Using trade facilitation to counter corruption

Corruption at the border distorts resource allocation, undermines the level playing field for businesses, hampers the attractiveness of affected markets, and may result in significant revenue losses for developing countries.

Trade facilitation policies could potentially reduce the incentives and the opportunities for corruption.

The OECD has published a new trade policy paper “Exploring the role of trade facilitation in supporting integrity in trade” that explores potential determinants of border-related corruption and trade facilitation policies most likely to address it.

Cost of corruption

In addition to direct and indirect trade transaction costs, traders, customs as well as other border agencies can also be faced with so-called “hidden costs”, often linked to issues of corruption, bribery, smuggling and insecurity at the border.

Private sector surveys have regularly signalled lack of integrity at the border as one of the key obstacles they encounter both when exporting and importing.

At the same time, lack of integrity has also been acknowledged by Customs authorities and other border agencies.

It is a critical challenge not only at the border but for the whole economy.

This is due to the risks of revenue leakage, the resulting disincentives to trade and foreign investment, and even the decline in public confidence in government institutions.

Existing literature linking international trade and corruption points to corruption at the border affecting international trade flows through two different lenses.

The “sand in the wheels” lens highlights the detrimental effect of corruption on international trade and business opportunities.

Corruption may act as a barrier to trade by increasing transaction costs and inefficiencies in the trading system, an impact that is often similar to the establishment of a tariff.

The “greasing the wheels” lens focuses on the bribes paid to “facilitate” trade in environments with high barriers or extreme bureaucracy.

A powerful tool to fight corruption

The qualitative framework developed in the first part of the study highlights that under both the “sand in the wheels” and the “greasing the wheels” lenses, specific trade facilitation policies can be a powerful tool to support integrity, reducing both the incentives and the opportunities for corruption.

On the one hand, an expedited border process, supported by efficient and effective border controls, clearly offers fewer incentives for firms to propose “speed money”, thanks to the shorter delays at the border and decreased handling and processing costs for traders.

Considered in the context of the framework provided by the OECD Trade Facilitation Indicators (TFIs), this would concern in particular

  • the simplification and harmonisation of documentary requirements
  • the simplification and rationalisation of border procedures, including the establishment of standard processing times and the availability of single submission points for all required documentation
  • the streamlining of fees and charges imposed on imports and exports
  • the use of automated systems
  • the co-operation and coordination between the various agencies present at the border
  • and advance rulings mechanisms

On the other hand, trade facilitation provides a formidable toolkit for removing the opportunities for rent-seeking and corrupt behaviour.

This first concerns the areas of transparency and predictability.

  • clear rules and applicable fees and charges
  • a systematic, transparent and inclusive dialogue with the private sector
  • the availability of accessible, efficient and non-discriminatory appeal procedures
  • or advance rulings mechanisms to reduce the possibility of arbitrary interpretations and related requests for bribes

The simplification of trade documents and border procedures, in particular for vulnerable products, such as perishables, that could provide leverage for extortion, further reduce the possibilities for rent-seeking.

Finally, the use of automated systems not only removes discretion from officials, but also minimises the physical opportunities for corrupt behaviour.

In particular, the use of electronic declaration and payment procedures to abolish cash payments reduces direct encounters between Customs officials and traders during the clearance process.

Read full report here.

 

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