Africa.

Mr. Chairman, all these examples illustrate the close link between trade facilitation and development: More advanced economies will find it easier to implement more advanced trade facilitation measures, including those requiring sophisticated technologies – and introducing trade facilitation measures will help economies to become more competitive and consequently develop. The challenge for policy makers is to initiate a virtuous circle, where development, trade competitiveness and trade facilitation mutually contribute to each other.

Delegates of land-locked countries at the WTO are fully aware of the crucial role that trade facilitation – especially as regards transit trade – plays for their development. It is also for this reason that land-locked countries have been among the most proactive developing countries during the negotiations on trade facilitation at the WTO. Several proposals are sponsored and co-sponsored by the countries in this room today.

At the same time, many land-locked countries are also among the countries that would find the actual implementation of trade facilitation measures particularly challenging, not to say impossible without external assistance. As was already mentioned earlier this morning, a large number of land-locked countries are also LDCs. Many LDCs have been among the groups of countries which have voiced their concerns, in the context of the WTO Negotiating Group on Trade Facilitation, on the high level of requirements of some of the trade facilitation commitments which they could not meet.   Fears have also been expressed on insufficient attention being given to the specific needs of Land Locked Developing countries.

Unlike for some other WTO agreements, in the context of trade facilitation negotiations, Special and Differential Treatment - SDT will not be limited to transitional periods of time.   Rather, SDT is meant in this case to provide for special conditions for Developing countries to acquire the capacity to fully implement the commitments they agree to take on, in the form of trade facilitation improvements. In such a context, a non time-dependent one, exclusively aimed at developing required capabilities, external support becomes even more relevant.   This will require an appreciable scaling up of technical and financial assistance in order to build their capacity to comply with the trade facilitation measures for these new commitments.

Trade facilitation appearing thus as a core component of Aid for Trade, Mr. Chairman, leads me to discuss how Land Locked developing countries may benefit from the linkages between the two.

3: Aid for Trade and trade facilitation

Mr. Chairman, the Aid for Trade initiative, while still very young, has already triggered a lot of debate, and brought hopes and concerns among developing partners.   Born as a proposal developed by the World Bank and IMF in mid 2005, it was soon after adopted as part of the Doha development Agenda at the Hong Kong WTO Ministerial meeting in December 2005.   Although, we do not have the time here to discuss it in detail, I would like to briefly point out some important milestones of its short history and get quickly to the current state of the play.

As we all know, The Hong Kong initial mandate stated Aid for trade was meant “ to help developing countries, particularly least-developed countries (LDCs), to build the supply-capacity and trade-related infrastructure that they need to assist them to implement and benefit from WTO Agreements and more broadly to expand their trade. ”

In July 2006, a Task Force [note 1] created to operationalize Aid for Trade recommended that the initiative encompass six broad categories:

(1) Trade Policy and Regulations.

(2) Trade Development.

(3) Trade-related Infrastructure.

(4) Building Productive Capacity.

(5) Trade-related Adjustment.

(6) Other Trade-related Needs Categories

In June 2007, in its declaration, the G8 stressed “the need for achieving an ambitious, balanced and comprehensive agreement on the Doha Development Agenda” and “to underline the crucial role of Aid for Trade, the enhanced Integrated Framework, the role of trade related capacity building overall and the fundamental importance of increased and more effective funding.”   The G8 also “ urged all donors to improve quality and quantity of the means available by 2010 and encourage partner countries to include the AfT agenda in their poverty reduction and national development strategies. ”

In November 2007, the first Global review of the Aid for Trade initiative took place in Geneva.   The main document prepared jointly by the OECD and WTO for the meeting stresses that “ Trade related technical assistance amounted to an average of USD 21 bn during 2002-05, and constituted an important part of donors’ programmes, on average 31% of ODA, whereas large multilateral and regional institutions provide around 50% of their sector programmes to aid for trade.   The report also observes that “between 2002 and 2005, Asia received 51% of total aid for trade, Africa 30%, Latin America and the Caribbean 7%, Europe 5% and Oceania 1%, noting that Asia’s predominance is driven by large allocations to economic infrastructure. Most aid for trade went to lower middle income countries (36%), followed by the least developed countries (25%).   According to the OECD, the total funds allocated to trade facilitation technical assistance over the period 2002-05 averaged USD 263 million per year which represents less than a third (29%) of the total amounts allocated to the Trade Policy Regulations subcategory of the Aid for Trade classification adopted by OECD and WTO.   

