Trade facilitation (TF) is important for fostering greater trade not only for Bangladesh, but also in the region and the world at large. Trade facilitation would be crucial for the four trade expansion strategies of Bangladesh: (a) export diversification, (b) moving up the value chain, (c) integrate with production networks and global value chains (GVCs), and (d) promoting export-oriented entrepreneurship. Trade facilitation also enhances competitiveness by reducing costs involved in import-export activities.
A number of studies provide strong evidence that improvements in trade facilitation - for example, improvement in port and information infrastructure, more rapid customs clearance time, or regulatory reform to remove duplicative technical requirements on imports have a positive impact on trade. The definition of trade facilitation varies depending on the extent of measures to be included. In a narrow sense, TF simply addresses the logistics of moving goods through ports or customs at national borders. A broader framework for understanding trade facilitation and its impact on international commerce includes a number of interrelated factors which, in addition to transport logistics, might include streamlining regulatory requirements and harmonising standards, as well as reform and the modernisation of ports and customs. To this must be added improvements in communications services, increased use of information technology to monitor product flow, and supply chain integration.
Wilson and Otsuki (2007) use indices to measure four areas of trade facilitation, namely port efficiency, customs environment, regulatory environment, and the service-sector infrastructure. They find that South Asian countries lag behind East Asia and are well below the global average in their performance in trade facilitation. While estimates of the quantitative impacts of TF on Bangladesh trade are not available, Wilson et al find that, for South Asia, raising the level of TF to ASEAN standards will enhance intra-regional trade by 60 per cent (or by some $5.0 billion considering current volume of intra-regional trade).
TRADE COSTS AND TRADE FACILITATION: Trade facilitation initiatives, with the aim of lowering trade transactions costs, can enhance trade, expand trade flows, while at the same time playing an important role in supporting a positive business climate. At bottom, therefore, TF is about reducing trade transaction costs or trade costs. As tariffs decline in the South Asia region and around the world, non-tariff factors dominate transaction costs of trade. Trade costs are described in most theories of international trade as the set of factors that drive a wedge between export and import prices. Anderson and Van Wincoop (2004) made a comprehensive review of the literature on trade costs. They find a headline number for trade costs that is an ad valorem equivalent (AVE) of factory gate price of an exportable. This figure for trade costs can be broken down into many components ranging from transport costs, border-related trade barriers, wholesale and retail distribution costs, to language barrier, currency barrier, information cost barrier and security barrier. Traditional trade policies such as tariffs account for a portion of the border-related trade barriers only.
Although trade costs are experiencing an overall declining trend, it is observed that trade costs (including intra-regional trade costs) are generally higher for developing countries than they are for developed countries. Kee at al. (2009) show that tariff rates as well as selected non-tariff barriers in developing countries tend to remain higher than those of developed countries. This is in line with the observations that we make when we compare trade costs of Bangladesh with those of Malaysia and Thailand using selected trading partner countries of India, USA and Germany. Trade costs for Bangladesh with various trading partners range from an ad valorem equivalent of 110 per cent to 200 per cent whereas it ranges from 50 per cent to 110 per cent for Malaysia and 80 per cent to 160 per cent for Thailand respectively with the same trading partners for the period 1995-2007. Some other country-specific observations include the significantly declining trade costs of Bangladesh, Malaysia and Thailand with partner country India, and lowest trading costs of Malaysia and Thailand with partner country USA which however was not observed in the case of Bangladesh.
Even as Bangladesh is becoming more integrated into the world trading system, it has to be careful about its position as other countries are making fast progress. In addition to traditional sources of trade costs, such as tariffs and transportation charges, a range of other factors like logistics performance, customs performance, port infrastructure, maritime transport connectivity and behind-the-border measures play a great role in determining trade costs and need to be considered. Therefore, one of the foremost regulatory challenges that Bangladesh faces is to streamline these various factors so as to reduce its trade costs.
Dr. Zaidi Sattar is Chairman of the Policy Research Institute of Bangladesh.
 zaidisattar@gmail.com