The World Bank Group
and trade facilitation
Definition of trade facilitation
Streamlining and harmonizing the activities, practices and formalities required for international trade and associated payments and border logistics while safeguarding legitimate regulatory and policy objectives.
Examples of trade facilitation interventions
- Automation, harmonizing and streamlining of rules and procedures
- Strengthening and coordinating border agencies
- Improvements in border (port) infrastructure and logistics
View the Précis | An illustrated overview of the Evaluation of World Bank Group Support to Facilitating Trade
Lowering the cost of international trade can increase trade flows, which in turn can promote economic growth. Such trade facilitation reforms are especially beneficial to poor countries—the WTO estimated that it can reduce trade costs by 15 percent for low- and middle-income countries. According to OECD, each 1 percent reduction in trade-related transaction costs yields a worldwide benefit of $43 billion. This is one reason that trade facilitation has moved to the forefront of the global trade agenda.
As tariffs and explicit quotas have been lowered under the World Trade Organization (WTO), attention has increasingly turned to non-tariff impediments that add to the cost, add uncertainty and disrupt the flow of trade. Key impediments include inefficient agency practices and procedures, poor rules, and deficiencies in border infrastructure.
IEG’s recent evaluation Grow with the Flow: An Independent Evaluation of World Bank Group Support to Facilitating Trade has examined the World Bank Group’s work on trade facilitation over a 12-year period from 2006 to 2018, over which the World Bank Group conducted 893 trade facilitation projects amounting to almost $8 billion in value. The institution’s focus was on improving the trade competitiveness of its client countries by reducing trade costs to their businesses.
One of the key findings of the evaluation is that success in implementing and sustaining complex reforms requires sustained and coordinated engagement over time, as well as careful attention to political economy challenges.
Grenada – an initial triumph, but then…
Grenada was initially a success story, where World Bank Group assistance in trade facilitation likely would have contributed more over time to trade growth if it had been more broader and more sustained. Beginning in 2008, the Bank Group provided Grenada and other Eastern Caribbean States technical assistance and advisory services (through both IFC and the World Bank) to streamline and automate trade facilitation and logistics. From 2009 to 2012, Grenada was credited with making trading faster and easier by accepting electronic documents, streamlining procedures, reducing inspections, improving training and communications, and implementing the ASYCUDA World customs automation system. Grenada’s Doing Business “Trading Across Borders” ranking jumped from 79th in the world in calendar year 2009 to 40th in calendar year 2011.
Yet by calendar year 2014, Grenada had slipped to 138th in the world. When IEG visited Grenada in 2015, a customs official informed the team that the technical support and software were very good, but not enough to sustain reform momentum in the customs agency and beyond:
“What we really need is help with cultural change” the official said.
Complementary and sequential interventions have better outcomes
It is often assumed that technology and automation can substitute for weaknesses in institutional capacity. However, World Bank Group experience shows that beneficiary country agencies may resist change or take time to adopt new processes and technologies. Substantial learning and capacity building is often required to overcome this hurdle. This can be a long-term, arduous process.
Therefore, better outcomes are generally achieved when countries are supported through more than one operation—either simultaneous or sequential—and through an integrated combination of lending and technical assistance. For example, several areas of trade facilitation reform (such as agency support, border function, and technology and rules) are mutually complementary. In addition, support over time is important.
World Bank Group work in Mauritius illustrates the value of a sustained and complementary approach to trade facilitation reform. Two projects in 2012 and 2013 successfully streamlined the country’s trade regulations and rules, including eliminating unnecessary export permits on several products. The projects also helped establish a one-stop single window for traders. In contrast, a standalone 2010 World Bank project in St. Lucia failed in its goal of implementing an ASYCUDA customs data system. This project had a broad scope of objectives, but only a brief time frame of funding.
Weak institutional capacity can be a roadblock, as IEG has found in its evaluation. In countries with lower capacity, the World Bank Group’s stand-alone technical assistance has proven to be insufficient. For example, a regional project attempted to address all four trade facilitation areas of intervention (border agencies, border operations, rules, and border infrastructure) in four East African countries: (Kenya, Rwanda, Tanzania, and Uganda). However, all four governments involved suffered from low institutional capacity, especially in procurement, which led to a generally slow pace in finalizing and managing contracts, both for building infrastructure and for consultant services.
Political economy factors influence success
In evaluations of World Bank Group trade facilitation projects, political economy is identified as a leading factor for success or failure. Where top government commitment was evident and sustained, even recalcitrant agencies could be led to coordinate and reform. For example, in Benin, when President Thomas Boni Yayi took a direct interest in trade facilitation reforms starting in 2007 and maintained his focus on it over several years, there was rapid progress toward streamlining trade, including a “single-window” that introduced one-stop services for traders.
However, coordination can be more complex where multiple agencies are protecting their prerogatives, and even more pronounced in countries with several levels of territorial organization or in regional projects that span multiple countries. For example, in Peru, in 2006, two powerful government agencies were competing to lead the implementation of a single window. The dispute delayed implementation, and worse, resulted in an inefficient outcome: one of the agencies assumed leadership over the single window, and the other agency developed its own single window within its functional area.
A positive motivation for collective action and interagency coordation for action identified in the evaluation is external commitments. These can include the prospect of World Trade Organization (WTO) or European Union membership or association—or the emergence of a multilateral agreement. In the case of Lao People’s Democratic Republic, the desire for WTO accession drove the political commitment to implement significant trade facilitation reforms.
After decades of intellectual leadership and field engagement, the World Bank Group’s partnership with WTO yielded the Trade Facilitation Agreement, activated in 2017 and now ratified by 141 nations. The Bank-administered Trade Facilitation Support Program provides an important platform for client engagement. With this renewed impetus for trade facilitation reform, IEG used its evaluation to ask how to build on the factors of success. Here we’ve looked at two of the factors, where our findings led to these recommendations:
- On engaging more systematically, IEG recommends that, to enhance effectiveness, in countries where trade is a priority and the World Bank Group has comparative advantage, it should promote an approach of complementary (simultaneous and/or sequential) interventions, substantiated by consistent diagnostics.
- On political economy, IEG recommends that the Bank Group make more consistent use of its tools such as public-private consultation and stakeholder mapping to identify and mitigate political economy constraints that may hinder the implementation of trade-related reforms.
Photo: Products from Vietnam arrive at the Phnom Penh Autonomous port in Kandal province. he Cambodia Trade Development Support Program Project of the World Bank aims to help the government in formulating and implementing effective trade policies and increasing efficiency. Photo credit: Chhor Sokunthea/ World Bank