Between Removal of Tariff Barriers and Improvements in Trade Facilitation

Both removal of tariff barriers and improvements in trade facilitation have been promoted as ways to boost trade between countries. At first glance, they appear to have more or less similar impact on a particular country, regardless of whether it is a developed or developing country. After all, removal of import tax by its partner is likely to make its export more competitive relative to domestic products whether it is a developed or developing country. The same can be said with regards to improvements in trade facilitation. It is challenging to argue that they have little impact on say the developing country.

However, there is a possibility that removal of tariff barriers is likely to benefit developing countries more than developed countries and vice versa in the case of improvements in trade facilitation. The developed countries arguably have more efficient production capabilities than the developing countries. It is thus highly likely that their products remain competitive even without removal of tariff barriers by their partners, notably the developing countries. On the other hand, the less efficient production capabilities of the developing countries necessarily mean that they have to rely on removal of tariff barriers to make their products competitive relative to others.

Moving on to improvements in trade facilitation, we have to understand the motivation of each. In the case of developed countries, improvements means better infrastructure and hence better market access. Essentially, improvements in trade facilitation by their partners increase the size of the potential market. On the contrary, companies in the developing countries that are interested in exporting their products would have selected suitable locations to site their facilities ex-ante. In other words, although improvements in trade facilitation have positive impact in general, they are unlikely to be relevant to these companies. Critics may argue that better infrastructure also mean better market access for the domestic companies but considering that infrastructure development has been rather slow or non-existent until recently, there is definitely a possibility that these companies have developed indigenous mechanisms that are not reliant on better infrastructure to improve their market access.

Presented with the above, one wonders if this could be the main reason why developed countries have been stronger advocates of improvements in trade facilitation as compared to their developing peers.