The benefits of trade facilitation

more than three times as long as in European and Central Asian countries and almost seven times as long as in countries specializing in advanced manufacturing and services GVCs. TF can reduce tangible and intangible costs in the region by improving, simplifying, and harmonizing the procedures and controls governing the cross-border movement of goods.

Deep trade agreements (DTAs) can push TF reforms forward, advancing the free movement of goods between member countries by stipulating more advanced and sophisticated solutions than multilateral agreements typically contain.1 The DTA provisions promote coordination, collaboration, and information sharing between relevant agencies; harmonize processes and procedures that reduce transaction costs; and establish governance structures to pursue continuous improvement of border procedures as well as compliance and enforcement.

GVCs, in which goods cross borders multiple times, often magnify the impact of TF provisions. Because firms involved in GVCs rely on the timely and reliable delivery of foreign inputs, their export competitiveness is enhanced by more efficient import procedures. Because many border improvements are nondiscriminatory, TF commitments in a DTA generate positive spillovers for GVC firms that import inputs from countries that are not partners to the DTA.

Commitments to TF require an effective governance structure to support implementation. TF reforms entail major investments of time and resources over several years, especially if the political environment is volatile. And preferential trade agreement (PTA) partners’ different levels of development necessitate coordinated efforts to identify solutions suitable to national contexts. For Latin American and Caribbean countries to overcome the implementation challenges and reap the full benefits of TF, provisions must promote coordination among agencies and establish a clear governance structure such as through a TF committee.

THE BENEFITS OF TRADE FACILITATION

Border inefficiency and regulatory uncertainty are barriers to boosting trade in low- and middle-income countries, even when tariffs are low (WTO 2015). The problem has prompted renewed efforts to improve TF by simplifying and harmonizing the procedures and controls governing the movement of goods across borders.

TF measures reduce tangible and intangible costs at and behind the border. Although TF is often associated with the activities of a national customs administration, it also involves other agencies at the border and beyond.2 TF defined in this way includes measures aimed at not only facilitating trade directly but also promoting compliance and customs cooperation. For example, TF provisions in DTAs often include measures to promote cooperation between border agencies or information exchange on best practices. In addition, DTA provisions that require the publication or internet publication of regulatory information before implementation enhance the

transparency of trade-related regulations. Implementing such measures helps enable easier and quicker flows of imports and exports and reduces the uncertainty associated with international trade.

The impact of TF and uncertainty is usually magnified by trade through GVCs, whereby goods cross borders multiple times along a production chain (World Bank 2020b). Firms participating in GVCs not only export but also import intermediate inputs used in their production and exports. Increased efficiency in import procedures directly improves firms’ export performance and GVC participation (Fontagné, Orefice, and Piermartini 2017; Moïsé and Sorescu 2013; World Bank 2020a). Because TF can enhance border efficiency on both the exporting and importing sides, it is particularly important for GVC firms that import and export. And when competitiveness along GVCs relies on the timely and reliable supply of foreign inputs, high uncertainty is costly (Fernandes, Hillberry, and Berg 2016).

The TF agenda is particularly important in Latin America and the Caribbean, where the time and cost of trading across borders are high. TF indicators show a large gap between Latin America and the Caribbean and other, more-developed regions in export and import costs. The gap implies that TF improvements offer opportunities for better integrating Latin America and the Caribbean economically—and for the region’s countries to increase their participation in regional and global value chains.

Although TF reforms use various channels—including multilateral agreements, PTAs, and domestic reforms—DTAs can push TF forward. DTA provisions related to customs and TF advance the free movement of goods between member countries by including more advanced and sophisticated solutions beyond multilateral commitments. They harmonize processes and procedures that reduce transaction costs in imports and exports. They promote coordination, collaboration, and information sharing between relevant agencies of member countries. And they establish governance structures to pursue ongoing improvement of border procedures and facilitation and to improve trade compliance and enforcement.

DTAs in Latin America and the Caribbean contain a wide range of TF provisions, from those specifying rules of origin requirements to those addressing customs cooperation and information sharing. The region’s agreements have high numbers of TF provisions, exceeded only by those in North America and the European Union (EU). But DTAs vary across partner regions and countries. DTAs of mostly high-income regions (including East Asia and Pacific, the EU, and North America) tend to include more TF provisions than do the agreements of other regions. Intraregional DTAs within Latin America and the Caribbean include, on average, fewer TF provisions than those with extraregional partners—a notable difference for a region characterized by high intraregional trade and transportation costs.

As Latin American and Caribbean countries seek to integrate further into regional and global value chains, TF provisions in DTAs can reduce trade costs and times for GVC participating firms. In a recent study using firm-level data from Peru,