Trade outcomes

In particular for countries that have already substantially lowered tariff barriers, trade facilitation is a key way of continuing the drive towards freeing up global markets for goods. Trade facilitation reduces the transaction costs associated with importing and exporting, and thereby makes it easier for local firms and consumers to interface with international markets. Trade facilitation changes relative prices of tradable and non-tradable goods, and thus affects production and consumption decisions, as well as export and import decisions. Theory suggests that implementation of the TFA should be linked with changes in trade costs, and from there to changes in trade flows between countries.

The OECD’s Trade Facilitation Indicators track implementation of the TFA’s provisions in 152 countries, including most members of the African Union. Trade facilitation is generally highly constrained in Africa, although there are some countries that perform noticeably better than the average. The OECD estimates that full implementation of the TFA could reduce trade costs by 16.5% in low income countries, and 17.4% in lower middle income countries (download OECD). The benefits of full as opposed to partial implementation are particularly high for those two country groups.

To date, there is no direct simulation estimate of the extent to which implementation of the TFA, with corresponding reductions in trade costs, would boost world trade, and alter bilateral trade flows. A study by the OECD indicates that some measures, such as reductions in documentary formalities, institutions and governance, and automation, would be particularly important for Africa (Full paper).

Other work using a broader definition of trade facilitation is also informative of the general orders of magnitude that are in question, and the stakes for Africa. The World Bank and the World Economic Forum, for example, have used a global Computable General Equilibrium (CGE) model to show that the gains from reducing supply chain barriers to trade—which include measures covered by the TFA—would yield higher trade gains than removal of all remaining tariffs on manufactured goods (Full report). The largest relative gains (in terms of the baseline) would accrue to the countries that reform the most—including African countries. Although TFA implementation would only bring a fraction of the gains considered by that report, it is still useful to get an idea of the magnitudes involved. Reducing supply chain barriers to trade could increase African exports by 63% and GDP by 12% under an ambitious scenario. These gains are clearly of real economic significance, and could provide a significant boost to development policy objectives.

Although much analytical work remains to be done on country level impacts of the TFA, existing studies suggest that there is clear potential for Africa to gain from implementation through lower prices and increased variety for consumers and users of imported intermediate goods, as well as increased exports.