83234 What is the World Bank Doing on Aid for Trade? A report highlighting the World Bank Group’s support to address the main constraints which firms in developing countries face in connecting to value chains. June 2013 THE WORLD BANK Acknowledgements This report was prepared by the staff of the International Trade Department, under the direction of Mona Haddad. Ian Gillson led the project and oversaw the editing process. Maika Watanuki provided the portfolio data. Amir Fouad contributed to the case stories. Table of Contents 1 Overview   1 2 World Bank Aid for Trade    3 Trends in the World Bank’s Aid for Trade Portfolio    3 Flows of New AfT Projects    4 The Role of IFC and MIGA in AfT    5 Non-Lending Activities    6 3 Country Examples: Connecting Firms to Global Value Chains    9 Strengthening Supply Chains through Promoting Transparent and Efficient Regulatory Frameworks and Improving Access to Trade Finance    9 Streamlining Border Management     12 Addressing Barriers to Trade in Services (distribution, transport, communications, and air/maritime sectors)     13 Investments in Transport and Communications Infrastructure    15 4 Looking Forward   19 What is the World Bank doing on Aid for Trade?   iii Overview 1 V alue chains are becoming an ever more chain barriers such as complicated regulations prominent feature of global trade, with or lengthy border delays often play a large role goods being processed—and value in firms’ decisions about where to invest. Supply being added—in multiple countries that are chains tend to go where the logistics are smooth. part of the chain. No longer is trade as simple Supply chain barriers, therefore, are emerg- as manufacturing a product in one country ing as far greater impediments to trade than and selling it to another. Rather goods are in- traditional trade barriers such as import tariffs. creasingly the product of complex interactions According to a recent report by the World involving multiple linkages. Over the course Economic Forum, in collaboration with Bain & of their production, goods often cross many Company and the World Bank,1 the combined borders, undergoing processing and accruing effects of an ambitious improvement to border value-added at points along the supply chain administration and more efficient transport and before final delivery to market. In this context, telecommunications infrastructure could boost supply chain efficiency—as well as those factors global exports by 14.5 percent, if all countries impeding it—has emerged as a leading deter- improved halfway to the speed, quality and cost minant of trade growth. of global best practice (as observed in Singa- The extension of value chains offers sig- pore). By contrast, eliminating import tariffs nificant opportunities for developing countries. would increase global exports by an estimated However, many developing countries, particu- 10.1 percent. In other words, the costs associat- larly the poorest, remain unable to fully benefit ed with inefficient trade facilitation and logis- from global trade as they often remain export tics (e.g. lengthy dwell times in ports, dealing dependent on just a handful of primary com- with red tape) are typically much higher than modities and attract little foreign investment due traditional tariff costs. to deficiencies in their enabling environments. Furthermore, supply chains also highlight The increasing prominence of supply chains the importance of trade in value added, much is largely reflected in the increased amount of of which is accomplished through the success- trade in intermediate inputs, or components, ful delivery of services. Services on their own used for example in the production of cell phones represent a much smaller proportion of world or automobiles that often cross borders before trade than do services as value added inputs to the final product is assembled. Intermediate the production of goods. For example, services inputs represent more than half of high-income trade accounts for one-fifth of world trade, country imports and close to three- quarters of but it accounts for half of all world trade if the imports from large emerging economies such as services embodied in goods trade are taken into Brazil and China. Supply chain alignment and account. These value added services are provided success is partly based on comparative advan- by both foreign and domestic service providers, tage and specialization in specific segments of suggesting that barriers to trade and investment the supply chain—be it in inexpensive labor, an in services also adversely impact the ability of abundance of machinery, or technical skills—but value chains to operate efficiently. networked trade in parts and components is also more sensitive to countries’ logistics performance 1 World Economic Forum (2012), ‘Enabling Trade: than trade in final goods. In addition, supply Valuing Growth Opportunities‘,Geneva. What is the World Bank doing on Aid for Trade?   1 Firms in developing countries often face in some developing regions often have higher serious constraints in connecting to global value trade costs with each other than with more chains. These constraints are often embedded in distant high income markets: a disparity that a wide range of policies that limit the movement can reduce the gains of deepening regional of goods and services across borders including: trade integration. But maritime connectivity non-transparent regulatory frameworks and and logistics performance are both amenable weak business environments; inefficient border to policy interventions to boost their efficiency, management and administration; barriers to and addressing these issues has the potential trade in services, especially in the distribution, to reshape bilateral trade and investment pat- transport, communications, and air/maritime terns, as well as the development of global value sectors; and low investment in transport and chains. communications infrastructure. Many devel- As the largest multilateral provider of Aid oping countries lack capacity in more than one for Trade (AfT), the World Bank’s support to of these areas, creating a significant hurdle in developing countries recognizes that lower light of the necessity to holistically address all trade barriers and trade agreements need to be of them in order to boost competitiveness. combined with stronger hardware and better Trade costs also remain high for those de- software to help firms connect to value chains veloping countries struggling to gain a lasting and reap the benefits of international trade. foothold in international supply chains. A new The World Bank helps with the hardware of database developed jointly by the World Bank ports and infrastructure but also assists with and UNESCAP reveals that two supply chain the software of clear customs rules, support for factors in particular—maritime transport con- logistics, trade finance and developing a better nectivity and logistics performance—are very regulatory climate for private business. Building important determinants of bilateral trade costs, shared prosperity through trade also involves with an effect comparable to that of geograph- helping people, especially the poorest, to adjust ical distance. In fact, neighboring countries to new circumstances. 