One of the main outcomes of the World Trade Organization’s 9th Ministerial Conference in Bali, Indonesia, in December 2013 has been an Agreement on Trade Facilitation. Trade facilitation is important because it can have a major impact on bringing down trade transaction costs.
“Trade facilitation” means streamlining customs and administrative procedures for international trade transactions. The aim of a World Trade Organization (WTO) Agreement on Trade Facilitation is to ease border procedures and to facilitate the movement, release and clearance of goods. A WTO trade facilitation agreement would increase trade opportunities by:
- Lowering transaction costs through harmonization, mutual recognition, and easier access to information;
- Reducing time to deliver products to markets and customers;
- Enhancing market access
Least developed countries (LDCs) are remotely located, land-locked, or are small island states; transport infrastructure is often poor. As a result, the average cost of trading is higher in LDCs (for instance, 43% more to move a container across the border) than in other developing countries. It is estimated that each day saved in shipping time is worth 0.8% ad-valorem for manufactures goods. It is consistently estimated that a trade facilitation agreement could reduce business costs by between $350 billion and $1 trillion, according to WTO (WTO, 2013), and could increase world trade by between $33 billion and $100 billion in global exports per year.
Inefficient border procedures add costs to the very authorities whose job it is to control the borders. When authorities are intent on maximizing collection from import duties and other border taxes by checking every consignment that passes across the border, they cause queues to form at border points; with faster traffic-flows, revenues could be collected more efficiently post-clearance from compliant traders. Trade facilitation aims at simplifying not only the documentation required to clear goods, but also the procedures employed by border agencies.
Developing countries worried about implementation costs and they have fears about the costs of implementing trade facilitation commitments. The World Bank has estimated the costs of implementing the measures likely to be covered by a trade facilitation agreement at as little as $7 million-$11 million in the countries covered by the study (World Bank, 2013).
The new agreement requires Member States to operate procedures that would allow documentation, including in electronic format, and other formalities to be dealt with prior to the arrival of imported goods, in order to speed up their release once they have arrived. The agreement obliges Member States, to the extent practicable, to allow traders the option of making payments electronically for duties, fees and other customs charges. Member States are required to operate procedures that will allow goods to be released for import or export before a final determination has been made of the customs fees and charges, provided that all other regulatory requirements have been met.
Each Member State is required, to the extent possible, to operate an appropriate risk management system, under which customs controls would be focused on the highest-risk consignments, thus allowing low-risk consignments to enjoy faster release. Member States are also required to operate a post-clearance audit system, under which traders would be obliged to subject their records to customs authorities to demonstrate compliance with customs controls.
Member States are encouraged to publish average release times, in order to demonstrate to traders that goods are not being held up unduly. Member States are obliged to provide additional trade facilitation measures to operators who meet specified criteria, otherwise referred to as authorized operators.
An example of best practice is in Poland, where the establishment of one-stop processing and the construction of joint processing facilities at land border crossing points has yielded a 30% reduction in processing time.
If border agencies need to verify the contents of a consignment, it causes delay if those agencies independently require a physical inspection. Sharing of data and other coordination of controls also aids the control process.
A number of countries have gone down the route of creating ‘one-stop border posts’ (OSBP), involving closer cooperation between the border agencies operating at a particular border – The border post at Malaba between Kenya and Uganda is one of East Africa’s busiest borders. Over 1,000 trucks cross via Malaba each day handling roughly 40% of transit cargo. As a result of reform, trucks can cross the Malaba border in as little as three hours, compared to several days a few years ago.
Once the agreement has come into force, Member States will be required to review their formalities and documentary requirements for import, export and transit, and ensure that they are geared towards rapid release and clearance of goods and reducing compliance costs and time for traders.
Member States will be required to use their best endeavors to establish or maintain a single window for the submission of documentation and/or data requirements for import, export or transit, and to simplify procedures so that information that has already been supplied via the single window should not be asked for again by another border agency participating in the single window.
Mozambique’s Single Window was launched in 2011, providing a centralized platform to streamline and simplify the operation of customs and other government agencies involved in border control. Implementation was not easy. Today, the system is able to handle up to 400,000 customs declarations per year, or about 1,500 per day, bringing many benefits to both clients and participating agencies. The system was designed on the basis of the Singapore model, also deployed in Ghana and Madagascar.
To help developing countries and LDCs to implement trade facilitation reforms, therefore, the agreement provides for staged implementation, over long periods where necessary. This will be based on national needs assessments to determine assistance needs and costs, and a scheduling of commitments at individual Member State level. Developing countries and LDCs will be able to link their commitments to the receipt of technical assistance and support for capacity building, monitored by WTO. Although the agreement will be binding in its entirety on all developed countries from its entry into force, it recognizes that some Member States will require technical assistance before they can implement some or all of the obligations to which it binds them.
The trade facilitation provisions under the WTO TFA is categorized with the purpose of setting a timeframe for their implementation:
- Category A commitments are those that a Member State has designated for implementation upon entry into force of the agreement;
- Category B commitments are those that a Member State has designated for implementation on a date after a transitional period;
- Category C commitments are those that a Member State has designated for implementation on a date after a transitional period and the acquisition of implementation capacity through the provision of technical assistance and support for capacity building.
* Please, see Annex A for Category description
Timeline for Tajikistan
By July 31, 2015:
Implement Category A provisions
Notify Category B (2 years after entry into force) provisions along with indicative dates
Inform on arrangements required for implementation of Category C provisions (from 2-5 years)
Within two and half years after entry into force notify on progress and the definitive dates for implementation of Category C provisions
The gains from trade facilitation are most likely to benefit small- and medium-sized enterprises (SMEs) in developing countries because SMEs suffer more from higher trade administration costs than larger enterprises. SMEs make up the vast majority of the business sector especially in developing countries. The costs for SMEs from developing countries are made higher by the fact that they generally have less access to information and less experience with the customs authorities in developed countries. They are also seen as high-risk firms and flows involving developing economies are subject to numerous physical checks.
The WTO Trade Facilitation Agreement creates binding commitments across 159(+) WTO Members to expedite movement, release and clearance of goods, improve cooperation among WTO Members on customs matters, and help developing countries fully implement the obligations. The agreement will increase customs efficiency and effective collection of revenue, and help small businesses access new export opportunities through measures like transparency in customs practices, reduction of documentary requirements, and processing of documents before goods arrive.
ANNEX A Description of Categories
Category A provisions: Publication; Information available through Internet; Notifications; Procedures for appeal or review; Detention; Test procedures; General disciplines on fees and charges imposed on or in connection with importation exportation; Specific disciplines on fees and charges imposed on or in connection with importation exportation; Penalty disciplines; Pre-arrival processing; Separation of Release from Final Determination and Payment of customs duties, Taxes and Fees; Risk Management; Post clearance audit; Establishment and publication of average release time; Expedited shipments; Perishable goods; Border agency cooperation; Movements of goods intended for import under customs control; Formalities and documentation requirements; Acceptance of copies; Use of international standards; Single Window; Pre-shipment inspection; importation, exportation and transit procedures; applied rates and duties and taxes; fees and charges; Use of customs brokers; Common border procedures and uniform documentation requirements; Rejected goods; Temporary admission of good and inward and outward processing; Freedom of transit
Category B: Notification for enhanced controls or inspections
Category C: Enquiry points; Opportunity to comment and information before entry into force; Consultations; advance rulings; Electronic payment; Trade Facilitation for Authorized operators; Border agency cooperation; Customs cooperation