Improving the international trading system does not require new,comprehensive multilateral agreements. Countries can derive largegains from the trading system by engaging in reforms often referredto as trade facilitation.
In broad terms, trade facilitation includes reforms aimed atimproving the chain of administrative and physical proceduresinvolved in the transport of goods and services acrossinternational borders. Countries with inadequate tradeinfrastructure, burdensome administrative processes, or limitedcompetition in trade logistics services are less capable ofbenefiting from the opportunities of expanding global trade.Companies interested in investing, buying, or selling in localmarkets are less likely to bother if there are too many frictionsrelated to document processing or cargo inspection at customs,antiquated port facilities, logistics bottlenecks, or limitedreliability of freight or trade-financing services.
According to recent studies from the World Bank and otherinternational economic institutions, trade facilitation reformscould do more to increase global trade flows than furtherreductions in tariff rates. For many developingcountries-particularly those that receive preferential tarifftreatment from rich countries-reducing transportation andlogistics-related costs through trade facilitation reforms would bemuch more beneficial than further tariff cuts.
But trade facilitation does not only offer promise to developingcountries. All countries can benefit by removing sources offriction in their supply chains. The post-9/11 focus on minimizingthe risk of terrorists exploiting porous international supplychains to sneak weapons of mass destruction into U.S.cities-obviously a vital objective -could hamper the capacity ofAmericanbased companies to attract investment and compete formarkets. Likewise, U.S. prohibitions against foreign competition intransportation services and the political antipathy toward foreigninvestment in U.S. port operations raise the costs of doingbusiness and increase the scope for trade facilitation in theUnited States.