2   What is the World Bank doing on Aid for Trade? World Bank Aid for Trade 2 T he AfT program of the World Bank of trade as a cross-cutting theme, the share of Group is multifaceted, encompassing active trade and integration projects has steadily concessional lending to low-income grown from 2.9% in total lending in FY03 to countries and non-concessional lending to 6.5% in FY12. As of February 2013, this share middle-income countries for trade-related had reached 7% of the Bank’s portfolio. While projects; investments by the World Bank’s pri- the number of projects has been relatively stable vate sector arm, the International Finance Cor- over the years, the committed amount for trade poration (IFC), in private sector activities such and integration projects has increased. This as trade finance; political risk insurance through shows that trade is being mainstreamed into the the Multilateral Investment Guarantee Agency Bank lending portfolio across the various sec- (MIGA); and, the provision of policy advice tors, and that Bank lending projects are taking and technical assistance embodied in analyti- trade into consideration more than before. cal work such as Diagnostic Trade Integration By Region, South Asia’s (SAR) share in Studies (DTIS) and updates to these undertak- total AfT shrunk between FY03–12 while en in the context of the Enhanced Integrated shares for Europe and Central Asia (ECA) and Framework for Trade-Related Assistance for sub-Saharan Africa (AFR) have increased the Least Developed Countries (EIF). most over the same period (see Figure 2). The With a significant presence in more than ECA Region has several fast growing emerg- 120 countries, the World Bank’s AfT contribu- ing countries (e.g. Turkey, Kazakhstan) and the tions have increased steadily over the past decade. Based on the OECD/WTO definition of AfT,2 World Bank commitments in 2009 amounted 2 The OECD/WTO definition of AfT excludes trade finance and includes infrastructure. The definition to approximately US$8 billion,3 making it the includes trade policy and regulation, economic infra- largest multilateral provider for AfT, of which structure (ports, roads, airports, telecommunications, US$3.4 billion and US$3.5 billion were provid- and energy), capacity building, and trade-related budget support. Because it is impossible to distin- ed to Least Developed Countries (LDCs) and guish which part of a loan is for the non tradable other low income countries, respectively. or tradable sector, the OECD/WTO considers the entire loan in these sectors as AfT, a convention fol- lowed in this report. The exception is budget support, for which the World Bank, like the OECD/WTO, Trends in the World Bank’s Aid have included that portion associated with trade-re- for Trade Portfolio lated activities as defined in the loan itself. 3 Aid for Trade at a Glance 2011-showing results, OECD/ WTO, 2011. For its internal purposes, the World Bank defines 4 The World Bank‘s internal definition covers only trade-related lending more narrowly than the lending that is coded to the World Bank’s Trade and OECD/WTO definition of AfT and excludes Integration themes, namely: export development infrastructure projects.4 Using its definition, and competitiveness; regional integration; technolo- gy diffusion; and trade facilitation and market access. IDA5 and IBRD6 had a total stock of US$10.8 It excludes infrastructure projects and trade finance. billion (66 projects) in the AfT portfolio as of 5 International Development Association. end-FY12 ( June 30, 2012),7 representing a four- 6 International Bank for Reconstruction and Development. fold increase from the FY03 level of US$2.8 7 The World Bank‘s Fiscal Year (FY) starts on July 1 billion (see Figure 1). Given the importance and endson June 30 of each year. What is the World Bank doing on Aid for Trade?   3 increase in the ECA share of the AfT portfolio Stock of AfT commitments by Figure 2:  can be attributed to large lending projects to Region these countries. For example, Turkey received US$360 million of Export Finance Interme- FY 03 diation Loans to support export development LCR while in Kazakhstan the South-West Roads 21% AFR International Transit Corridor Project received 17% US$1.8 billion to improve trade-related trans- MNA EAP port. As the second largest recipient of World 4% 15% Bank AfT, the Africa Region has many regional ECA as well as individual country-level projects. For SAR 14% example, in West Africa the CEMAC Trans- 29% port Transit Facilitation Project is providing US$190 million aims to support landlocked FY 12 LCR countries such as Chad and the Central African 7% Republic by providing them with better access AFR to the Port of Douala (Cameroon). MNA 29% The majority of AfT projects focus on 4% EAP improvements to trade facilitation and market 10% access; accounting for 51 percent or US$5.6 billion out of the total stock of AfT, followed by ECA 46% SAR support to regional integration (28.4percent)— 4% see Figure 3. Flows of New AfT Projects flows was in FY09 and the result of a large loan to Kazakhstan to support trade infrastructure New AfT projects approved in FY12 amounted development. Recently launched AfT projects to US$1.9 billion and are expected to increase include the Abidjan-Lagos Trade and Transport further to US$3.0 billion in FY13. As of Feb- Facilitation Program, which will provide US$57 ruary, 2013, new AfT commitments accounted million to support the reduction of trade and for US$1.4 billion, or 8.7 percent of total new transport barriers in the port and on the roads Bank lending commitments, up from 5.3 per- along the corridor. In addition the Lao PDR cent in FY12 (see Figure 4). The peak in new Second Trade Development Facility Project will Stock of trade lending according to the World Bank’s definition of AfT Figure 1:  14,000 80 12,000 70 10,000 60 US$ millions 50 8,000 40 6,000 30 4,000 20 2,000 10 0 0 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 (Q2) IDA commitments IBRD commitments Count of Projects 4   What is the World Bank doing on Aid for Trade? Figure 3: S  tock of AfT commitments by supply chain finance programs help compa- activity type nies in emerging markets access much-needed financing, boosting growth and employment. In FY12, the economic downturn in developed 100% countries continued to adversely affect busi- 90% 80% nesses in developing countries. Several Europe- 70% an banks, traditionally major suppliers of trade 60% finance, reined in their exposure in many de- 50% veloping countries. As the availability of trade 40% finance was reduced, its cost rose. 30% The Global Trade Finance Program 20% (GTFP) was able to respond to the market 10% gap providing a measure of stability in times of 0% credit constraints. The GTFP is a vehicle to fa- FY03 FY08 FY12 FY13 (Q2) cilitate the provision of trade finance to banks in emerging markets, with particular emphasis on Other trade & Trade facilitation integration & market access IDA countries and smaller institutions which Technology diffusion Regional integration serve SME clients. The GTFP guarantees International Export development trade-related payment obligations of approved financial architecture & competitiveness financial institutions. The program extends and complements the capacity of banks to deliver trade finance by providing risk mitigation on a per transaction basis for over 200 banks provide US$3.2 million to support the imple- across more than 80 countries. The GTFP has mentation of the government’s trade and inte- been operational for eight years, with a strong gration priorities outlined in the 2012 DTIS. track record of development results: more than 12,500 guarantees have been issued totaling US$19 billion since 2005, over half of which The Role of IFC and MIGA in AfT went to the poorest countries (including more than 15 fragile and conflict-affected countries). IFC lending has also focused on building com- Of the trade finance guarantees issued under the petitiveness through investments in the produc- program, more than 80 percent have benefited tive capacity of firms, economic infrastructure SMEs. In addition, the Global Trade Liquidity and support for trade finance. Its trade and Program (GTLP) has supported US$21 billion Figure 4: Flow of new AfT commitments 4,000 10% 8.7% 3,500 9% 7.3% 8% 6.4% 6.8% 6.4% 3,000 6.1% 7% US$ millions 5.6% 5.3% 2,500 4.8% 6% 2,000 3.1% 5% 1,500 3.0% 4% 3% 1,000 2% 500 1% 0 0% FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 (Q2) IDA commitments IBRD commitments AfT as a percentage of total Bank lending What is the World Bank doing on Aid for Trade?   