NOTE NUMBER 351 viewpoint PUBLIC POLICY FOR THE PRIVATE SECTOR JUNE 2017 Expediting Trade Russell Hillberry, Ana Impact Evaluation of Serbia’s In-House Clearance Program T r a d e a n d C o m p e t i t i v e n e s s G l o b a l P r a ct i c e Margarida Fernandes, Claudia Berg and Alejandra Mendoza Ref orms of natio na l c us t o m s a g e nc ie s a r e s up p o r t e d b y inc r e a s i n g Alcántara amounts of d evelo p m e nt a id . H o we v e r , t he r e ha v e b e e n v e r y f e w Russell Hillberry is an Associate Professor in f ormal evaluations o f t he ir e f f e c t iv e ne s s . T his no t e s um m a r i z e s the Department of research ab out t he im p a c t o f t he I n- H o us e C le a r a nc e P r o g r a m o n Agricultural Economics at Purdue University. Ana p articip ating f irm s in S e r b ia . T he I H C p r o g r a m a llo ws q ua lif y i n g Margarida Fernandes (afernandes@worldbank. f irms to clear cus t o m s f r o m wit hin t he ir o wn wa r e ho us e s r a t h e r t h a n org) is a Senior Economist in the Trade and Interna- at the customs o f f ic e s . F ir m s a d o p t ing t he p r o g r a m e x p e r ie n c e d tional Integration Unit of the Development Research imp rove d p re d ic t a b ilit y o f c le a r a nc e t im e s ; ho we v e r , t he r ef o r m d i d Group at the World Bank. not have an impa c t o n m e d ia n c le a r a nc e t im e s , ins p e c t io n ra t e s , o r Claudia Berg (cberg@ imf.org) is an Economist imp ort values. in the Commodities Unit of the Research Depart- Customs reform is an area of substantial policy Although the program also exists for export ship- ment at the International interest, but also one that has undergone few rig- ments, this note focuses on import shipments Monetary Fund. Alejan- dra Mendoza Alcántara orous impact evaluations.1 The research summa- because they are most likely to be substantively (amendoza1@worldbank. rized in this note focuses on a particular customs impacted by the program. org) is an Impact Evalu- reform, namely, the introduction of an In-House ation Specialist in the Trade and Competitive- Clearance (IHC) program by the customs agency Reduced clearance times and increased ness Global Practice of the of Serbia.2 The IHC program allows qualifying predictability World Bank Group. firms to clear customs from within their own The main incentive for importing firms to adopt THE WORLD BANK GROUP Research for this note was warehouses rather than at the government cus- the IHC program is to reduce clearance times supported by the govern- toms offices. IHC programs are recommended and associated uncertainties. When customs ments of Canada, the United Kingdom, and under the Trade Facilitation Agreement (TFA) clearance is conducted at firms’ warehouses, IHC the United States through of the World Trade Organization (WTO). IHC is firms are not subject to congestion and other the Impact Program of one of the components that can be included in sources of delay — such as constraints on the the World Bank Group’s Authorized Economic Operator programs, which working hours of customs personnel. In most Trade and Competitive- ness Global Practice. have recently been implemented by more than cases, the shipment is cleared electronically and (continued on back page) 60 countries. However, IHC programs have not remotely within a half hour. Only occasionally yet been formally evaluated.3 This evaluation do customs officers visit the firm’s warehouse offers a window into the likely consequences of to conduct inspections of paper documents or these reforms for firms that adopt the program. the shipment. In principle, automated clearance Ax E R k M a n a g eT i spediting ttracting FmDeI nHt rade owiI n a mMp uCch tv usD ct E oa o em ls usa Int iv B eonn e se tf m o itf sn S e toef r CblC ima u ’s ast o nM eI m s- H aRoeuf tt eso re r ?m er C :l eTahrea nEcvei d P cg no fr era m o m A l ba n i a means that participating firms should experience also make them good candidates for the IHC shorter and less variable clearance times for the program. vast majority of their shipments. The study also examines the effect of the pro- Evaluating the program gram on inspection rates, which could also affect To control for the unique characteristics of IHC clearance times and the volume of trade. Based firms, the study employs the “synthetic