Michael de Laine

By Michael de Laine, The Copenhagen Voice, 3 April 2009

Goods, money, and time are all wasted in the way shipments are dealt with when exported. Simplifying procedures at borders will help increase international trade and combat poverty.

A new thesis on trade, by economist Maria Persson of the School of Economics and Management at Lund University in Sweden concludes that goods, money, and time are all wasted in the way shipments are dealt with when exported. Cutting border red tape is a way to combat poverty.

Persson has studied how trade between the EU and developing countries could be increased.

Over the last ten years trade with developing countries has been a heatedly discussed subject at the World Trade Organization (WTO). One suggested way to increase this trade is to reduce tariffs.

But in her thesis Persson shows that very good results can be achieved by simplifying the procedures that must be followed every time a product is shipped from one country to another.

“I focus on how to limit the time it takes for goods to cross the border,” she says. “The more difficult the export procedures are, the longer it takes. My estimations show that if it takes a day less for a product to cross the border, the value of exports could increase by one percent.”

Persson used questionnaire material from the World Bank. Various intermediaries in commerce were asked how long it takes for goods to pass the border, while also controlling for what the ‘normal’ level of trade would be.

“If trade increases, this can lead to increased economic growth and thereby reduced poverty in many countries,” Persson says. “At the same time, exports would be more diversified, since a greater amount of different products could be exported. This would make developing countries less vulnerable, which is an advantage of this type of reform.”

Many countries have high costs associated with trade itself, a fact that has previously been invisible. In practice, exaggerated bureaucracy and slow processing, for example, lead to food rotting while it is held before being exported, or can result in a competitor winning the race to get the latest high-tech gadget to the market, which lowers the price the gadget could have commanded.

In other words, delays like this cost exporting countries a great deal of money.

At the same time, the issue of tariffs is becoming less and less important, since their general levels are successively declining. Thus there is great potential for increasing trade by introducing more efficient border bureaucracy.

“In most developing countries it takes a very long time for exported goods to pass the country’s own border, an average of 34 days,” Persson says. “It is therefore realistic to expect much larger savings than one day without it costing very much. The positive effects could be very large.”

She points out that it is often a matter of removing bottlenecks.

“For instance, more readily available information about what rules apply to exports would simplify matters a great deal for the trader,” she says. “The countries can limit the number of documents that need to be filled out.”

Other simple measures are extending the hours when the offices that perform crucial stamping of documents are open.

If EU countries also worked to make import procedures more efficient in a corresponding way, the impact would be even greater.

At the border, personnel can learn simple techniques for assessing risks by using random inspections, which would help speed up passage and increase security as well.

‘Trade facilitation’ does not necessarily mean less monitoring, but rather smarter monitoring.

“Companies that have shipped goods for 20 years without problems could be trusted more by customs officials, whereas shipments where the exporter has not been shown to be reliable should be checked more carefully,” says Maria Persson. “It’s a matter of risk assessment, and that is something that Sweden has been a pioneer in.”