5 of trade in developing countries since it was has also provided coverage for investments to launched in 2009. In FY12, the commitments help firms improve their productivity. In man- of the two programs totaled US$6.1 billion—a ufacturing, MIGA has provided guarantees 23 percent increase over FY11. boosting capacity for grain milling (e.g. Rwan- Nevertheless, it is estimated that only 10 da), wood chipping (e.g. Mozambique) and re- percent of exporters in emerging markets actu- manufacturing plant operations (e.g. Zambia). ally have access to supply chain finance. Most MIGA is increasingly providing coverage to local commercial banks in emerging markets agriculture, such as value addition in fruits (e.g. have limited or no tailored financial products Ethiopia), and the development of agribusiness for suppliers and exporters to finance sales not (e.g. West Bank and Gaza, Russia). backed by letters of credit, and the global banks that do offer supply chain finance solutions often have little experience in emerging markets. Dif- Non-Lending Activities ficulty in reaching the sheer number of SMEs in emerging markets has also been a major con- In addition to financing, the World Bank Group straint to the growth of supply chain finance. To provides services to help developing countries help address this shortfall, the IFC established design comprehensive trade strategies through the Global Trade Supplier Finance (GTSF) programs of policy analysis, technical assistance program in 2010—a $500 million multicurrency and capacity building often in partnership with investment and advisory program that provides other development agencies such as the IMF, short-term supply chain finance to emerging African Development Bank, the International market suppliers and SMEs that are smaller than Trade Commission, United Nations Confer- those IFC usually reaches directly. In FY12, the ence on Trade and Development, United Na- IFC also became the first international financial tions Development Programme, and the World institution to begin measuring the development Trade Organization (WTO). The World Bank’s impact of its work in trade finance. country level policy work is defined in Coun- MIGA’s support to trade has focused on try Assistance Strategies (CAS) and aims to building competitiveness through providing support the operational priorities and projects political risk insurance coverage for private of developing countries on a variety of topics, sector investments in the productive capacity including trade integration and facilitation, of firms, economic infrastructure and support WTO accession, regional trade agreements, to bank investments and lending (much of this multilateral trade negotiations, agricultural and has supported foreign exchange financing used services trade, export diversification and cus- for import and export financing for investment toms modernization. projects and working capital). MIGA has sup- Research and analytical work remains an ported several conflict-affected countries in important asset of the World Bank Group. Our their rebuilding efforts by facilitating FDI (e.g. understanding of conventional trade (cross-bor- Afghanistan, West Bank and Gaza, Côte d’Ivo- der transactions in complete goods) and con- ire). MIGA has also strengthened its commit- ventional trade policy (tariffs and quotas) has ment to development in sub-Saharan Africa. improved. But other dimensions of international MIGA has supported trade-related infrastruc- integration and policies affecting international ture development, including telecommunica- trade, such as trade facilitation and export pro- tions services in many countries throughout the motion, are less well understood but critical to Region (e.g. Benin, Cameroon, Central African the development of, and participation in, value Republic, Ghana, Mali, Mauritania, Nigeria, chains. Support by the World Bank Group Guinea, Guinea-Bissau and Sierra Leone) as in these areas is beginning to remedy gaps in well as elsewhere (e.g. Afghanistan, Indonesia, knowledge and facilitate informed policymaking. Bangladesh and Syria); ports (e.g. Dakar, Be- To improve national competitiveness and nin) and airports (e.g. Peru) and energy. MIGA diversification, the World Bank has undertaken 6   What is the World Bank doing on Aid for Trade? numerous trade-related Economic and Sector Its work on trade competitiveness ad- Work (ESW) and Technical Assistance (TA) dresses the supply-side factors affecting trade programs. At the end of FY12, trade ESWs expansion possibilities for developing countries, and TASs accounted for 9.7 % and 5.4% of the with a particular emphasis on fostering export Bank’s total ESW and TA, respectively (see Ta- competitiveness and diversification. Specifical- ble 1). This constitutes a drop from the FY11 ly it focuses on understanding the factors that level, but more trade-related ESW and TA are contribute to firm-level and economy-wide expected to be conducted in FY13. export participation and performance and iden- One of the core analytical activities for the tifying the most effective policy interventions to World Bank’s engagement in AfT is within the overcome government and market failures and global partnership of the Enhanced Integrated support competitiveness. In this context, the Framework for Trade-Related Assistance for International Trade Department has developed Least Developed Countries (EIF). Under this, a Trade Competitiveness Diagnostic Toolkit Diagnostic Trade Integration Studies (DTIS) that facilitates a systematic assessment of a evaluate internal and external constraints to country’s position, performance and capabilities a country’s integration in the world economy, in export markets. It combines quantitative and recommend areas where technical assis- analysis with qualitative techniques including tance and policy actions can help the country in-country interviews with key stakeholders overcome barriers to enhance trade. As of June across value chains. The toolkit has been imple- 2013, the Bank has completed or was under- mented in 25 countries; these have been incor- taking DTIS for 12 countries under the EIF porated into Country Economic Memoranda (Benin, Burkina Faso, Guinea, Liberia, Malawi, (e.g. Turkey, Tanzania), DTIS (e.g. Liberia) and São Tomé and Príncipe, Sierra Leone, Sudan, Development Policy Lending (DPL). In FYR Uganda, Zambia, Bangladesh and Haiti). Macedonia, the toolkit contributed directly to The International Trade Department is a the Government’s 2012 package of reforms central provider of trade expertise in the World on competitiveness, and led to a US$50 mil- Bank Group. Its main roles and responsibilities lion DPL, the central objective of which is for include: i) developing knowledge products (data strengthening competitiveness by prioritizing and indicators; diagnostics and implementation the development of a stronger export-orient- toolkits; and, policy-orientated analytical work) ed enterprise sector. In Botswana, the toolkit with an operational perspective; ii) disseminating played a leading role in a Development Policy knowledge on trade through training and learn- Review on Diversification and Competitive- ing activities; and iii) forging effective partner- ness, which led directly to a three-year program ships inside and outside the World Bank Group of technical assistance. The International Trade to advance a pro-development trade agenda. In Department has also been leading work on line with the priorities of the World Bank’s Trade FDI spillovers in global value chains (GVCs) Strategy, the International Trade Department’s to understand how and under what conditions portfolio is organized around three pillars: i) GVC-orientated FDI contributes to the devel- trade competitiveness; ii) trade facilitation and opment of local linkages, and to identify policies logistics; and iii) trade policy and integration. and institutions that support the development Table 1: Shares of trade-related ESW and TA Fiscal year FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 (Q2) ESW – trade-related as a 13.6 12.4 14.1 15.5 13.2 13.7 17.8 15.5 12.8 9.7 5.7 % of total Bank ESW TA – trade-related as a % 6.2 4.6 8.3 10.8 8.8 7.6 5.7 6.6 6.4 5.4 2.6 of total Bank TA What is the World Bank doing on Aid for Trade?   