More recently, at the end of February of this year, Pascal Lamy, Director of WTO and coordinator of the Aide for trade initiative, drew from the Global Review, “three clear priorities” for 2008: “ improving monitoring, moving on implementation, and strengthening developing-country ownership of the initiative”.   A new road map was then adopted with the following objectives:

• Increase developing country ownership of Aid for Trade.
• Shift emphasis to monitoring implementation - with a focus on country, regional and sectoral priorities.
• Launch work programme to develop performance indicators and to strengthen self evaluations.

That is the current state of the play, Mr Chairman, and even when many pending issues remain to be addressed, such as the difficulty to measure the aid devoted to trade and therefore to clearly define what is and what is not part of   AfT, in UNCTAD’s view, Aid for Trade (AfT), emerged from a shift in the development discourse on aid, trade and development, which marks a significant step forward by the international community in accepting that development assistance specific to trade must accompany any trade reform effort for such reform to be meaningful and lasting in terms of its development impact.

We believe, AfT must be consistent with the vast needs for trade development in developing countries and countries with economies in transition to benefit from opportunities generated by globalization. Such needs relate to supply-side capacity- building and competitiveness in manufacturing, commodities and services; reducing the costs of conducting trade, including by improving transport and trade facilitation. Coping with adjustment costs in the light of erosion of preferences and increased competitiveness will be important.

Furthermore, we think that facilitating and strengthening regional economic processes in developing countries must be an important component of AfT. AfT must also preserve national policy autonomy and be customized to the needs at national and regional levels while responding to common sustainable development needs.

Support provided as AfT should reflect the six categories established by the WTO Task Force on AfT. At the same time, it is recognized that AfT is a neither a substitute nor a condition for an expeditious and development-oriented outcome of the Doha Round. AfT should be a complement to the Doha Round and an essential component of a broader development package that must be pursued in conjunction with other development measures to promote trade, investment and financial cooperation.

We also believe that continuous assessment of AfT is necessary in terms of quantitative and qualitative delivery of AfT and its development impact. The global review by the WTO and the country-level review and monitoring are important mechanisms. However, these should not unduly burden the administrative capacities of the Governments of beneficiary countries. Monitoring and evaluation should continue to take place at the levels of the global review, the country-level monitoring, and the donors and the agencies implementing trade-related technical assistance.

Regarding the linkages between Aid for Trade and Trade facilitation, it must be recalled that already in 2006, the first WTO concept paper relating to the Aide for Trade initiative mentioned Trade Facilitation as an example where it would find an effective execution.

Together with important players of the donor community, such as the World Bank, we support the view that trade facilitation, transport efficiency and logistics improvement, and related actions are natural candidates for Aid for Trade financing, because they are instrumental to export competitiveness.   Now, putting in place WTO disciplines like trade facilitation will often depend on the formulation and effective implementation of bilateral or multilateral projects to execute large scale administrative reform programs.   Therefore, low income nations, such as many LLDCs, wishing to expand the overall trade related aid package, will have to make export competitiveness, and trade and transport facilitation, part of their national country growth strategy.

In doing so, land locked and transit developing countries, and, of course, among them Least Developed countries, may find an opportunity in Aid for Trade, the Enhanced Integrated Framework and the ongoing process of negotiations in the WTO, to attract new development partners and increase their share as recipients of trade-related assistance in the form of lending, technical assistance, training and analytical work, financial support and policy advice.

A regional approach may also sometimes be needed, especially for land-locked countries for which transit solutions to their economic problems may best be found in collaborative arrangements with their neighbours at the regional level. One recent study concluded that landlocked countries directly benefit from the growth of their neighbours: a growth rate of one per cent in the neighbouring country will – on average – lead to a growth of 0.7 per cent in the land-locked country.

Such a comprehensive approach, at regional level where appropriate, is the one that we in UNCTAD have adopted in carrying out some technical assistance activities of interest to this meeting that I would like to comment briefly now.

