12/02/2014 07:09 pm ET Updated Feb 01, 2015

Cutting Red Tape in Trade Supports Development

In Geneva on Thursday the world clinched a landmark deal on trade.

World Trade Organization (WTO) members have opened the way for implementation of the WTO Trade Facilitation Agreement, following a welcome breakthrough between India and the United States. The Agreement aims at removing bottlenecks and cutting red tape for international trade so that goods cross borders more quickly and at lower cost. It was among the decisions taken at the WTO Ministerial in Bali in December 2013, bringing to end more than a decade of negotiations on the issue.

The Trade Facilitation Agreement may be new, but at the United Nations Conference on Trade and Development (UNCTAD), we have promoted trade facilitation as an integral part of trade and development policies for half a century. It is in everyone's interest to cut red tape, in particular in developing and least developed countries. Nonetheless, UNCTAD research reveals that trade facilitation reforms are more difficult to implement, yet also more important, for developing and least developed countries as compared to advanced economies.

Cross-border trade offers many opportunities, but also gives rise to challenges in the social, economic and environmental fields. Simplifying the international trade environment can help developing countries harness the benefits of globalization, while mitigating its costs.

One of the challenges to global trade is inefficient import and export procedures. In developing and least developed countries, the extra costs of delays, red tape, inefficiency and in some cases corruption can add as much as 15 per cent to the price of goods. This undermines the competitiveness of goods from these countries, particularly as the relatively low value of such products makes them more sensitive to additional trade transaction costs. Barriers to trade become barriers to development.

Trade facilitation contributes to creating the fast and reliable trade and transport services needed for developing and least developed countries to integrate into global logistics networks and participate in global value chains.

It is a common misconception that trade facilitation equates to less control for public authorities in overseeing trade. On the contrary, many specific trade facilitation reforms lead to more efficient and better-targeted controls, in a transparent trading environment. Such changes assist customs authorities in securing revenue collection, and veterinary and health authorities in monitoring food products. These controls are increasingly essential in our globalized marketplace, and are part of building strong national institutions.

The example of UNCTAD's ASYCUDA customs automation programme, implemented in more than 90 countries around the world, is illustrative. After automating and modernizing customs procedures, both revenue collection increases and controls improve. Traders see a reduction in the cost of trade, and trade flows increase. More trade generates more revenue for the government, which in turn can help improve public services, such as education and health care.

There are many other development benefits from trade facilitation -- especially for developing and least developed countries -- that are difficult to quantify. Trade facilitation helps integrate informal trade into the formal economy by lowering barriers for small- and medium-sized traders. It strengthens institutions and inter-institutional cooperation, which contributes to good governance, transparency and reduced corruption. Trade facilitation also encourages private sector and inward investment by providing a clear and predictable trade environment. This, in turn, may lead to better quality employment. Trade facilitation also provides incentives for closer regional integration and for greater investment in transport infrastructure and services linking neighboring countries.

Naturally, developing and least developed countries will have to make investments to achieve the targets of the WTO Trade Facilitation Agreement. UNCTAD estimates that meeting obligations under the Agreement will cost most countries US$5 million to US$15 million, depending on their individual situation. This highlights one of the crucial elements of the WTO Agreement. Developed countries have committed to helping developing and least developed countries implement the Agreement through technical and financial assistance. In this respect, the Agreement contains a real and novel development perspective.

It is now important that recent statements of good intention by WTO Members are translated into action and commitments. That way the Trade Facilitation Agreement can play a part in boosting global trade, particularly for the benefit of developing and least developed countries.

UNCTAD has longstanding experience as a partner in trade facilitation, for developing and least developed countries as well as for donor countries. Our focus is on trade facilitation as part of the wider drive to improve countries' development prospects and build sustainable and responsible globalization. As the international community comes together to agree on an ambitious, universal development agenda for the post-2015 period, implementing the Trade Facilitation Agenda is an important first step in reinvigorating an international trading system that is economically, socially and environmentally sustainable.

Mukhisa Kituyi, a former trade and industry minister of Kenya and academic, has been UNCTAD Secretary-General since September 2013.