7 of dynamic interactions between FDI and the of factors of production across industries with- local economy. in a country. It covers non-tariff measures Activities on trade facilitation and logistics (NTMs) and regulations in services industries, are focusing on reducing inefficiencies and trade which are important for the economic perfor- costs along the supply chain, not just at the bor- mance of other industries. The second compo- der and with customs but throughout the trade nent addresses trade in a global setting, with a corridor. The work program includes a range of focus on both the design of regional agreements data, toolkits and diagnostic tools which help and multilateral trade issues that are critical for developing countries improve their transporta- developing countries to better integrate within tion and supply chain performance. Perhaps the supply chains. The third component examines best know example is the Logistics Performance mechanisms through which trade dynamics and Index which was most recently updated in 2012 trade-related policy changes affect labor mar- and has gained rapid acceptance in measuring kets and poverty. logistics performance and identifying priorities World Bank research is also an important for logistics reforms and investments. Another instrument through which it has engaged at the example is the Trade and Transport Facilitation global level to analyze global trade issues from a Audit Toolkit which provides a comprehensive development perspective. The focus of research diagnosis of constraints to trade and trade-re- is on the implications of international econom- lated transportation services. A connectivity ic integration for developing countries and on and trade costs dataset has also been developed, how it can be managed to promote economic covering agricultural and manufacturing goods development. Research covers national policies for 178 countries during the period 1995–2010, and international agreements that affect inter- to quantify impediments to international trade national trade in goods and services, as well as and transport flows in developing countries to- foreign investment and migration. Research gether with indicators of connectivity. focuses on concrete, applied research, data and Finally, the International Trade Depart- tools to assist Bank operations and to help in- ment’s trade policy and integration portfolio form and shape trade policy. In many cases, the comprises three broad components: i) trade specific policy research questions are defined policy and market access; ii) regional integration by demand from Bank operations and client and international cooperation; and iii) manag- countries and addressed by collecting and rig- ing shocks and promoting greater inclusion. orously analyzing new data, often in collabora- The first component goes beyond traditional tion with researchers from developing countries policies such as import tariffs to also cover be- and partner organizations. The findings of this hind-the-border policies that affect the devel- research are widely disseminated and translated opment of value chains through the allocation into actionable policy recommendations. 8   What is the World Bank doing on Aid for Trade? Country Examples: Connecting Firms to Global Value Chains 3 T he World Bank has undertaken a series of managing a natural resources boom with the case studies on the trade impacts of sever- need to mitigate export volatility through diver- al of its projects, including some of those sification. Greater regional (ASEAN) and glob- supported by the Multi-Donor Trust Fund for al (WTO) integration have been a centerpiece Trade and Development 2 and the Trade Facil- of the country’s trade strategy, a goal towards itation Facility, which showcase the Bank’s con- which World Bank country engagement—in- tribution to the AfT initiative. These case studies cluding through analytical work, policy dialogue cover the spectrum from trade lending and tech- and financing—has played a supportive role. nical assistance to capacity building and advisory Lao PDR first applied for WTO mem- programs in client countries, providing illus- bership in 1997, an ambitious task for a small trations of the World Bank’s approach to sup- country. The World Bank supported the acces- porting the integration of developing countries sion process through negotiation support, sector into global value chains through demand-driven impact evaluations and technical assistance. assistance. The projects highlighted in these case The World Bank’s comparative advantage was studies have been designed to meet common its in-country presence, which has resulted in development challenges in a rapidly evolving trade environment and to deliver concrete results in beneficiary countries. Each of them directly or indirectly addresses the main constraints to moving goods and services across borders. Strengthening Supply Chains through Promoting Transparent and Efficient Regulatory Frameworks and Improving Access to Trade Finance Lao PDR: Development of a Trade Information Portal (TIP) Lao PDR is a landlocked country in which weak trade facilitation and high trade costs have made integration into regional and global sup- ply chains difficult. Despite a shortage of labor A new online platform in Lao PDR is boosting trade force skills, the country faces the challenge of transparency. What is the World Bank doing on Aid for Trade?   9 intense, day-to-day implementation support. same information and data. Beyond the website, The Bank identified and empowered reform laws and product standards in Lao PDR are champions within the Ministry of Industry and also being revised to improve trade facilitation, Commerce and provided upfront technical in- again with support from the World Bank. vestment in the design of activities, resulting in a synergetic process that ultimately proved highly beneficial to boosting the country’s trade policy- Rwanda: Investment Climate making capacity. Reform Program A flagship achievement of the process was In the wake of the 1994 genocide, the Gov- the establishment of the Lao Trade Portal in ernment of Rwanda centered its reconciliation June 2012, an online resource that facilitates and growth strategy on harnessing private trade by increasing transparency in trade-related sector investment to improve living conditions. information by making it easily accessible to However, one of the country’s major hurdles traders. The portal is a single authoritative source was to overcome its perception as a high-risk, for all trade-related laws, regulations, decrees, landlocked economy unappealing to potential instructions, business processes, forms and fee investors. The country’s entrepreneurs have schedules in the country. Putting such informa- long endured tedious legal and administrative tion into the public domain has not only helped roadblocks making it difficult to register a com- Lao PDR to comply with its commitments un- pany, settle a commercial dispute, or engage in der the WTO and ASEAN, but has also been cross-border trade. With assistance from the pivotal in overcoming one of the country’s key World Bank, Rwanda’s Ministry of Trade and constraints to trade facilitation—the lack of in- Industry has been committed to pursuing a re- formation on trade-related processes. form agenda and removing barriers to entry and Developing the TIP required setting up growth for private businesses. a governance structure and legal basis for the The World Bank’s support to the Rwandan portal and collecting relevant information from government in its effort to improve the invest- all government agencies involved in trade. The ment climate began in 2001 with the Compet- TIP had to be staffed, and a new National itiveness and Enterprise Development Project, Trade Facilitation Secretariat was formed to which focused on preparing commercial laws, supervise the management of the portal and to supporting the government’s privatization pro- ensure its sustainability. The result was reduced gram through technical assistance for specific time needed for local and international traders transactions, and improving the financial sector to acquire trade-related information and to car- mainly through capacity building and bank ry out transactions. The TIP is also the first step restructuring. In 2008, these efforts were com- towards the Lao National Single Window which plemented by the Rwanda Investment Climate will allow traders to discharge all import/export Reform Program, an advisory project led by the obligations through one channel electronically. IFC. The venture has helped the Rwandan gov- In transition economies such as Lao PDR, ernment update regulations, mainly focusing on new firms are increasingly looking to integrate providing support to facilitate business entry, into global value chains but find it difficult to business operations, taxation, trade logistics, get information on business and trade proce- and public-private dialogue. dures. The private sector has identified the lack Since its inception, over 17 reforms of transparency and predictability surrounding have been implemented that aim to speed up trade-related regulations as a major investment trade-related procedures and reduce their cost, constraint, making the TIP a key milestone in including: i) reducing the number of necessary improving the country’s business environment. trade documents, which has simplified and Business people no longer need to know of- sped up cross-border trading with Uganda and ficials from different government ministries Burundi; ii) creating a new automatic system to have access to required trade processes and for the cancellation and validation of transit procedures, as all traders now have access to the bonds, which has freed up a significant portion 10   What is the World Bank doing on Aid for Trade? of traders’ working capital; iii) instituting a trade finance in emerging markets. Since 2010, Risk-Management and Intelligence Unit, and it has been helping to address the large shortfall implementing a risk-based inspections and in supply chain finance with the Global Trade clearance regime; and iv) introducing a prepay- Supplier Finance (GTSF) program, a US$500 ment system for cargo clearance. million multicurrency investment and advisory These reforms have brought tangible ben- program that provides short-term finance to efits. For example, a number of new important SMEs and other suppliers in emerging markets. laws have been prepared and adopted, including Under the program, IFC works with buyers a company law, a secured transactions law, an across industries that source goods in emerging insolvency law, a labor law, a law establishing markets, helping to reach thousands of SMEs the commercial courts, and another establishing in targeted countries. IFC also helps banks that the commercial registration agency. It now takes offer supply chain finance to increase their pres- three days to start a business in Rwanda, down ence in emerging markets. from 14 days prior to reform, while the number of After successfully rolling out the program procedures has dropped from eight to two. More in China, where 30 different exporters in the than 16,000 new jobs and 8,000 new enterprises garment and apparel sector were trained to use have been created. International firms have re- GTSF with US$ 8 million in disbursements in evaluated their perception of Rwanda, increasing FY13, the GTSF portfolio has since been ex- the total amount of registered investment in the panded to Mexico, Indonesia, India, and most country since 2008 by 31 percent. In Doing Busi- recently, Vietnam. In Vietnam, for example, an ness 2013, Rwanda ranked 52nd of 183 countries, online portal called GT-Nexus (formerly Trade- making it the second best improver globally and Card), is allowing exporters to submit electronic top improver in Sub-Saharan Africa since 2005. invoices to their buyers, such that the approval of these invoices becomes transparent to financial institutions. Exporters, in turn, can access the Global Trade Supplier Finance in portal and select which invoices they would like Vietnam to discount, thus being paid earlier than dictated For many small and medium-sized enterprises (SMEs) that are aiming to export in Vietnam, the ability to access global supply chains is sim- ply a question of finance, or more specifically, a lack thereof. As is the case in much of the devel- oping world, many SMEs can find themselves strapped for cash given the standard payment terms for invoices, which can take weeks or months to be paid by multinational importers. So-called supply chain financing would allow Vietnamese suppliers to have certain invoices paid up front by a bank (in exchange for a small fee), an arrangement that would greatly stabi- lize the inflow of money for these firms and ensure their products’ swift delivery to market. Unfortunately, only an estimated 10 percent of exporters in emerging markets actually have access to supply chain finance, as global banks that offer it often have little experience in such markets and generally focus on larger suppliers. Red Zao woman embroidering a shirt at the weekly market The International Finance Corporation in Sapa, Lao Cai province, northern Vietnam. The GTSF is (IFC)—the World Bank’s private sector arm— improving access to trade finance for the garment sector in has a comparative advantage in the field of Vietnam. What is the World Bank doing on Aid for Trade?   11 by the standard payment terms. With the IFC monetary union and a fixed exchange rate acting as financier, large importers are no longer pegged to the Euro but regional trade continues burdened by early payment requests from sup- to be fraught with inefficiencies that impede pliers, while the Vietnamese garment producers trade. One of the major trade bottlenecks in are charged with a relatively low interest rate that the CEMAC region is weak trade facilitation. is based on the credit level of the multinational Analyses of trade and transport undertaken by importer as opposed to that of the supplier itself. the World Bank identified institutional bottle- In effect, the GTSF program allows Viet- necks in the Port of Douala as a significant con- namese producers to improve working capital by straint. A project was launched to simplify the converting sales receivables to immediate cash import, export and trade procedures through and to access lower-cost financing based on the the Port of Douala through the creation of superior credit risk of the multinational com- an electronic single window, and to extend panies that buy their products. Supplier finance the concept of e-GUCE (Guichet Unique du also enables the Vietnamese garment suppliers Commerce Exterieur) in the CEMAC region. to finance open account transactions at com- The improvement of the GUCE Informa- petitive rates without collateral requirements, tion system aims to simplify customs procedures which helps make them more attractive to global at the Port of Douala and thereby promote effi- buyers. Though GTSF operations in Vietnam ciency by moving to a paperless system. The joint are in their infancy, having only committed implementation of the electronic single window US$400,000 in supplier finance thus far, they with a transit regime in the region is expected are expected to grow considerably, adding to the to lead to stronger regional integration in the sizable US$900 million provided through GTSF CEMAC and an increase in trade. The imple- around the world since the program’s inception. mentation of this project is expected to change significantly the landscape of trade facilitation in Central Africa, particularly