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Jean-Christophe Maur
pipeline transport.20 As Schiff and Winters (2002) note, this type of externality is often asymmetric: landlocked countries stand to gain a great deal from better transit, but the benefits for the coastal partner (i.e., improved access to the internal market) are much smaller. In practice, landlocked countries have not gained much from participation in regional trade agreements, probably because important trade obstacles have persisted (Yang and Gupta 2005). Standards and phytosanitary (SPS) measures provide a further example of possible market failure. As was discussed earlier, weak or absent enforcement of SPS in one country can mean that negative consequences spill over to neighbors. Positive externalities. Like the elimination of negative externalities, the creation of positive externalities such as network effects may justify regional intervention. Transport, electronic, and other information networks play an increasingly important role in trade facilitation reform. We distinguish here between two main forms of positive externalities: the establishment of shared facilities, and the creation of networks. There are benefits for neighboring countries in joining existing networks rather than developing their own systems or multiplying bilateral channels of communication and information exchange. Southern African countries, for example, are planning to exchange electronic information on transit cargo on the basis of a system called Asycuda++. (Mozambique, however, has a proprietary system that is incompatible with its neighbors’ software; see Mozambique 2004.) At the heart of network externalities lie the notions of adoption of common standards for operation and interoperability. By joining networks, countries may gain access to several markets while having to pay the cost of plugging into this network only once. This is a consideration in favor of adopting international standards, which will be accepted by all other countries belonging to the same network of standards. The adoption of standards for border procedures may lead to regional practices that differ from internationally accepted norms. A good practice therefore is to base regional standards on international ones. Europe is pushing for the use of the single administrative document (SAD), but the SAD itself is based on an internationally accepted standard, the UN layout key. There is a solidly established culture of international customs and product standards that provides strong incentives for adopting these in regional trade agreements. The European Union has developed several regional networks facilitating trade: the New Computerized Transit System (NCTS) for electronic transmissions, the Galileo satellite system for global navigation (GALILEO), and the
Trans-European Networks on Transport. Similar aspirations are seen in trade action plans in developing countries, such as Uganda’s recent Diagnostic Trade Integration Study (DTIS), which emphasizes the use of electronic data interchange (EDI) at the regional level; the development of a regional cargo-tracking system; and the interconnection of the East African Community’s customs electronic systems (Uganda 2006). Transport hubs, mentioned above, also create positive externalities, such as access to multimodal transport platforms. Positive externalities—beyond the realization of economies of scale—also arise from the provision of international finance and insurance. International provision of such services offers the possibility of mutualizing risks across a region and contributes to positive network effects, such as linking banks that do not usually do business with each other and diffusing skills through the network. The principle of mutualization is applicable to other traderelated financial instruments that are specifically relevant to trade facilitation and transit, such as guarantees for payment of taxes and insurance. COMESA, for example, plans to set up a regional transit bond scheme. Regional guarantees (to secure the payment of duty and taxes) can address the failure of national organizations to set up such systems. In Uganda, the cost of customs bonds is estimated to add up to 4 percent to import and export costs, and one recommendation of the Integrated Framework diagnostic study is to use a regional approach to reduce the incidence of these costs (Uganda 2006). Arvis (2005) argues that the lack of a regional customs guarantee explains why transit initiatives in developing countries to replicate the success of the TIR transit system have failed so far (see also Arvis 2010 for a detailed discussion of transit systems and the TIR).21 Systemic Effects of Regional Trade Facilitation Trade facilitation is not an end in itself; rather, it is a means of fostering regional integration, and it can play a critical complementary role in regional integration strategies. Trade facilitation as complementary to regional integration. PTAs create a potential loophole for tax evasion if producers and products outside the preferential agreement are able to take advantage of the exemption regime. It is therefore in the nature of PTAs to include provisions related to customs implementation and cooperation. First, regional PTAs require the establishment of a specific customs regime for the processing of goods benefiting from the preferential treatment. This requires, among other things, the provision of additional information and documentation by traders and additional verification work by customs. The most prominent implementation feature