The policy responses to the COVID-19 pandemic are having a significant impact on the cost of trading goods across borders. Despite measures taken by many countries to keep goods moving across borders, research at United Nations ESCAP reveals that international trade costs faced by importers and exporters in the region are expected to rise by 7 per cent on average this year, with some facing increases in costs exceeding 20%. Trade costs are expected to decline somewhat in 2021 but will remain higher than before the COVID-19 crisis. These estimates by ESCAP are forecasts based on a recent update of the ESCAP-World Bank bilateral trade cost database combined with macro-economic data from the Economist Intelligence Unit. Such rise in trade costs threatens to offset a large part of the potential savings originally expected from implementation of the WTO Trade Facilitation Agreement.
In the context of the COVID-19 pandemic, aside from eliminating tariffs on essential goods, one trade policy response that is crucial to mitigate rising trade costs is the digitalization of procedures. Several countries in Asia have taken concrete steps in that direction. Both China and India have accelerated implementation of paperless trade measures and many countries are now accepting certificates of origins and other documents in electronic form on a temporary basis. Besides reducing the cost of trading, this makes it easier for all those involved to respect physical distancing measures and reduce further infections.
Looking ahead, it will be important that acceptance of electronic trade documents by public and private stakeholders across borders becomes permanent rather than temporary. Achieving cross-border paperless trade could reduce trade costs in Asia-Pacific developing countries by up to 25 per cent, greatly boosting their competitiveness and ability to engage in regional and global value chains. The most recent data from the UN Global Survey on Digital and Sustainable Trade Facilitation suggests that implementation of measures enabling the exchange and legal recognition of electronic trade data and documents across borders remain low, with most countries at best pilot testing measures with a few trade partners.
Why is progress so slow? A decade or more ago, slow progress in developing countries could have been squarely attributed to the lack of ICT infrastructure, as well as the lack of capacity and cost of developing paperless systems. This is much less the case today. Many trade-related agencies and private actors have developed paperless systems, but they often remain disconnected from each other, even within a same country. Legal frameworks recognizing equivalence between paper and electronic documents have also been put in place, although they often remain incomplete, particularly when it comes to recognizing electronic documents and signatures coming from abroad.
The main issue underpinning slow progress is the lack of inter-agency and cross-border cooperation, which stem from insufficient political will to change the way trade is being conducted. There are indeed powerful vested interests that can gain from trade being conducted using complex and less than fully transparent processes. Lack of capacity also remains an issue in many least developed and landlocked countries, which may best be addressed through cooperation with more advanced countries.
Implementing cross-border paperless trade is an endeavor that requires strong political commitment and planning. While legal and technical standards exist that can help achieve seamless electronic exchange of trade data and documents across borders, intergovernmental agreements on how these standards should be implemented in practice are still very much needed. Some countries have taken steps in that direction and shown how slow and difficult it is to make progress even with an intergovernmental framework in place (e.g., the ASEAN Single Window Agreement).
Building on early bilateral and subregional initiatives, ESCAP member States have already developed and adopted the first United Nations treaty entirely dedicated to trade digitalization: The Framework Agreement on Facilitation of Cross-Border Paperless Trade in Asia and the Pacific. This enabling treaty is inclusive and flexible design, requiring no changes in laws or regulations prior to accession, and no minimum level of paperless trade readiness.
All that is needed to join this paperless trade facilitation treaty is true political will to develop and implement a long-term plan to achieve cross-border paperless trade in cooperation with other parties. The treaty does not bind parties to exchange electronic documents with each other, but rather focuses on developing mutual recognition mechanisms and pilot testing alternative solutions. To date, five countries have ratified the treaty. After Bangladesh in October, China completed ratification in November 2020. The treaty’s entry into force is now set for 20 February 2021.
In these particularly difficult times, all 53 ESCAP member States are encouraged to complete their accession/ratification to this enabling and inclusive UN platform, demonstrating true political will to build back a better trade environment out of and post COVID-19 crisis.