for the countries Streamlining Border that rely on Douala as a gateway (Central Afri- Management can Republic, Chad and the Republic of Congo). Policymakers have also been mobilized Cameroon: Electronic Single following the Prime Minister of Cameroon is- Window for Douala suing a request to set up an institutional frame- The Economic and Monetary Community of work to implement the automation agenda. The Central Africa (CEMAC) has a functioning Minister of Finance assigned Port Community leaders to implement the agenda, starting with establishing procedures for electronic pay- ment, currently effective. Capacity building to technical and managerial staff in GUCE and partner agencies was provided in March- April 2012, through two important training programs in project management, in addition to eight computer science modules provided in October-December 2011. Customs officers and transport staff from Chad, Central African Republic and Congo also attended the courses in anticipation of a possible future extension of GUCE services to neighboring countries. The legal framework is also being stream- lined after wide consultations with key public The World Bank is working with Central institutions. Four draft legal instruments (one African countries to improve transport decree and three orders) were developed on the corridors. organization of the e-GUCE platform; the use of 12   What is the World Bank doing on Aid for Trade? electronic signature; data exchange between users the transit regime and other related regional and administrators; and, private data protection. projects. Electronic data exchange on transit These were discussed and validated through two trade between Cameroon and CAR is a major workshops conducted respectively in April and achievement that will be extended to Chad in June 2012, with active participation from the the near future. Consultations were held be- Ministries of Telecommunications and Trade. tween Cameroon, CAR and Chad customs au- Overall the joint implementation of the thorities and IT experts in which they agreed to transit regime and the Single Window in speed up the interconnection process through Douala for Central Africa will lead to stronger ASYCUDA in order to extend the Cameroo- regional integration in the CEMAC region and nian cargo tracking system to CAR and Chad. increased trade. Additionally, the activity will Finally, work has advanced on developing facilitate electronic processes for some transit the transport component of the new transit re- procedures and help build capacity for shippers gime with a strategic plan for the development and transit agents, especially in those member of transport along the corridors originating from countries which are landlocked. Douala. This includes work towards improving the accreditation conditions for transport opera- tors and vehicles, conducting baseline surveys of Economic Community of Central the transit transport indicators and implementing African States (CEMAC): Support an impact evaluation of the new transit regime. to Implementation of the Transit System Technical assistance from the World Bank is Addressing Barriers to Trade in supporting the implementation of the new Services (distribution, transport, CEMAC transit regime and helping to reduce communications, and air/ non-physical barriers along the trade corridor maritime sectors) linking Cameroon with Chad and the Cen- tral African Republic (CAR). There are two Opening the Balkans to Services primary components: (i) setting up and opera- Trade tionalizing an IT system for the transit regime; The World Bank helps policymakers in de- and, (ii) creating conditions for the sustainable veloping countries address the complexities monitoring of corridor performance. of designing, formulating, and implementing The activity is expected to result in the trade-related reforms in services using a frame- implementation of the CEMAC transit regime work called the services knowledge platform and its regulations, as well as improved imple- (SKP). The SKP consists of compiling econom- mentation of the CEMAC Customs Union. ic evidence and gathering policymakers, regu- Ultimately there will be significant changes to lators, private sector representatives, and other transit performance, particularly on the Doua- stakeholders for substantive, evidence-based la-Bangui and Douala- Ndjamena corridors, as discussion on the impacts of services sector pol- well as the extension of the transit regime to the icies to identify best practice. The World Bank Republic of Congo. is using the SKP framework to help the Balkan Some initial results are already evident. countries in their goal to deepen regional inte- Customs officers from Cameroon, CAR, Chad gration by liberalizing services trade. and Congo have been trained on the content In practice, there can be political resistance of the regime and ASYCUDA World software to opening services to foreign competition. and they have been assigned to train other For some sectors, such as professional services, customs officers and staff of relevant agencies. vested interest groups can exert considerable Training has also been provided to the Customs pressure. Organized in associations that often Guarantee Offices. The regional dialogue has have certain legal powers such as setting prices improved between customs agencies, setting or eligibility requirements, these groups can a good foundation for the implementation of have interests in protecting their membership. What is the World Bank doing on Aid for Trade?   13 Nevertheless, some services in the Balkans diversifying into the export of modern services. have already been liberalized—e.g. financial Modern services exports to other East Asian services, telecommunications, electricity, and countries, including IT-related services, are aviation—so the Bank has helped to extend likely to play a more important role in Cam- this process by focusing its support on four ser- bodia as a source of employment, revenue, and vices sectors that remain more closed to foreign investment. Cambodia will also benefit from its competition: construction, transport, legal and chairmanship of the Association of Southeast architectural services. The Bank analyzed the Asian Nations (ASEAN) allowing it to show- impediments to trade in these sectors, as well case its economic reform and modernization as the possible costs and benefits of trade lib- process to other countries, and to attract invest- eralization. Consequently, the governments put ments from services firms that are interested in the issue of services liberalization on the table serving the region as whole. within the institutional framework of their ex- With the help of the World Bank, the isting free trade agreement. In November 2012, Government of Cambodia is undergoing an the Balkan countries held a ministerial meeting assessment of its regulatory framework for ser- at which ministers committed to liberalizing vices trade to evaluate whether that framework certain services by the end of 2013. They are is promoting the most efficient services market currently in the process of deciding which spe- possible. The Bank has piloted a new toolkit, cific sectors are going to be opened up and the which offers a practical methodology to assess modalities for achieving this. the impact of services regulations, and offers Meanwhile, consistent with the SKP frame- guidance on how to ensure that services regu- work, the Bank is acting as a convener of knowl- lation correctly addresses market failures while edge to bring together relevant stakeholders via achieving public policy goals. The project first conferences and workshops. The aim is not to be mapped the various regulations affecting trade prescriptive, but to provide practical recommen- and investment in Cambodian services, pro- dations and tools that can be used in the pursuit vided a quantitative assessment of the impact of services reform based on a diverse range of of those