Trade allows a division of labour between countries. It allows resources to be used more efficiently and effectively for production. But the WTO’s trading system offers more than that. It helps to increase productivity and to cut costs even more because of important principles enshrined in the system, designed to make life simpler and clearer.
Imagine a situation where each country sets different rules and different customs duty rates for imports coming from different trading partners. Imagine that a company in one country wants to import raw materials or components — copper for wiring or touchscreens for electronic equipment, for example — for its own production.
It would not be enough for this company to look at the prices offered by suppliers around the world. The company would also have to make separate calculations about the different duty rates it would be charged on the imports (which would depend on where the imports came from), and it would have to study each of the regulations that apply to products from each country. Buying copper or touchscreens would become very complicated. That, in simple terms, is one of the problems of discrimination.
Imagine now that the government announces it will charge the same duty rates on imports from all countries, and will use the same regulations for all products, whether imported or locally produced. Life for the company would be much simpler. Sourcing components would become more efficient and cost less.
Non-discrimination is just one of the key principles of the WTO’s trading system. Others include:
– transparency (clear information about policies, rules and regulations)
– increased certainty about trading conditions (commitments to lower trade barriers and to increase other countries’ access to one’s markets are legally binding)
– simplification and standardization of customs procedure, removal of red tape, centralized databases of information, and other measures to simplify trade, known as “trade facilitation”.
Together, they make trading simpler, cutting companies’ costs. That, in turn, means more jobs and better goods and services for consumers.
“Trade facilitation” has become an important subject in the Doha Round negotiations. Red tape and other obstacles are like a tax on trade. The saving from streamlining procedures could be 2% –15% of the value of the goods traded, according to estimates by the Organisation for Economic Cooperation and Development (OECD). The Peterson Institute for International Economics estimates that it could add $117.8 billion to the world economy (global GDP). The World Bank says that for every dollar of assistance provided to support trade facilitation reform in developing countries, there is a return of up to $70 in economic benefits.
Africa is already seeing major improvements. For example, under an investment project in the East African Community, delays at border crossings have been slashed from three days to three hours, allowing goods to move much faster between Mombassa port and neighbouring countries. It’s no surprise that some business leaders have even said they consider trade facilitation to be the top priority in the Doha Round.