Secure and Efficient Borders: How Trusted-Trader Agreements Affect Global Trade

• In Event: Trade Policy and Trade Networks

Abstract

What effect do trusted trader agreements have on bilateral trade? How states control what crosses their borders is undergoing a dramatic transformation. In addition to managing territorial access unilaterally at physical borderlines, states increasingly exchange information to regulate the movement of goods “upstream” as they move through global supply chains. By getting information on low risk traders before they arrive at physical ports of entry, states hope to reduce congestion at borders (to facilitate trade) while, at the same time, focusing their attention on higher risk flows (to increase security). Trusted trader agreements are one tool states use to accomplish this objective. When two countries sign a trusted trader agreement, certified traders in one country who are compliant with World Customs Organization (WCO) supply chain security standards are entitled to benefit from streamlined customs procedures in the other. They are expedited through the ports of entry of the partner country and gain preferential access to its markets. States, in turn, are freed from exhausting their limited law enforcement resources on trusted traders and may focus instead on finding the proverbial illicit needle in a now smaller haystack. Surprisingly, research has not evaluated to what extent these agreements actually facilitate trade. We estimate a series of gravity models on a new global dyadic dataset of 147 trusted trader agreements signed from 2007 to 2020 to evaluate their effect on bilateral trade, finding a consistently positive relationship between agreements and trade across numerous model specifications and subsets of data.

Authors

• Isabella Bellezza, Brown Univeristy

• Connor Staggs, Brown University