Without entering into details, let me just mention that the ASYCUDA system is now in place and operating in 13 Land locked developing countries and in 7 of their transit neighbours.   The programme also maintains regional support centres and is currently working on new developments of its transit monitoring module.

We also have recently concluded successfully an innovative project on capacity building for land-locked and transit countries along three pilot corridors located in Asia, Africa and South America. In line with the principles of the Almaty programme of actions, this project developed institutional cooperative solutions involving partners in both land locked and transit selected countries. The project specifically aimed at creating and operating facilitation clusters along transit corridors considered as single supply chains to produce a transit service. In all three pilot cases the participants, directly involved in the operation of their respective corridors, showed a sound capacity to analyse and solve daily obstacles, and to continue their cooperation on their cluster activities beyond the project’s completion.

UNCTAD is of course a partner in the Enhanced Integrated Framework. In the countries that form part of the “EIF”, trade facilitation programmes are in most cases embedded in the Diagnostic Trade Integration Studies.

In the context of the WTO negotiations on trade facilitation, and since the beginning of 2005, UNCTAD has provided extensive assistance to Geneva-based delegates and capital-based experts from developing countries and LDCs. The assistance is mostly provided in the framework of our Trust Fund project “Capacity building in developing countries and least developed countries to support their effective participation in the WTO negotiations process on trade facilitation”, presently financed by the Governments of Sweden and Spain. The support has included the organization of numerous regional round tables and training activities as well as the production of Technical Notes on Trade Facilitation Measures.

Today, our project activities increasingly focus on tailor-made country-specific assistance to prepare WTO members for their national WTO self assessment workshops.

The WTO has embarked on an extensive programme of national self assessment workshops. Together with the other so-called Annex D organizations, which as you know in addition to UNCTAD include the World Customs Organization, the World Bank, the OECD, and the IMF, UNCTAD is actively participating in the revision and updating of the self assessment guide, i.e. the document used during the self assessment workshops. UNCTAD is also providing facilitators during the actual undertaking of the workshops.

UNCTAD’s support may include

a) substantive collaboration with Geneva-based delegates as regards the setting up and the communication with a capital-based support group,

b) financial support to allow capital-based experts to participate in the NGTF and Geneva-based Delegates to participate in preparatory meetings in the capital, and

c) a technical mission to the capital in order to undertake a preparatory seminar with and for the national “support group”.

As the programme of the WTO and the Annex D organizations on the trade facilitation needs assessment is gaining momentum as we speak, I am happy to encourage especially the land-locked countries to contact UNCTAD to discuss possible areas of cooperation along these lines.

Concluding remarks

To conclude, Mr. Chairman, let me remind that UNCTAD’s three pillars can all contribute to seizing the opportunities that arise from the common interest of land-locked countries and transit countries in improved trade facilitation and transport connectivity:

Our research helps identify and analyse the close relationship between trade facilitation, transport connectivity and trade competitiveness;   consensus building contributes to a cooperative approach among land-locked and transit countries; and our technical assistance provides practical solutions in Customs reform, transit corridors and the preparation for the assessment of trade facilitation needs during the ongoing WTO negotiations.

As our member states will now agree in Accra, UNCTAD will continue to play an important role in developing and implementing projects under Aid for Trade. UNCTAD will continue to provide focused support to developing countries, in building their capacity to meaningfully participate in, and benefit from, the international trading system and to address the opportunities and challenges that this system offers.

I would like to take this opportunity to invite you all to a meeting on trade facilitation that UNCTAD is organising in July in Geneva, in the framework of the preparation of the Mid-Term Review of the implementation of Almaty programme of Action.

Mr Chairman, I will now conclude by reiterating that UNCTAD, will continue, as it has done for more than 40 years now, to fully support Land locked developing countries to address their specific needs in cooperation with their transit neighbours.

Thank You

Note 1: The Task Force was composed of 13 members: Barbados, Brazil, Canada, China, Colombia, the European Union, Japan, India, Thailand, the United States and the coordinators of the ACP, the African Group and the LDC Group. The Permanent Representative of Sweden, ambassador Mia Horn Af Rantzien, was elected chair of the Task Force. (return to text)