Improving the international trading system does not require new, comprehensive multilateral agreements. Countries can derive large gains from the trading system by engaging in reforms often referred to as trade facilitation.
In broad terms, trade facilitation includes reforms aimed at improving the chain of administrative and physical procedures involved in the transport of goods and services across international borders. Countries with inadequate trade infrastructure, burdensome administrative processes, or limited competition in trade logistics services are less capable of benefiting from the opportunities of expanding global trade. Companies interested in investing, buying, or selling in local markets are less likely to bother if there are too many frictions related to document processing or cargo inspection at customs, antiquated port facilities, logistics bottlenecks, or limited reliability of freight or trade-financing services.
According to recent studies from the World Bank and other international economic institutions, trade facilitation reforms could do more to increase global trade flows than further reductions in tariff rates. For many developing countries-particularly those that receive preferential tariff treatment from rich countries-reducing transportation and logistics-related costs through trade facilitation reforms would be much more beneficial than further tariff cuts.
But trade facilitation does not only offer promise to developing countries. All countries can benefit by removing sources of friction in their supply chains. The post-9/11 focus on minimizing the risk of terrorists exploiting porous international supply chains to sneak weapons of mass destruction into U.S. cities-obviously a vital objective -could hamper the capacity of Americanbased companies to attract investment and compete for markets. Likewise, U.S. prohibitions against foreign competition in transportation services and the political antipathy toward foreign investment in U.S. port operations raise the costs of doing business and increase the scope for trade facilitation in the United States.