control on evidence from the literature showing that both method” to evaluate outcomes such as clearance average time and uncertainty act as implicit trade times, inspection rates, and import volumes at costs, one hypothesis is that the IHC program the firm level. The outcomes of IHC firms are 2 should increase imports through a reduction in compared against the outcomes of “synthetic” trade costs as a result of automated clearance firms constructed from the data on non-IHC and lower inspection rates.4 firms. The data are weighted appropriately so that the actual and the synthetic firms match Even pre-program, participating firms along various relevant dimensions. Data from import more the synthetic firms offer the most plausible out- The Serbian customs agency implemented an come of what would have happened to IHC firms IHC program in July 2011. The program is open had they not adopted the program. The study to any firm that meets the qualification criteria. used recently developed methods for pooling Qualified firms must be at exceptionally low risk information across the 21 IHC firms to draw for non-compliance with import regulations; they statistical inferences about the overall program must post a bank guarantee with the customs impact.6 The synthetic control method is espe- agency, establish a suitable control system, and cially well suited to evaluations of treatments meet several other criteria. From 2011 to 2013, applied to a small number of units. Pooling a total of 34 importing firms used the program, across treated units improves statistical power, although only 21 firms participated in the pro- which is important in settings where the under- gram with sufficient duration and regularity to lying data are very volatile and the treatment be included in this evaluation. effect is weak. A comparison of import statistics for IHC- participating and non-participating firms prior Evaluation results to 2011 reveals important differences.5 The mean The impact evaluation finds that IHC-participating annual import value for IHC firms in 2010 was 27 firms experienced improved predictability of times higher than for non-IHC firms. Compared clearance times for their import shipments as to other Serbian firms, IHC firms are especially measured by the 75th and 90th percentiles of the large importers of wood and paper products, as firm’s monthly distribution of clearance times. well as metals. Even prior to the introduction of Prior to adopting the program, IHC firms had 75 the program, the firms that would later adopt percent of their shipments cleared in less than the IHC program had median monthly clear- 103 minutes. The study estimates that firms that ance times of approximately 34 minutes less than adopted the program reduced that statistic by that of non-IHC firms. IHC firms also had far approximately 42 minutes, or a 41-percent reduc- fewer long-duration clearance times prior to the tion.7 The evidence for improved predictability program. For example, 90 percent of IHC firm was strong across several robustness checks. shipments in 2010 cleared in less than 3.6 hours. Further tests established that the estimated The corresponding figure for non-IHC firms was impacts on predictability were common across 70.4 hours, or about 2.5 days. IHC firms were participating firms. also substantially less likely to be inspected than The study also assessed the effects of the other firms, even prior to adopting the program. program on inspection rates, median clearance One reason for the lower inspection rate could times, and firm import values. For these variables, be that the customs agency found those firms the evaluation procedure found no statistically to be more compliant with import regulations significant effect of the program. As noted, the than other firms — a characteristic that would firms that adopted the program already had low inspection rates and median clearance times and, (iii) the fact that potential impacts are very before adopting the program. This may be why likely to be reflected only in the long term. the program did not appear to provide the firm This research contributes to furthering the with any additional benefits beyond the reduced knowledge about the impact of trade facilita- uncertainty. tion reforms. It proposes a feasible and rigor- ous method to evaluate customs