Trade costs in Latin America are substantial which affects the region’s participation in international trade. Lowering trade costs and increasing efficiency at borders can be particularly beneficial to micro and small enterprises, where women-led businesses are disproportionately represented. Improving the trade facilitation policy environment can also create an enabling environment for businesses to formalise their operations.
Trade and Gender Review of Latin America
Abstract
Latin American countries face considerable trade costs that affect the region’s participation in international trade and seizing the benefits thereof. High trade costs in the region are a result of multiple factors, including its vast size, complex geography, insufficient stock and quality of transport infrastructure, and relative remoteness from major consumption centres (ECLAC, 2023[1]). In addition, women traders are often at an even higher disadvantage to meet the significant cost and time demands of complex trading requirements since they own and manage smaller businesses than men do, and they have less time due to an increased burden of unpaid work.
Since the conclusion of the WTO Trade Facilitation Agreement (TFA) in 2013 and entry into force in 2017, countries around the world have been setting up the required regulatory frameworks to operationalise their commitments under the TFA. Trade facilitation reforms making border processes more efficient – as measured by the OECD Trade Facilitation Indicators (TFIs)1 – are associated to an average worldwide trade costs reduction of 4.5% over the last decade. Trade facilitation policies have also been instrumental in facing the additional challenges to the operation of supply chains resulting from the COVID-19 pandemic, heightened geopolitical tensions, and other disruptions (OECD, 2023[2]).
Trade facilitation reforms can be particularly beneficial to micro, small and medium-sized enterprises (MSMEs), where women entrepreneurs are disproportionately represented. For instance, the automation of the border process can be particularly important for women-led MSMEs, not only because it reduces the costs of processing trade-related documentation, but also because by dematerialising formalities it shelters women entrepreneurs from potential harassment and discrimination at the border. Additionally, reforms that reduce the time required for trade processes can benefit women who often face additional constraints on their time related to care responsibilities. Greater transparency particularly benefits women-led businesses with fewer professional networks (Korinek, Moïsé and Tange, 2021[3]).
Moreover, measures which can be associated with higher fixed costs such as the inclusion of MSMEs in consultation processes2 and the efficiency of appeal procedures have a greater impact on the propensity or probability of firms to engage in exporting and importing – that is, on trade at the extensive margin. In turn, measures such as fees and charges, streamlining of procedures and automating border processes, which tend to be associated with reductions in variable costs, have a bigger impact on the export and import values of firms – trade at the intensive margin. Automation and streamlining of border processes can support MSMEs to both start engaging in international trade and enhance the value of their exports and imports by up to 7.5% (López González and Sorescu, 2019[4]).
In the digital era where more small parcels cross international borders, issues such as trade facilitation have taken on greater significance. This type of trade is especially important for individuals and smaller firms, offering new opportunities to engage in trade whether as importers or exporters. When parcels cross borders, it is the role of customs authorities and other border agencies to enforce trade rules, such as tariffs, and undertake health and safety, security, and quality checks. Even modest improvements in trade facilitation policies such as transparency, automation and streamlining of processes at borders, as well as border agency co-operation, are found to have a positive impact on parcel exports of between 6% and 14% (López González and Sorescu, 2019[4]). An increase in the ease of trade in parcels may affect women-owned businesses even more than those owned by men since women-owned businesses tend to export more to individuals whereas men-owned businesses export more to other businesses (Korinek, Moïsé and Tange, 2021[3]).
By improving the trade facilitation policy environment, governments can also create an enabling environment for businesses to formalise their operations. The informal economy continues to represent a significant share of regional cross-border trade and economic activity. Governments could reduce the incentives to trade informally and promote the transition to the formal and global economy by diminishing transaction costs associated with formal trade and enhancing compliance levels with existing trade laws and regulations (OECD, 2018[5]).
The latest available OECD TFIs highlight that Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, and Peru all exceed the average performance of the Latin America and Caribbean (LAC) region (Figure 6.1). While their trade facilitation performance remains below the average of OECD economies, these economies also perform on par or better than the average for other regions such as Asia-Pacific and Europe and Central Asia.
Note: The TFIs range from 0 to 2, with 2 being the best performance that can be achieved.
Source: OECD Trade Facilitation Indicators (TFIs) database (2023).
