Increasing international trade is not only about enhancing value additions of our exports and bargaining for better tariffs. Arduous formalities add to trade costs and deter exports. In this regard, Pakistan is taking steps for the better in the form of WeBoC implemented in 2015 and GSP+’s REX system implemented earlier this year.
Admittedly, the REX system cannot be credited to Pakistan and is among the list of requirements that beneficiaries of GSP must abide by. But its successful implementation is heartening.
Talking to an official in TDAP, BR Research learned that more than half the exporters under GSP+ have already registered under it and that by the end of the year, the previous system of Form A certificate will have been transitioned out.
Given that the target date by EU for complete conversion to REX system is July 30, 2020; such efficacy in itself comes as a bit of a surprise. Especially since more than 70 GSP beneficiary countries have opted to either implement the new certification from 2018 or 2019, or have not yet made a decision about the effective date.
Based on self-certification, the REX system is highly automated. Currently it has been touted as giving GDP beneficiary countries much easier and more streamlined access to the EU markets. Its successful implementation could reduce time and cost for documentary compliance for Pakistan’s exporters the way WeBOC’s implementation has.
A report by OECD states that improvements in the area of formalities, such as simplification of trade documents and automation of border process have the greatest impact on trade costs. For lower middle income country such as Pakistan, OECD estimates that streamlining trade procedures reduces trade costs by 15.1 percent. Adopting procedures such as automated trade and customs processes could reduce costs by 2.1-2.4 percent.
The actual cost savings of WeBOC have not been quantified as yet and may be hard to do so in the near future. The full potential of digitization and electronic databases is often not realized immediately but rather accumulated over time. However, it has already impacted Pakistan’s Doing Business rating of trading across borders. So much so that it contributed to Pakistan being highlighted this year as being among the ten countries that made the biggest improvements in business regulations in DB 2017 report.
In the face of widening deficit, it is heartening to note that at least some steps are being taken in the right direction. Admittedly, better trade facilitation will do little if Pakistan continues to depend on its resource-based exports rather than value added goods. However, implementing new systems takes time and involves changes in operational practices, training, staff work habits and learning curves for traders. With better more sophisticated systems in place, there are fewer disincentives for exporters. And given Pakistan’s current economic stress, a step in the direction of trade improvement is cause enough for a pat on the back.