reforms, taking Unmeasured systemic benefits advantage of the rich administrative data that The primary rationale for a customs agency to customs offices routinely collect. This method implement an IHC program is to improve the will allow for evaluating specific reforms in dif- 3 operation of the overall customs clearance sys- ferent settings, thereby contributing to closing tem by reducing congestion at customs clear- this important knowledge gap. ance locations. Allowing low-risk shipments imported by qualified IHC firms to be cleared remotely reduces the number of transactions that must be handled at the official clearance facil- Notes ity. This systemic benefit is difficult to measure 1. During the five years from 2010 to 2014, US$1.3 because there is no credible control group for billion of official development assistance was provided the entire customs clearance system. Indeed, to support a somewhat larger set of trade facilita- sizable systemic benefits would make it much tion reforms (Authors’ calculations, Organisation for more difficult to evaluate the effects of the IHC Economic Co-operation and Development (OECD), program on participating firms.8 As more firms Query Wizard for International Development Statistics adopt the IHC program, systemic benefits of the (QWIDS) database: https://stats.oecd.org/qwids/). program become more likely. Systemic benefits Formal impact evaluations of trade facilitation reforms are another reason to recommend the program, are limited to some studies of reforms in Latin Ameri- even though these benefits are extremely difficult can countries, notably by Carballo, Schaur, Graziano, to measure precisely. and Volpe (2016a, 2016b); Carballo, Shaur, and Volpe (2016a, 2016b); as well as one by Fernandes and others Conclusion (2015) concerning Albania. In December 2013, WTO countries concluded 2. In-house clearance may also be designated as an “off- TFA negotiations, which then set the stage for site inspection” procedure because the inspection, if it countries to adopt best practices for expediting occurs, takes place in the warehouse and not at the site the movement of goods, coordination between of the customs office. customs and relevant authorities, and provi- 3. World Customs Organization (2016) provides details sions for technical assistance. From 2010 to about the Authorized Economic Operator programs 2014, donors disbursed over US$1.3 billion in around the world. The only preliminary evaluation official development assistance for trade facili- available of an authorized economic operator pro- tation efforts, and substantial additional com- gram is that by Carballo, Schaur, Graziano, and Volpe mitments have been made since then. 9 In 2014, (2016b) for Mexico. It focuses on exports and offers donors launched the Trade Facilitation Support preferential treatment to authorized firms, but does Program to assist the nearly 50 countries that not appear to have included in-house clearance. By have committed to implementing reforms to contrast, this study deals specifically with in-house clear- align with the TFA. ance, and it focuses on imports to Serbia. Although trade facilitation is becoming a more 4. See especially Fernandes and others (2015), Hum- relevant area of development policy, few rigorous mels and Schaur (2013), and Volpe and others (2015) studies have assessed the impact of trade facilita- regarding the effect of time reductions on trade. tion reforms. Three key issues can be attributed Clark and others (2013) demonstrate that uncertainty to this knowledge gap, including: (i) the diffi- over shipment arrival times reduces trade volumes. culty of applying experimental impact evaluation Concerning analyses of risk management programs, methods, such as randomized control trials; (ii) both Fernandes and others (2015) and Volpe and oth- uncertainties during project implementation; ers (2015) find that time reductions due to reduced E x pediting T rade I m p a ct E v a l u a t i o n o f S e r b i a ’ s I n - H o u s e C l e a r a n c e P r o g r a m inspections increase trade within the same year as the ———. 2016b. “Trust No One?: Security and Interna- reduced inspections occurred. tional Trade.” Inter-American Development Bank 5. This information was drawn from various tables Working Paper IDB-WB-703, Inter-American Devel- within the study itself. For further details, see Fernandes opment Bank, Washington, D.C. and others (2016). Clark, D., G. Schaur, and V. Kozlova. 