The trade facilitation policy environment has also been consistently improving over the past decade in the seven LAC economies covered by the analysis (Figure 6.2). Economies such as Argentina, Costa Rica, and Mexico particularly improved their performance in several areas of transparency and predictability. Brazil, Chile, and Colombia saw improvements in their performance mainly in the streamlining of border processes. Argentina, Brazil, Colombia, Costa Rica, and Peru also achieved significant improvements in the areas of border agency co-operation (Figure 6.3).
Domestic border agency co-operation, streamlining of border processes, and external border agency co-operation are the areas that improved the most on average in the selected LAC economies between 2012 and 2022. Border agency co-operation, transparency of trade-related information, and automation of procedures are the areas that saw most progress since the onset of the COVID-19 pandemic. While areas such as automation and simplification and harmonisation of trade-related documents improved significantly since the 2017 entry into force of the TFA, the magnitude of this change has been lower than in other TFIs areas.
This progress in the policy environment is reflected in increased border processes efficiency in many of the covered economies, with improvements experienced by the private sector in customs clearance ranging from 3% to 20% since the conclusion of the TFA (World Bank, 2023[6]).3 However, due to a stagnating policy environment performance since 2017 in several key TFIs areas (such as simplification and harmonisation of documents, automation, and streamlining of procedures) in some of the LAC economies covered, the group’s average improvement in customs clearance is of only 2%.
The average trade facilitation performance is similar among the selected seven LAC countries. However, performance heterogeneity varies within this group across the individual policy areas. While this appears to be lower in areas such as streamlining fees and charges and border procedures, it is much higher in the involvement of the trade community, advance rulings, appeal procedures, simplification and harmonisation of documents, as well as domestic and cross-border agency co-operation (Figure 6.4).
Note: LAC average includes Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, and Peru.
Source: OECD TFIs database (2023).
Source: OECD TFIs database (2023).
Standard deviation by TFI policy area
Source: OECD TFIs database (2023).
6.2.1. Areas of progress in trade facilitation policies
All selected LAC economies made significant progress in transparency and predictability since the adoption of the WTO TFA. They improved availability of information on trade-related procedures by enhancing the scope and user-friendliness of their customs webpages; establishing and operationalising enquiry points on trade-related matters; providing information on import, export, and transit procedures; as well as by increasingly making the required trade-related documentation easily accessible for downloading. Most LAC economies also introduced a dedicated interactive page for professional users/companies.
LAC economies have been establishing as well guidelines and procedures governing the public consultations between traders, other interested parties, and government, while drafts of new or adjusted customs and trade-related legislation are increasingly published for consultations.4 The trading community is also increasingly involved at the stage of drafting new customs and trade-related legislation. In addition, LAC economies improved access to information on advance rulings, on appeal procedures on customs-related matters, as well as on fees and charges applied to export, import and transit transactions or on tariff preferences through trade agreements. They are also periodically reviewing fees and charges to ensure they are still appropriate and relevant, which can be particularly helpful for small firms.
As regards simplification of trade-related documents, all LAC countries have been reducing the number of documents required for export and import and introduced periodic reviews of their documentation requirements, allowing them to gradually simplify requirements that are unduly consuming or costly for traders. They are also increasingly relying on automation tools to facilitate trade. High shares of export and import declarations are currently cleared electronically, while the share of trade procedures allowing for electronic processing has also gradually increased over recent years. Other automation tools used include accepting and exchanging customs-related data electronically; electronic payment of duties, taxes, fees, and charges; and automated risk management systems.
Significant progress has been achieved since the entry into force of the WTO TFA in terms of streamlining border processes. LAC economies introduced the necessary regulatory frameworks for the operation of pre-arrival processing, separation of release from clearance, post-clearance audits, and Authorised Operators (AOs) programmes. Across all LAC economies, benefits linked to the AO status are comprehensive and generally include deferred payment of duties, taxes, fees, and charges; lower documentary and data requirements; lower rates of physical inspections; a single customs declaration for all imports and exports over a given period; and rapid release time.
