Paperless Trade: Implementation Experience and the way ahead

Paperless Trade:Implementation Experience and the way ahead Experience of the World Bank Hamid Alavi Middle East and North Africa Region, World Bank UN/CEFACT Executive Forum Geneva , 20-21st June 2005

How does the World Bank view Trade Facilitation and what it is doing in this filed? Why are the simplification and automation of trade transactions important? Efficiency and competitiveness Security concerns Guiding principles for the application of ICT Simplify processes Simplify documentation Re-engineer processes (codes and standards) Automate Customs is only one of many agencies involved in trade transactions Implementation approach Lessons learned Overview .1. Presentation Purpose Implementation lessons from the application of information technology to facilitate trade and smooth out supply chains

Expanding Country Policy Dialogue Supporting the Doha Round Established Trade Department including Trade Logistics Group Bringing together Trade Policy, Infrastructure and Customs/Border Management teams Stepping up trade – related operations Global Facilitation Partnership for Trade & Transport Trade and Transport Facilitation Audits Trade Facilitation Seminars Better coordination with donors & international organizations Research, analysis and advocacy Customs Modernization Handbook Overview of World Bank Activities Quick Background Trade facilitation is increasingly important in Bank policy support and operations

Efficiency : Time is a Trade Barrier • Trade occurs in physical space and moving goods requires time. • Trade logistics costs are as important as tariffs • Each day saved is equivalent to 0.5% tariff (Hummels) • 7% of value of world trade is cost of administration of trade logistics (UNCTAD) • Time becomes even more important in multi-stage production (global supply chain) • % of vertical specialization in trade (use of imported inputs for exports) has grown 30% in the past 20 yrs and accts for half of overall trade growth. • Willingness to pay to save time: • Share of airfreight in US grew from 7% in 65 to 30% in 98 • Airfreight 7 times as expensive as ocean shipping.

Efficiency gains from streamlining and simplifying trade processes • Imagine if the contents of a ship can be processed in half a day instead of a day … • Infrastructure capacity effectively doubled • Twice the cargo • Twice the # of ships • Twice the number of containers • Increased harbor duties, excise and revenue • Considerably lower cost to traders • …even more benefits: • These efficiencies offer wider attraction to trading partners • