Implementation in Pakistan of the US Integrated Cargo Container Control program: Trade‐facilitating or not?

Using novel firm-level data, we examine the trade effect of changed security arrangements for Pakistan's exports to US following 9/11. The pre-shipment scanning facility introduced by Integrated Cargo Container Control (IC3) program, 100% requirement, affected beyond-the-border and behind-the-border costs exporting. We exploit exogenous nature this shock its specificity one export market in identification strategy. estimates show dropped between 8% 11% because IC3 but that was heterogeneous across firms depending upon their pre-IC3 port departure whether they switched IC3. also fall would have been even greater if had without a facility. Mise en place du Programme de contrôle intégré des conteneurs fret au Pakistan : aide ou inconvénient commerce? Dans le sillage événements 11 septembre 2001, et grâce à nouvelles données d'entreprises, nous examinons les conséquences commerciales liées aux modifications sécuritaires s'appliquant exportations pakistanaises destination États-Unis. Le dispositif scannage préalable avant expédition, introduit par (programme IC3) respectant exigences intégral, eut sur coûts d'exportation amont aval frontières. Afin d'établir une stratégie d'identification, exploitons la exogène ce choc ainsi que sa spécificité propre un marché particulier. Nos estimations montrent qu'en raison mise l'IC3, diminuèrent 8 %. Néanmoins, l'effet s'est avéré hétérogène pour entreprises fonction leur d'expédition cas échéant, nouveau après l'IC3. Nous montrons également auraient chuté davantage si intégral avait été sans système expédition. In world where threats national are globalized, transportation networks recognized as weak link could be exploited ship technologies terrorism internationally (Meade Molander 2006, OECD 2005). reliance international on these same highlights an importance understanding quantifying effects arise from policy responses counter terrorist threat. A typical assumption is inevitably additional requirements must impeding. However, occasion, such study, can lead upgrade technology used border agencies, potentially boosting trade. Whether use sufficient offset any negative is, ultimately, empirical question. Evaluation design implementation counterterrorism policies made difficult fact countries do not alter or adopt new randomly rather so response actual perceived threat terrorism, confounding variables additionally affect flows directly indirectly through numerous channels (Mirza Verdier 2008). paper, provide analysis exploiting quasi-experimental setting followed imposition arose events September 11, (commonly known 9/11) posed neighbour Afghanistan. period 9/11 attacks, administration conducted several reviews policy.11 These include National Commission Terrorist Attacks United States (also Commission) well Meade (2006). fear containerized cargo smuggle radioactive nuclear materials into vulnerable featured heavily analysis. were numerous22 Aviation Transportation Security Act (2001), Homeland (2002) Maritime (2002). extended beyond destined Pakistan. 2007 required US-bound all countries, with 2012 set date full implementation. There are, therefore, some potential wider lessons experience other timing measures applying case specific program. Following passing Congress law requiring mandatory screening starting 2007, program involved live monitoring containers contraband items Targeting Centre (NTC) Washington, DC, via video (Government Accountability Office Once Washington gave clearance, container allowed enter further checks. available authorities at single port, which chosen Port Qasim (see maps online appendix location port). year prior IC3, accounted around 35% Pakistan–US freight. For freight, availability expected reduce compared non-US bound Pre-IC3 subject random interception diversion ports Sri Lanka, Hong Kong Oman scanning.33 exception less-than-full-load continue shipped non-Port Karachi. routes, rose requirement transhipment port. Table 1 reports comparison shipping distances times (New York Los Angeles) (possible pre-IC3) (certain post-IC3) above scanning. shipments New York, example, distance nearly 20% shorter saves six days sailing time Lanka avoided. Indeed, reason viewed presented ex ante trade-promoting government others. “The will cost country's US. Presently, cargoes trans-shipped Kong, Colombo Salalah scanning, resulting delay extra financial exporters. help exporters save money” (The News International 2007). Focusing does not, however, accurately capture overall costs, at-the-border costs. This point often neglected fact, consequence principally way implemented. Most obviously, taken complete (at route) probabilistic stop search (on approach previously. They congestion caused being only outbound freight previously routed Pakistan, choice transfer ports. Figure proportion each alternative 2005 2014. Note marked rise after rising less than 40% 70% 2011. journey road longer Karachi route figures A.1 A.2). figure 2, report relative share US/EU customs station. Again, important analysis, find using rises EU post-IC3 period. shares almost equal before 2007. Karachi, pre-IC3, falls relatively Internal centralization operations, 2005–2014 NOTE: Values y-axis various export-processing stations total exports. SOURCE: Authors' calculations data Customs 2 summarizes increase internal diverted located different cities average transported about 5% (in unweighted terms) 9.3% when weighted values locations. distance-raising closer (where majority located), doubling increasing it 3.4% Peshawar (firms here, average, over 1,600 km both ports). Therefore, those exporting Qasim, domestic times. higher ameliorated extent adjustments 2011 expansion infrastructure control our continued transshipment foreign Behind-the-border were, unchanged case. To disentangle questions pre-clearance (within- beyond-border) transport imposed exporters, rely transaction-level us information firms' shipment within-country location. next section lay out more detail motivation, design, introduction equipment change how markets. insights motivation study difference-in-differences (DID) framework, counterfactual.44 Its anticipate owing delays funding question there