In addition, several economies have been targeting AO programme to MSMEs. For instance, in Argentina, financial solvency criteria are lower for MSMEs who aim to obtain an AO certification. In Brazil, informative lectures and seminars have been organised across the country to provide information specifically for MSMEs on the benefits of the AO programme and the certification procedure. MSMEs that have already been certified are, however, mostly cargo agents and transportation companies. In Costa Rica, as part of the comprehensive reform of the Regulations to the General Customs Law, released in May 2023, MSMEs aiming to become a certified trader have the possibility to request a progressive application for the certification requirements to obtain the AO status and thus benefit from simplified clearance processes.5
Complex processes that require border official discretion and interpretation also tend to enhance potential for corruption, especially as regards MSMEs who may have less knowledge and leverage in navigating such procedures. Reducing the complexity of border processes removes this discretion, promotes uniform interpretation and treatment irrespective of the point of exit/entry in a country and, under specific circumstances, provides more generally applicable guidance about the classification, origin or value of certain types of products. This also minimises the physical opportunities for corrupt behaviour at borders.
In support of domestic border agency co-operation, each selected LAC economy has established a trade Single Window. This supports domestic co-ordination and harmonisation of data requirements and documentary controls among agencies involved in the management of cross-border trade. The increased use of interconnected or shared computer systems and real-time availability of pertinent data among domestic agencies ̶ while still in the process of being made fully operational across all LAC economies ̶ supports the sharing of results of controls and inspections and coordinated risk management systems.
For instance, in Brazil, the Integrated Foreign Trade System (Siscomex) under its Single Window Programme (Programa Portal Único de Comércio Exterior) has focused on further harmonising customs and other border agencies’ procedures, accelerating information flows, and broadening the use of information technology and risk management solutions. In Colombia, progress on the Single Window for Foreign Trade (Ventanilla Unica de Comercio Exterior, VUCE) includes the implementation in 2012 of the simultaneous inspection system (SIIS) for containerised export cargo, which enables four border agencies to participate in a single inspection, thus reducing the inspection time in ports. In Peru, the relevant agencies participating in the trade Single Window (VUCE) are required to establish and apply risk management criteria in their evaluation or approval procedures, giving preference to subsequent controls and, where appropriate, replacing physical inspection with controls by electronic means. Peru’s VUCE also includes an information module on shipping rates and other logistical costs.
Improvements in domestic border agency co-operation and the streamlining of processes have also been supported by the set-up of National Trade Facilitation Committees (NTFCs). Some NTFCs in the region were established by combining the participation of high-level political representatives with adequate participation at the technical level to be able to discuss and address trade facilitation challenges on the ground. Most NTFCs in the selected countries have very successfully incorporated the private sector in decision-making or have been established based on public-private alliances. In Brazil, representatives from the private sector can apply6 to form part of the Subcommittee on Cooperation within the NTFC (Comitê Nacional de Facilitação de Comércio, Confac). The selection process accounts for criteria of experience and institutional representation and seeks greater equity in terms of gender, race and region representation in order to increase the participation of women-led business representatives in discussions and decisions related to trade facilitation in Brazil.
In addition, all NTFCs have grown over time to assume other functions beyond ensuring the compliance with the WTO TFA obligations. For instance, in Chile, the NTFC has launched various initiatives to facilitate foreign trade logistics, including logistics master plans and measures to promote the participation of MSMEs in international trade.
While in most selected LAC economies the domestic collaboration among certain agencies on the certification of Authorised Operators remains ad hoc at this stage, Mutual Recognition Agreements/Arrangements on AOs are gaining an increasing role in enhancing cross-border agency co-operation in Latin America (Box 6.1).
Supported by the progress made at a domestic level, LAC economies are also making progress in similar mechanisms enhancing cross-border agency co-operation. This includes the cross-border coordination and harmonisation of data requirements and documentary controls, co-ordination of computer systems, as well as co-operation on risk management.
In May 2022, 11 LAC countries signed an ambitious regional arrangement giving preferential treatment for border clearance processes to companies that meet certain standards. The endorsement of the Authorised Economic Operator (AEO) Regional Recognition Arrangement – the biggest in the world outside of the European Union – reflects four years of negotiations involving Customs administrations from Argentina, Brazil, Colombia, Costa Rica, Chile, Peru (also together with Bolivia, Dominican Republic, Guatemala, Paraguay, and Uruguay).
