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The Costs and Benefits of Trade Facilitation

Organization for Economic Cooperation and Development | October 1, 2005

Organisation for Economic Co-operation and Development (OECD)

Steady increases in trade volumes and complexity in recent years have significantly changed the operating environment for the international trading community. They have also highlighted the negative impact of inefficient border procedures on governments, businesses and ultimately on the customer and the economy as a whole. Governments may face smuggling, fraud and national security problems, which drain the public coffers, while businesses pay the price of slow and unpredictable goods delivery, costly customs procedures, and even lost business opportunities. And all these costs ultimately make goods more expensive for the consumer.

These “hidden” costs of trade are so high – as much as 15% of the value of the goods traded in some cases – that studies show that for many countries, the welfare benefits for from more efficient customs procedures could be as high as those from reducing tariffs. This is a problem for all trading nations, and finding ways to make the whole process of trading simpler and smoother – trade facilitation – is a key element of the Doha Development Agenda (DDA) for multilateral trade negotiations at the World Trade Organization.

Trade facilitation is particularly important for developing countries, as studies show they stand to gain the most from more efficient trade procedures, although achieving it may be more challenging for these economies than for the developed world. But even modest reductions in the cost of trade transactions would have a positive impact on trade for both the developed and the developing world.

This Policy Brief looks at the benefits that can be generated by trade facilitation, as well as the costs and challenges of achieving it, so as to make sure that countries can fully reap the gains of further multilateral trade liberalisation.

For permission to use or distribute this paper, please contact the OECD.

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