number advantages DID alongside vary firm, product time. First, application framework helps remove changes Western explained perception source neighbouring Secondly, require adoption exogenous, perspective exporters—a reasonable given small size low power firms. third advantage draws ability observe products destinations points allows add many combinations product, fixed order possible macro- micro-level influences might otherwise explain results, sharpening Macro-level improvements policy, technology, institutional unobservable time-varying firm-specific factors, present results identified markets within firm year. final comes exporter Our base modelling specifies counterfactual evaluate clearance options whole, i.e., provision (which either facility). Given allow distinguish decided satisfied non-Pakistani consider counterfactual, namely brevity, label refer combined later heterogeneity seek explore separately. identifies statistically significant. consistent interpretation raised Of types firm–product–destination–time regression, estimated displays greatest sensitivity inclusion controls time-invariant firm–destination estimation, halving regression controls. demonstrate value highly disaggregated standard bilateral answer IC3.55 evidence paper Pakistani COMTRADE similar magnitude found no (table 4). Beyond destinations, much initial estimates, indicating factors issue. robustness main findings China control, may distinguishing served exported pre-IC3.66 high degree overlap composition 2), high-value finished two high-income growth rates. By contrast, tend raw material semi-processed goods. similarity makes better control. It mean, scope Interestingly, limited contamination treatment (IC3), base, preferred findings. outcome, although very modest cannot systematically investigate driven military involvement Afghanistan tests indicate robust. richness separating occur versus Consistent concentration operations led switch away previous shipment. ports, including dry able confined users. significant drop counterfactual. indicates capacity per se export-reducing. first four years extent, net whole remain negative. disaggregate comment “What applied creation facility?” scanned experienced largest destruction effect. twice large meet requirement. research extends narrow stream literature issues (European [EC] 2009, Government 2008, Mirza World Organization [WCO] 2009). (2008), general analytical describe existing relationships actions argue affects primarily channels: reducing willingness business insecure trade-restrictive policies. provides related Similarly, EC (2009), WCO (2009) (2008) against feasibility associated movement cargo, infrastructural constraints. Although studies cost-intensive trade-restrictive, did perform quantitative assessments trade-restricting impact limitations. bridge gap administrative estimate along multiple dimensions micro level. strands trade, diversion. recent examines containerization (Bernhofen al. 2016) maritime (Hummels Pascali 2017), whereas explores intrusive increasingly adopted facilitation purposes. importing countries' patterns context preferential agreements (PTAs) free (FTAs) (e.g., Carrère 2006), due cost-raising policy. speaks vast (Anderson Van Wincoop 2003, 2004; Arkolakis 2010; Baier Bergstrand 2007; Donaldson 2018; Feyrer contrast studies, isolate omitted influencing during finding suitable group. Finally, highlight connection pre- post-shipment regard, seen support Djankov (2010) determinant trade.77 Methodologically, choose paper. While authors difference-in-difference strategy, focus differences according product. instead country Qasim. has similarities instrumental variable (2010). remainder structured follows. introduces describes estimation methodology. Section 3 presents 4 5 concludes highlighting implications study. uses Customs.88 Use confidentiality agreement. information, Exporter Dynamic Database Bank. contains identifiers, codes, prices quantities eight-digit Harmonized System (HS) code level, addition identities processing modes includes categories manufacturing agricultural sector, covers universe airports seaports 215 trading partners From larger set, markets.99 take (28) purpose, acceding already members 2002. hold grouping constant. pre-membership convergence part accession process. As form pre-2002 table accompanying discussion). should noted dominated throughout members, post-2002 accounting fairly constant (around 7% 10%) (28). cleaned 6.1 million transactions (3.8 2.3 US) 24,174 firms, 20,297 11,737 2002–2014 long span seven launch ease estimations, collapse firm–product–market–year 606,351 observations, 458,838 pertain 147,413 test integrity accuracy performing aggregation comparing retrieved UN Comtrade set. remaining economic open sources Trade (WTO) view model naïve rest extend baseline impacts capturing features time, validity relies allocation treatment, assigned understand holds current requires background Secure Freight Initiative (SFI) run Department Security.1010 formally distinct inbound signed President Bush August 3, under 2012. separate SAFE Ports 2006. Three pilot selected scheme: Southampton (United Kingdom), (Pakistan) Puerto Cortés (Honduras). agreed (Singapore, Busan South Korea, S.A.R. China). schemes operated supposed inform provisions Act, act begun built Mega Initiative, started 2001. stationing Border Protection officials scan based risk assessment, aimed high-volume earlier commercial intercepted 2009).1111 procedures, physical inspections drug checks anti-narcotics force. began April key feature undergo arrival US.1212 agreement visit March 2006 December delayed three months late release funds federal scheme partnership Protection. Oman.1313 Megaports owned arrangements. Scanning completed provided land acquisition1414 10 acres X-ray scanners, radio portal monitors, communication systems supporting technical assistance Customs.1515 building reached US$8 cleared placed secured site shipped. re-examination seals remained intact. Shipments sent took reach US, 1). left unaltered until 2011, yard expanded double off-dock terminal developed near collect arrange to, at, reasonably regarded exogenous. project established result attacks wake prevailing broader situation, particular respect influence n