Countries participating in the Belt and Road Initiative face a major challenge in facilitating trade. While large investments in trade-related infrastructure capture global headlines, transaction costs generated by inefficient border clearance and trade-related regulatory requirements are one of the major policy risks facing the BRI.
A new World Bank Group study assesses the scale of these trade facilitation challenges. Looking specifically at the six BRI land corridors, the research shows that most of these trade corridors perform below global averages. For instance:
- Times to comply with regulatory and border requirements for import are higher than the global average on all corridors except the New Eurasian corridor, and times to export are higher than the global average on all corridors except the New Eurasian and China-Pakistan corridors;
- Although it is the global norm for import clearance to take longer than export clearance, the gap between them is higher than the global average along the BRI corridors, suggesting a disproportionate burden for traders importing to BRI countries;
- Customs and border management agency performance is better than the global average on two of the four corridors; and
- On trade facilitation benchmarks, including Doing Business and the Logistics Performance Index, only two of the six land corridors rank in the top half of countries globally; and three of the six corridors rank below the global average in all benchmarks covered in our review.
Beyond this overall weak performance, an additional challenge is that within the BRI corridors, there is wide variation in trade facilitation performance. For example, within the New Eurasian corridor, the Czech Republic ranks 19th in the world on customs performance in the Logistics Performance Index, while Belarus ranks 112th. Given that supply chains are only as strong as their weakest link, and a premium is placed on timeliness and reliability, wide gaps in trade facilitation performance could undermine the potential benefit of the BRI corridors in unlocking new trade opportunities. This will be especially important for increasing the role of BRI countries in global value chains.
Six themes have been identified as broad priorities for reform: improving inter-agency coordination; improving transparency; drawing on ICT to streamline processes; making greater use of risk-based approaches; developing transit regimes; and improving information-sharing across borders.
Unsurprisingly, these priorities are shared by most countries wanting to improve trade facilitation, but the relative importance of some issues is higher for the BRI corridors. For example, while transit regimes are essential for all trade facilitation initiatives along economic corridors, it is especially important for the China-Central Asia-West Asia corridor, where more than half of the countries are landlocked developing countries. Another example is transparency, where forty-seven WTO Members have notified all four key transparency requirements of the WTO Trade Facilitation Agreement (TFA) – the key multilateral trade agreement in this area – but only eight of the BRI corridor countries have done so.
Beyond identifying these challenges, we suggest several concrete next steps to implement reforms in each corridor.
First, institutions need to be developed for each corridor to identify, prioritize, implement, and monitor trade facilitation reforms. It appears that the China-Pakistan corridor is the only one that both has an institution for cooperation, and has developed an action plan including trade facilitation measures (although this plan only addresses a small sub-set of the challenges faced).
Second, the reform process needs to start with corridor-specific diagnostics, drawing on existing tools like the Trade and Transport Corridor Management Toolkit, Time Release Studies, and WTO TFA gap assessments. These should be a basis or corridor-specific action plans on trade facilitation.
Third, each action plan should include a monitoring framework to track whether progress is being made – and the private sector should be seen as a partner in this monitoring.
Finally, trade facilitation reforms along the BRI corridors should draw on existing international practices and standards, notably those set out by the WTO TFA and World Customs Organization agreements, as well as other relevant international mechanisms. They should also build on the many reform efforts already underway.
In terms of trade facilitation, BRI should be seen as an opportunity to continue, rather than start afresh, the reform agenda in participating countries. This will help ensure that reform efforts reduce regulatory complexity, rather than creating new procedures, processes, or standards for traders to comply with.