Defining, Measuring, Explaining and Reducing the Cost of International Trade
Trading nations have long been concerned with reducing trade costs. Trade facilitation features in several of the original GATT Articles from 1947. However, these articles are essentially statements of principle – transparency and simplicity in border procedures and trade-related regulations, and rights of transit. Far greater priorities in the second half of the twentieth century were reduction in tariff barriers and controlling the non-tariff barriers which became clearer as tariffs fell and which were sometimes used as substitutes for reduced tariff protection. As these barriers to trade fell, a global economy emerged in which producers increasingly sought to reduce their costs by slicing up the production process and locating each stage in its least-cost location. The profitability of global or regional supply chains was conditional on low costs of crossing international borders. During the late 1900s governments provided a variety of routes through which their firms could create supply chains while avoiding onerous trade costs. Countries offered exemption from customs duties on imported inputs that would be used in goods to be exported or they created special zones which were outside the normal customs regime; such measures were second-best in the sense that they created incentives for false declarations and evasion of duties and other trade costs. Meanwhile, multinational corporations were accused of using transfer pricing to evade taxation and hence reduce the cost of operating across several jurisdictions. Only after the turn of the century was trade facilitation viewed in a more holistic sense as something requiring policy measures to...
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