Pensées Insolites: Trade Facilitation, It’s Not Ersatz Economics

In the first issue of Pensées Insolites I wrote about how the government of Bangladesh (GOB) is stepping up to the transparency requirements called for in the World Trade Organization’s (WTO) Trade Facilitation Agreement (TFA). With USAID’s support through its Bangladesh Trade Facilitation Activity (BTFA), the GOB has created a customs portal and a national enquiry point to promote transparency and good governance, and, ultimately, faster trade clearance, decreased trading costs, and greater prosperity. These are positive steps; the unanswered question is whether these and other attempts in trade facilitation have an impact.

There was, in fact, a midterm performance evaluation of BTFA, released in January 2018 and available on USAID’s Development Experience Clearinghouse (“Mid-Term Performance Evaluation of the Bangladesh Trade Facilitation Activity”). The evaluation is valuable for several reasons, not the least is that it explains many of the components of “trade facilitation.” The customs portal and national enquiry point are just two pieces of the project. It also includes many other technical aspects in trade facilitation, viz: advance rulings; customs auctions; standard operating procedures and other regulations; broker licensing; arrangements for authorized economic operators; prearrival processing; expedited shipments; post-clearance audit; risk management systems; and other forms of nontariff barriers to trade. BTFA has commenced initiatives in all of these. The website and national enquiry point have enjoyed the most success so far. Three tasks that remain incomplete but that show the most promise for immediate impact are prearrival processing, risk management, and post-clearance audit.

I was especially interested in learning whether the evaluation addressed the big question: does any of this matter? The evaluation states, “…the BTFA-supported reforms…would most likely lead to increased trade volumes, if fully implemented (p. 26).” There have been important successes, including the launches of the customs portal and the national enquiry point. It is also important to recognize that the midpoint evaluation covered the period September 2013 through March 2017. As the evaluation notes, BTFA gained momentum in 2016 and results coming after March 2017 would not be reflected in the evaluation.

The evaluation emphasizes the importance of trade facilitation for increased trade, economic growth, and prosperity. The WTO estimates that if all countries were to improve their practices in trade facilitation half-way towards that which is deemed global best practice, then GDP would increase 4.7 percent ($2.6 trillion) and trade would increase 14.5 percent ($1.6 trillion). Moreover, these estimate substantially exceed the gains in GDP and trade (0.7 percent and 10.1 percent) if all tariffs on trade were eliminated.

USAID’s commitment to the government of Bangladesh and to BTFA is on firm ground. Bangladesh is a lower-middle-income country where 14.8 percent of the population is living under $1.90 per day (World Bank; by comparison: 0.2 percent for the United Kingdom, 0.3 percent for Canada, 1.3 percent for the United States). Contributions from BTFA will help Bangladeshis most, of course, but, in general, benefit all through gains from trade.

The value in gains from trade may be underappreciated in today’s political climate. This calls to mind my first graduate level course in economics at the University of Chicago. Professor D. N. McCloskey drilled into us economist-neophytes the concept of gains from trade, that demand and supply curves were “out there,” and real, palpable, and measurable, and to eschew the pitfalls of ersatz economics. Trade facilitation is not ersatz economics. Just ask the people of Bangladesh.