Trade Facilitation: High Transaction Costs are a Burden to Both SMEs and Consumers

October 03, 2013. Geneva

On Thursday, 2 October, the WTO Public Forum hosed a CUTS international event on developing country SMEs and consumers' interests in trade facilitation, a hot topic two month ahead of the WTO ministerial conference of Bali.

"SMEs have specific concerns that are not directly addressed by internal regulations and, in the end, it is the consumer who pay for transaction costs. Both are concerned, but not fully involved", said David Vivas Eugui Senior Advisor at CUTS International Geneva.

Unlike big companies who benefit from large economies of scale, the smaller ones are very sensitive to unit transaction cost, cannot diversify risk and are price takers. "Big firms have better knowledge of the trading system and procedures, have counsellors, lawyers, and are better informed. Trade Facilitation aims to bring this missing information and to support SMEs in order to rebalance trade" said Stephan Fevrier, Trade adviser for Small States at the Commonwealth Secretariat.

Yet, SMEs are the largest employer in both developed and developing countries, the biggest contributor to GDP in the latter. In fact, they are the "traders"; but they have less capacity to overcome customs, documentation and infrastructure barriers as they have lower capacity to absorb financial risks.

Tackling transaction costs was also seen as one of the most urgent priorities for developing countries, for they affect business and consumer prices alike. In this regard, the implications of a possible trade facilitation deal at the Bali ministerial conference were extensively discussed.

"In terms of what's relevant for consumers and SMEs, a Trade Facilitation agreement will decrease the difficulty of trading and tend to stronger consumer protection, as the average trade transaction costs equal 10% of the cost of a good", said James Baxter, Deputy Permanent Representative of the Mission of Australia to the WTO. "A Trade Facilitation agreement will free up resources to focus on the areas of risk for consumers" he added.

Edouard Bizumuremyi, Commercial Attaché Mission of Rwanda was cautious but optimistic that his country could reap benefits from such an agreement. According to him, trade facilitation has been identified as a win-win agreement, but negotiators still struggle to conclude the negotiations. "Many resistances are on the detailed standards proposed, but not on trade facilitation overall. We are negotiating a calibrated agreement" he said.

Facilitated flows of goods can improve the variety, quality and quantity of the offer, push down prices, and increase levels of competition thus benefitting consumers at all levels. "Unlike one could think, trade facilitation increases revenue collection while reducing informal trade", concluded Jan Hoffmann, Chief of the Trade Facilitation Section, UNCTAD.

The event organised by CUTS International Geneva as part of the WTO Public Forum was chaired by Rajesh Aggarwal, Chief of Business and Trade Policy division, International Trade Centre (ITC).

For further information please contact:

Julien Grollier, +41 (0)22 734 60 80, jg@cuts.org