The collapse of global trade, murky protectionism, and the crisis:

19. Keep the trade flowing by cutting red tape
Gerard McLinden
World Bank
The current economic crisis will lead to the first decline in international trade in 25
years – pushing millions of developing world citizens back into crippling poverty.
Recent protectionist responses are likely to deepen the crisis and delay recovery. G20
pledges to foreswear protectionism, or agreements on standstills and surveillance as
other suggest in this book are all useful. But the G20 could counter protectionism
more directly. It could adopt a proactive, pro-trade strategy of supporting reforms that
cut the red tape and reduce the transaction costs facing traders around the globe.
The WTO trade facilitation negotiations offer a very practical opportunity to offset
some of the impact of the current economic crisis. The payoff to developing countries
which depend heavily on trade could be particularly high.
This chapter explains how the current trade facilitation negotiations can act as a
positive catalyst for deep and meaningful reform in this area.
Trade facilitation as an active counter to falling trade
Excessively bureaucratic and outdated border processing systems and procedures as
well as inadequate infrastructure result in high transaction costs for traders, long
delays and unpredictability in the clearance of goods – often accompanied by high
levels of corruption. Red tape equals lost opportunities. Governments lose because
slow and inefficient processes encourage noncompliance and fraud, exporters lose
because high costs and unreliability make them uncompetitive on regional and global
markets, local manufacturers lose because the costs of their imported inputs are too
high and unpredictability in supply means they are forced to maintain unnecessarily
high and costly inventories, and consumers lose because high transaction costs and
inefficiencies translate into additional prices at the shops.
Research suggests that it takes three times as many days, nearly twice as many documents
and six times as many signatures to import goods in poor countries than it
does in rich ones (World Bank, Doing Business Report 2007). Africa, in particular,
fares poorly with the time taken between the submission of customs declarations and
ultimate clearance taking four times longer than in OECD countries (World Bank,
Logistics Performance Index, 2007). Delays, unpredictability and high trade transaction
costs at the border undermine a country's competitiveness, either by taxing
imported inputs with deadweight inefficiencies or by adding costs and reducing the
competitiveness of exports.
The evidence is overwhelming that attention devoted to eliminating unnecessary
red tape, removing opportunities for corruption and improving trade related infrastructure
is likely to attract investment and make small and medium sized enterprises
more competitive players in the international trading system. For all these reasons
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