regulations, and identified options for insights and experiences on how to conduct improving regulations and institutional set-ups. reform and good regulatory practice. The World While Cambodia’s services trade has Bank has a comparative advantage in convening reached a significant level of liberalization that stakeholders from different parts of the world. allows private sector provision of services as well as foreign ownership in a wide range of sectors, governance remains weak. A lack of transparency Evaluating the regulation of and predictability in the implementation of reg- services in Cambodia ulations is impeding openness in many services Cambodia’s impressive economic growth sectors. Missing information relating to regula- over the past decade owes much to a boom in tory requirements, inconsistent application and services trade. Its services exports grew more interpretation of regulations across agencies, than 20 percent a year for most of the period frequent changes of administrative practices and led by a rapid expansion in tourism. Foreign discretionary applications of rules introduce lim- direct investment—particularly in tourism, itations into an otherwise liberal regime. construction and telecommunications—also The pilot assessment drew several import- supported the expansion of services trade, not ant conclusions for the Cambodian government only by bringing foreign capital and expanding to consider. Firstly, Cambodia’s large and young employment into Cambodia, but also by im- population is a critical asset—but it needs to be proving domestic technology, know-how and educated and trained in order to contribute to enhancing domestic skills. the expansion of services industries. Cambodia’s Cambodia is quickly becoming a sophisti- government could coordinate with education cated economy that needs to move beyond its institutions and relevant services companies, as traditional sectors of textiles and tourism by well as establish public-private partnerships to 14   What is the World Bank doing on Aid for Trade? Cambodian students take a computer course at the Banana Center—a private school. Training the youth population is critical for the success of Cambodian services industries. promote a market-ready employment base for of Kolkata, a long and onerous journey across the service sector. Secondly, the expansion of the border that seriously hinders trade. From services in Cambodia will require better infra- excessive documentation and horrific road con- structure, in particular broadband telecommu- ditions to lack of a centralized computer system nications. While mobile telephony has boomed, and cumbersome procedures that prevent un- the cost of broadband communications is hindered passage across borders, trading goods prohibitive for the majority of the population, between Nepal and other countries is a difficult leading to the lowest broadband connectivity business. But with a multi-pronged approach, in the region. Finally, Cambodia’s open policy Nepal has a lot to offer, not only to its neigh- for the employment of foreigners, particularly bor India, but to the world at large. The World high-skilled foreigners, should be maintained Bank Group is working with the Nepalese gov- in order to provide an attractive investment en- ernment to reduce some of its infrastructural vironment and facilitate the transfer of knowl- and technical barriers to trade. edge to the domestic economy. Currently to get goods out of Nepal, ex- porters must first get a certificate stating wheth- er the product is an antique or not, as well as Investments in Transport and documents from the chamber of commerce, the Communications Infrastructure handicraft association, and the trade promotion center certifying the product is made in Nepal. Nepal-India Trade and Finally, all documents must be certified at the Transportation Facilitation customs clearance office. Streamlining the doc- Project umentation process would be a good start but There is strong international demand for Ne- only a first step. The majority of exports leaving pal’s homegrown products, but exporting goods Nepal go over land, to or through, India and out of Nepal is not easy. All goods going over- then by sea to overseas markets. So for most seas must pass through India to the port city exporters, once the forms are ready, the goods What is the World Bank doing on Aid for Trade?   15 still have to reach the Indian border via a steep, coffee must be sent to India or China for test- narrow, largely unpaved road that is very diffi- ing, because Nepal doesn’t have an internation- cult to navigate. In addition, there are anywhere ally accredited food laboratory, and waiting for from five to ten checkpoints along the way, an international certificate can take up to three where officials often ask for payments if a truck weeks. An accredited laboratory in Nepal will is overloaded. With help from the World Bank boost Nepalese exports to India, as well as to Group, the government plans to rehabilitate other countries, and reduce trade costs. this notorious thirty-three kilometer passage which not only hinders trade, but claims lives. Getting to the border town of Birgunj may Trade and transport facilitation be the end of the road, but for exporters the tra- challenges in West Africa vails continue. Trucks are weighed, the multiple The World Bank is providing West African forms are checked, and sometimes consign- countries with financial support for trade and ments must be offloaded for customs clearance transport facilitation reforms with a total pack- and other border controls. The process can take age of US$405.5 million covering four coun- anywhere from four hours to four days. tries: Côte d’Ivoire, Ghana, Togo and Benin. Each of the five major border posts in The program aims to reduce transport barriers Nepal uses a different database, which causes in the ports and on the roads along the Abi- further confusion. They are not connected to the djan-Lagos coastal corridor. Given the impor- computer network in India, so any exchange of tance of covering the entire logistics chain, the information between Indian and Nepali customs support covers improvements to transport in- is either done through paper or email. With frastructure, customs and border management. World Bank support, the Nepalese government The transport sector in West Africa plays is planning to build a single window system, a key role in the economic development of the so customs and other agencies will be able to sub-region and generates about six percent of expedite clearance, as well as helping India and its GDP. Cognizant of the fact that an efficient Nepal to automate their data exchange systems. regional road network is an enabling infrastruc- Cargo crossing the border has to be moved ture required to promote trade and socio-eco- from a Nepali truck onto an Indian truck due nomic development in general, ECOWAS and to regulations. Once the transfer is done, goods WAEMU member states have consistently go through the oft-congested Indian customs. committed themselves to the financing of des- When they finally make it to Kolkata, they are ignated regional road corridors. Despite these checked again according to port procedures. commitments, the surface transport system in All told, from Kathmandu to Kolkata, the in- West Africa remains in poor condition. land transport of handling a load of exported In addition to the physical obstacles goods can take anywhere from ten to twenty generated by the poor conditions of road and days to complete. And it is a two-way street: railways infrastructure, regional trade in West businesses importing goods into Nepal face Africa is characterized by numerous obstacles similar challenges, making everyday staples to the free movement of goods and passengers more expensive. such as: i) illegal checkpoints; ii) long, costly To address these challenges, the Indian and non-harmonized customs procedures; iii) government is building modern