Development | Brussels, 6 December 2013
EU pledges new financial support to help developing countries implement WTO Trade Facilitation Agreement
In a move to support the timely implementation of the World Trade Organisation (WTO) Trade Facilitation Agreement, which will help developing countries by simplifying, harmonising and modernising international border procedures, Development Commissioner, Andris Piebalgs and Trade Commissioner, Karel De Gucht, today committed to cover a significant share of the funding needs of developing countries to implement the Agreement.
The EU's support, worth some €400 million over five years, responds to demands for help from countries most in need in order to comply with and draw the full benefit of the deal for growth and development. The Agreement was approved at the WTO's 9th Ministerial Conference in Bali, Indonesia, on 3-6 December 2013.
EU Development Commissioner, Andris Piebalgs said: "Investment in trade is fundamental to boosting the growth and development of a country. EU support to trade has helped to lift millions of people out of poverty in the last decade and will remain key to our development work. We want make sure that every country can enjoy the benefits that implementation of the Trade Facilitation Agreement can offer; that’s why we are ready to go the extra mile and help our partner countries which needs it to reach their full potential through trade.”
EU Trade Commissioner Karel De Gucht added: “The EU wants to send a decisive message that swift implementation of this Trade Facilitation Agreement is essential for developing countries. The agreement will make it easier and cheaper for developing countries to trade, with the biggest gains realised in south-south trade, thereby facilitating their integration into regional and global value chains. Returns on a relatively modest up-front investment will be considerable in terms of growth, jobs and development”.
The EU will aim to maintain at least its current level of support to trade facilitation over a five-year period; starting from the signature of the Trade Facilitation Agreement, namely €400 million over five years, or over a third of developing countries’ estimated needs, primarily through regular EU aid channels. Within this amount, it also stands ready to make a contribution of up to €30 million to a dedicated international trade facilitation facility for the most urgent actions for aligning legislation and procedures in developing countries to the new agreement.
EU support will be provided in the framework of its regular Trade-Related Assistance to developing countries. The EU is currently working on the allocation of its development aid for the period 2014-2020, and time is therefore ripe for developing countries to reflect their trade needs, including for trade facilitation, into their development strategies and include them in their priorities for EU aid for the period 2014-2020. EU aid will be financed partly from the EU budget, subject to the approval of the necessary legal instruments and partly from the European Development Fund (EDF), currently in the process of ratification by EU Member States.
At the same time, the EU recognises the potential value of a dedicated facility jointly funded by the major donors to support the Trade Facilitation Agreement. Such an international facility would provide initial fast-track funding and fill-in gaps in on-going or planned funding for making compliance with the Trade Facilitation Agreement fully and rapidly possible.
Trade facilitation refers to measures aimed at simplifying, modernising and harmonising merchandise import, improving border tax collection, export and transit procedures, especially customs requirements but also those of the many other agencies operating at borders. Possible measures include simplifying rules, standardising and reducing the number of custom forms, and computerisation. The WTO Trade Facilitation Agreement creates an international framework for these reforms, thereby spreading the benefits of trade facilitation across the globe.
Ensuring compliance with the Trade Facilitation Agreement itself will imply limited costs; according to a World Bank1 study, these would be in the range of €123,000 - €970,000 per country for capacity building and technical assistance (not including equipment and staff).
However, in order to benefit from the full potential of trade facilitation measures, the Organisation for Economic Cooperation and Development (OECD)2 estimates funding needs from €3.5 to €19.7 million over 3-5 years (i.e. €11.6 million on average). The bulk of the cost (70-90%) would be linked to the establishment of a single window for submission of documents, notably costs for staff and equipment. Costs related to procedural issues would be unlikely to exceed an estimated €1 million per country.
Based on the WTO's estimate of two thirds of its membership being developing countries (approximately 100 countries, including emerging economies and commodities-rich countries), one can extrapolate that €100 million worth of funding is needed to implement the procedural elements of the Trade Facilitation Agreement. Also taking into account the cost of staff and equipment, funding needs would climb to a total of roughly €1 billion over five years.
The EU and its Member States are the world’s leading providers of Aid for Trade and in particular trade facilitation support 3. Over the five-year period 2007-2011 (latest available figures), the EU and its Member States collectively provided a total of about €650 million for Trade Facilitation, which corresponds to 60% of the total support over the period. The EU itself is the world's leading provider of Trade Facilitation support with 48% of the total in 2011. The wider Aid for Trade agenda, which includes trade infrastructure and other expenditures, amounted in recent years to about €10 billion annually for the EU and its Member States.
Today, there is a yawning gap between developed and developing countries when it comes to border procedures. On average, OECD countries demand five documents at customs and it takes 10 days to clear goods at a cost of about €735 per container. In contrast, African countries require on average twice as many documents, up to 35 days to clear exports and 44 days to clear imports, at an average cost per container of €1,285 for exports and €1,535 for imports 4. The OECD estimates that reducing global trade costs by 1% would increase world-wide income by more than USD 40 billion (€29.6 billion), 65% of which would go to developing countries.5
Several developing countries have already carried out reforms. For a relatively modest investment of about €2-8 million, the benefits can be huge. According to the 2011 Global Aid for Trade Review, customs reform in Cameroon increased revenues by 12%; in Mozambique the figure was 50% in two years despite big tariff cuts. In Mozambique goods now clear customs in two to five days compared to 30 days before. In Sub-Saharan Africa cutting time spent at the border by 5% could achieve a 10% increase in formal intra-regional trade and revenue losses from inefficient border procedures are put at over 5% of GDP.
For more information
Ninth WTO Ministerial Conference (Bali, Indonesia, 3-6 December 2013) - MEMO/13/1076
Commissioner De Gucht on the outcome of the Ninth WTO Ministerial Conference, Bali, Indonesia, 6 December 2013
Commissioner De Gucht: "It's crunch time for the WTO", Bali, Indonesia, 4 December 2013,
- Needs, Priorities and Costs Associated with Technical Assistance and Capacity Building for Implementation of a WTO Trade Facilitation Agreement. A Comparative Study Based on Six Developing Countries, November 2006. ¶
- The Costs and Challenges of Trade Facilitation Measures, TAD/TC/WP(2012)25, 21 November 2012. ¶
- See EU Aid for Trade Report 2013 ¶
- The Global Enabling Trade Report, OECD, 2008. ¶
- Overcoming Border Bottlenecks: the Costs and Benefits of Trade Facilitation, OECD, 2009.¶