How the Trade Facilitation Agreement Can Help Reduce Trade Costs for LDCs

The recently concluded Trade Facilitation Agreement (TFA) provides an ideal opportunity to narrow the scope of aid-for-trade (AfT) activities to heed the call for “Managing for Development Results” (MfDR). The paper reviews the evidence on trade costs by different country groupings, distinguishing between least-developed countries (LDCs) and landlocked LDCS (LLDCs), including new estimates of time in transit for international parcel data that is measured relatively accurately. This review is accompanied by new estimates that provide support for allocating a greater share of AfT funds toward LDCs and particularly toward LLDCs, both groups showing higher trade costs than comparators and less progress in reducing trade costs since 1995. On average, time in customs for imports and exports are also significantly higher for both groups than for their respective comparators. LDCs and LLDCs have systematically lower values for the components in the Organisation for Economic Co-operation and Development’s (OECD) new Trade Facilitation Indicators (TFI). New estimates suggest that a successful implementation of the TFA, defined as moving halfway toward the frontier value of the TFI for the respective country grouping could reduce trade costs for imports of LDCs by 2.4 percent and by 4.5 percent for LLDCs. Estimates of time in transit for parcels sent by post are also higher for LDCs than for other developing countries. Even though there is more to trade costs than customs management, monitoring implementation of the TFA would be part of the Istanbul Programme of Action for Least-Developed Countries (IPoA) and a stepping stone toward the concrete trade performance targets that have lacked in AFT activities so far. At the same time, the TFA should take on board the preservation of the environment by monitoring and preventing trade in endangered species.