The initiative, aligned with the recommendations of the World Customs Organization and supported by the Global Alliance for Trade Facilitation, implies that companies attaining AEO status in any of the 11 participating countries can expect quicker cargo clearance and less paperwork as contents will be deemed low risk since their AEO status will also be recognised by the other countries’ customs administrations. The initiative has the objective of allowing governments to concentrate their limited resources on high-risk cargo while continuing to protect their borders. The project includes specific dissemination activities to reach MSMEs in the region, including women-owned businesses.
In addition, the customs administrations of Mexico, Colombia, Chile, Peru, Ecuador, Bolivia, Costa Rica, and Guatemala have been working on the CADENA project, an application based on blockchain aiming to facilitate international trade through the efficient and secure exchange of data between customs administrations and, potentially, amongst other government entities and the private sector. CADENA emerged as a proof of concept in January 2018 promoted, facilitated, and financed by the Inter-American Development Bank (IDB) together with several customs administrations in the LAC region. It allows customs administrations that have signed a Mutual Recognition Arrangement to share the status of their AEOs certifications in real-time and with high standards of security, traceability, and confidentiality of the data. This facilitates customs’ ability to grant benefits in terms of streamlined border procedures to AEO-certified companies.
References
[1] ECLAC, U. (2023), Digital and sustainable trade facilitation in Latin America and the Caribbean: Regional report 2023, https://repositorio.cepal.org/server/api/core/bitstreams/978b7b33-4df4-4c7d-8ca6-99c435ce9aea/content.
[3] Korinek, J., E. Moïsé and J. Tange (2021), Trade and gender: A Framework of analysis, OECD Publishing, Paris, https://doi.org/10.1787/6db59d80-en.
[4] López González, J. and S. Sorescu (2019), “Helping SMEs internationalise through trade facilitation”, OECD Trade Policy Papers, No. 229, OECD Publishing, Paris, https://doi.org/10.1787/2050e6b0-en.
[2] OECD (2023), OECD Trade Facilitation Indicators: Monitoring facilitation reforms up to 2023, https://issuu.com/oecd.publishing/docs/oecd-trade-facilitation-update-2023.
[5] OECD (2018), Trade Facilitation and the Global Economy, OECD Publishing, Paris, https://doi.org/10.1787/9789264277571-en.
[6] World Bank (2023), Logistics Performance Index, https://lpi.worldbank.org/international/scorecard.
← 1. The OECD Trade Facilitation Indicators cover the full spectrum of border procedures for more than 160 economies. The eleven indicators are: (a) information availability; (b) involvement of trade community; (c) advance rulings; (d) appeal procedures; (e) fees and charges; (f) formalities – documents; (g) formalities – automation; (h) formalities – procedures; (i) internal border agency co-operation; (j) external border agency co-operation; (k) governance and impartiality. Detailed measures are available at: https://sim.oecd.org/default.ashx?ds=TFI .
← 2. Involvement in consultations with governments and relevant stakeholders on trade-related matters can have significant initial fixed costs for firms, particularly smaller ones, when establishing the mechanisms and frameworks for participating in formal, regular consultations structures (either directly or through relevant business associations) and acquiring the necessary capacity to provide written submissions commenting on proposed new or amended trade-related regulations.
← 3. Improvements in the World Bank Logistics Performance Index – as measured by the efficiency of the customs clearance process signalled by private sector stakeholders - since the entry into force of the TFA are 2% for Argentina, 20% for Brazil, 7% for Costa Rica, 3% for Peru. The changes are of -8% for Chile, -4% for Colombia, and -10% for Mexico.
← 4. For instance, in Brazil, after the completion of a regulatory impact analysis (as required by Decree No. 10 411/2020) for editing, amending or revoking normative acts of general interest to economic agents or users of services, the body conducting the analysis can choose to make the draft text of the proposed normative act subject to public consultation.
← 5. As specified in Article 144 of Regulations to the General Customs Law No. 44051-H (18 May 2023), MSMEs can undergo the certification steps in a gradual manner and benefit from a longer period of time in this process than larger firms.
← 6. As established in Brazil Confac’s Internal Regulations approved by Gecex (the Executive Management Committee) Resolution No. 567, of 19 February 2024.