2013. “Supply 6. The synthetic control method was introduced by Chain Uncertainty as a Trade Barrier.” Mimeo, Uni- viewpoint Abadie and Gardeazabal (2003) and Abadie and others versity of Tennessee. (2010). Pooling methods employed in the study were Dube, Arindrajit and Ben Zipperer. 2015. “Pooling developed by Dube and Zipperer (2015). Multiple Case Studies using Synthetic Controls: An is an open forum to 7. Numerous other factors could affect the 75th percen- Application to Minimum Wage Policies.” Institute encourage dissemination of tile statistic. The 42-minute time reduction is the causal for the Study of Labor (IZA) Discussion Paper 8944, public policy innovations effect of the IHC program. The study also investigated Bonn, Germany. for private sector–led and an additional measure of uncertainty, namely, clearance Fernandes, A., R. Hillberry, and C. Berg. 2016. “Expe- market-based solutions for development. The views times at the 90th percentile. It found somewhat weaker diting Trade: Impact Evaluation of an In-House- published are those of the effects attributable to the program. Clearance Program.” World Bank Policy Research authors and should not be 8. The study investigated a narrow window around the Working Paper #7708, World Bank, Washington, attributed to the World introduction of the program in order to reduce the D.C. Bank or any other affiliated risks that the program effects would be measured incor- Fernandes, A., R. Hillberry, and A. Mendoza Alcántara. organizations. Nor do any rectly as a result of the systemic benefits. 2015. “Trade Effects of Customs Reform.” World of the conclusions represent 9. For more information regarding trade facilitation Bank Policy Research Working Paper #7210, World official policy of the World efforts and aid, see the joint report by the WTO and Bank, Washington, D.C. Bank or of its Executive OECD, Aid for Trade at a Glance 2015, available at: Hummels, D., and G. Schaur. 2013. “Time as a Trade Directors or the countries https://www.wto.org/english/res_e/booksp_e/ Barrier.” American Economic Review 103(7): 2935– they represent. aid4trade15_chap4_e.pdf . 2959. OECD (Organisation for Economic Co-operation and To order additional copies Development)/WTO (World Trade Organization). References contact Jenny Datoo, 2015. Aid for Trade at a Glance 2015: Reducing Trade managing editor, Abadie, A., A. Diamond, and J. Hainmuller. 2010. “Syn- Costs for Inclusive, Sustainable Growth. OECD Publish- Room F 5P-504, thetic Control Methods for Comparative Case Stud- ing, Paris, France. http://dx.doi.org/10.1787/ The World Bank, ies: Estimating the Effect of California’s Tobacco aid_glance-2015-en 1818 H Street, NW, Control Program.” Journal of the American Statistical Volpe Martincus, C., J. Carballo, and A. Graziano. 2015. Washington, DC 20433. Association 105(490): 493–505. “Customs.” Journal of International Economics 96(1): Abadie, A. and J. Gardeazabal. 2003. “The Economic 119–137. Telephone: Costs of Conflict: A Case Study of the Basque Coun- WCO (World Customs Organization). 2016. Compendi- 001 202 473 6649 try.” American Economic Review 93(1):113–132. um of Authorized Economic Operator Programmes. Email: Carballo, Jeronimo, Georg Schaur, Alejandro Graziano, http://www.wcoomd.org/en/topics/facilitation/ jdatoo@worldbank.org and Christian Volpe Martincus. 2016a. “Transit instrument-and-tools/tools/aeo-compendium.aspx Trade.” Inter-American Development Bank Working Produced by Carol Siegel Paper IDB-WB-704, Inter-American Development Bank, Washington, D.C. Printed on recycled paper ———. 2016b. “The Border Labyrinth: Information Technologies in the Presence of Multiple Agencies.” Inter-American Development Bank Working Paper (continued from front page) IDB-WB-706, Inter-American Development Bank, Additional support was Washington, D.C. provided by the World Bank’s Carballo, Jeronimo, Georg Schaur, and Christian Volpe Multi-Donor Trust Fund for Martincus. 2016a. “Posts as Trade Facilitators.” Trade and Development, the Strategic Research Program Inter-American Development Bank Working Paper on Economic Development, IDB-WB-701, Inter-American Development Bank, and the Impact Evaluation Washington, D.C. for Development Impact (i2i) Fund.