FACILITATING INTRA-OIC TRADE:
Improving the Efficiency of the Customs Procedures in the OIC Member States
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CHAPTER I: TRADE FACILITATION
For a long time, tariffs stayed atop of the agenda of multilateral trade negotiations under
the GATT which was first launched just after the Second World War. Not only had these
negotiations but also the regional and unilateral efforts contributed to reducing the tariffs
considerably over the years. World tariffs have fallen from an average of
in the 1930s to in 2010 (McClanahan 2013a).
Many countries including the developing countries and LDCs have reduced their tariffs
dramatically over the years. Despite lower tariffs, some of these countries could not
increase their foreign trade at desired level due to various reasons such as higher trade
costs, undiversified production and export markets, limited financial resources etc.
Trade costs, broadly defined, include all costs incurred in getting a good to a final user
other than the marginal cost of producing the good itself: transportation costs (both
freight costs and time costs), policy barriers (tariffs and nontariff barriers), information
costs, contract enforcement costs, costs associated with the use of different currencies,
legal and regulatory costs, and local distribution costs (wholesale and retail). (Anderson
and Wincoop 2004).
Some of the studies in the literature e.g. OECD (2001), Milner et al. (2008) and Brooks
et al. (2005) and ADB and UNESCAP (2013) classify the trade costs into two forms
namely direct and indirect costs. Direct costs include mostly compliance costs related to
supplying information and documents required for the movement of goods or related
means of payment, and charges for trade-related services (e.g. trade insurance, port
management). On the other hand, indirect costs include procedural delays and difficult
to measure but has a considerable impact on trade.
The impact of trade costs on international trade has been investigated by many studies
in recent years. For example, using the Doing Business Indicators of the World Bank,
Djankov et al. (2006) investigated the impact of time delays on international trade. They
found that each additional day that a product is delayed prior to being shipped reduces
trade by at least 1 percent. Delays have an even greater impact on developing country
exports and exports of time sensitive goods, such as perishable agricultural products.
According to their estimates, reducing export times by 10 days (which is 48 days on
average) is likely to have a bigger impact on exports (expanding them by about 10
percent) than any feasible liberalization in Europe or North America. Sadikov (2007)
tested the impact of signatures exporters have to collect for shipment. The study
estimated that each extra signature place reduces aggregate exports by 4.2 percent.
Furthermore, it concluded that each signature lowers exports in differentiated products
by 4–5 percent more than it does in homogeneous goods.
Reducing these costs is one of the main objectives of trade facilitation. During the last two
decades importance of trade facilitation in increasing international trade has been