checkpoints lack of, or insufficient, automated customs on its borders with Nepal and other neighbors. procedures and inadequate equipment at bor- There will be new roads and better infrastruc- der posts; and iv) smuggling and corruption ture. Both governments hope the new check- largely a result of restrictive trade policies. points will allow for increased trade throughout Furthermore, along the coastal corridors there the region. Another planned improvement is is limited modal competition due to the fact the development of accredited laboratories that there is no coastal railway system and very within Nepal. Today, food products like tea or limited coastal shipping. The effect of these 16   What is the World Bank doing on Aid for Trade? physical and non-physical barriers leads to delays in the movement of goods and services, hindering trade. One of the main barriers to expanding for- mal trade in West Africa is the current restrictive trade regime in Nigeria, which includes import bans and numerous levies. While in 2005 Nige- ria adopted the ECOWAS Common External Tariff (CET), which will lower its average im- port tariff, the scheduled phasing out of import bans and decrease in import tariffs remains to be implemented. For example, by October 2008 almost half Nigeria’s import bans had been re- moved with restrictions on 24 products remain- ing as of September 2011. However, the impact of these measures on trade flows and trade facil- Vehicle transporting milk in India itation remains limited because the main items subject to informal trade (such as garments, oil, and second-hand cars) remain on the list of economic competitiveness. This is due to a com- prohibited imports. Therefore, pursuing further bination of poor road transport infrastructure, reform in Nigeria’s trade policy regime is critical and even more importantly, non-infrastructure to boosting regional trade and formalizing flows. related factors such as: i) weak implementation There is an increasing recognition that all of regional transit agreements; ii) poor infor- of the major West African road corridors are in- mation sharing between the various control adequate in terms of transport costs and prices. agencies and port operators; and iii) lags in For example, transport tariffs per ton-kilometer implementing customs reforms. All of these are, on average, two times higher than in West- factors have made the use of the main trans- ern Europe, and the truck fleet is much older port corridors in West Africa, including the while transport service quality and reliability is Abidjan-Lagos corridor, much more expensive much lower. This seriously impedes the smooth when compared to other similar road transport movement of people and goods, and reduces corridors around the world. What is the World Bank doing on Aid for Trade?   17 Looking Forward 4 D eveloping countries face a host of barriers join—and ingratiate themselves within—global to entering global value chains, includ- value chains. For the World Bank, our aim mov- ing policy-related obstacles, weak trade ing forward is to develop an increasingly deeper facilitation, high cost and inefficient services understanding of these challenges, as well as the and poor infrastructure. In response, the World best strategies to address them. Bank’s current package of AfT support, which is Providing developing countries with sup- being implemented through its Trade Strategy, port to reduce their trade costs and improve spans the regulatory, financial, and infrastruc- their connectivity will, therefore, continue to be tural dimensions of trade to address these bar- an essential part of World Bank AfT and is inti- riers. As detailed in this report, the Bank’s AfT mately linked with the ability to engage in global activities employ a combination of strategies to value chains. The costs of connectivity are often combat the “hardware” and “software” deficien- fixed, and so disproportionately affect small cies that both hinder the ability of developing firms, farmers and the poor, prohibiting their countries to trade more as well as impede their participation in trade and limiting inclusiveness. greater involvement in global value chains. Tackling trade costs is therefore crucial because As global value chains continue to shape they have a direct bearing on poverty reduction. the future of international trade, the notion of In addition, embodied services are becom- value added is becoming increasingly important ing increasingly important in terms of overall compared traditional concepts of comparative value added. Goods production has a high advantage. In other words, a developing coun- services component that cannot be separated try’s export of a given product no longer nec- easily. Thus, the status quo of approaching trade essarily implies the country has a comparative in goods and trade in services separately is rap- advantage in that product because of the role idly becoming untenable. World Bank AfT also of imported intermediate inputs in production. has a prominent role to play in addressing this Rather, it is just as likely to have honed a com- issue. Through new data collection, research and parative advantage in exported value added in operational support, the Services Trade Restric- that product, as Peru has done, for example, in tiveness Index (STRI) is contributing to a better the electronic equipment industry. Since global understanding of how services integration af- patterns of sectoral specialization are different fects development, how policy is best reformed when measured in terms of value added, gross and how international cooperation can help. exports alone have become an insufficient and The STRI provides data on services trade poli- often misleading window into the true nature cies across 103 countries (24 developed and 79 of global trade patterns. developing), 18 services sectors from within 5 Looking forward, it is clear that success as broad industries (financial, telecommunications, an exporting country in this new environment retailing, transportation and professional ser- entails also succeeding as an importer of goods vices) and three modes of delivery (cross-bor- and services, as trade becomes an increasingly der, commercial presence, presence of natural complex mix of value imported from abroad and persons). The database contains richly textured value added domestically. This reality has intro- policy information on individual policy mea- duced an entirely new and evolving set of chal- sures as well as a summary of key restrictions by lenges when it comes to the ability of countries to country, sector and mode of delivery. What is the World Bank doing on Aid for Trade?   19 Furthermore, the World Bank is devel- in the global value chain context. Global value oping a Regulatory Assessment of Services Trade chains thrive on the transfer of knowledge and Investment tool, which will help countries across borders combined with access to high identify inefficient regulations and modernize quality, less expensive factors of production their services trade regulatory frameworks. Per- in foreign markets. While the deepening of forming an assessment of a country’s regulatory global value chains may create winners and regime can generate positive policy spillovers in losers, World Bank AfT will continue to be domestic regulatory conduct and design, given cognizant of the distributional aspects of how important services are as inputs for efficient trade reform by supporting solutions to help production of other goods and services. The tool small and medium sized enterprises benefit has been piloted in Cambodia (see Section III), more from supply chains rather than just large Malaysia, Lao PDR, and Kazakhstan. firms as well as boosting the inclusiveness of Finally, traditional trade and employment the benefits of trade to poor segments of the protection policies are losing their effectiveness population. 20   What is the World Bank doing on Aid for Trade?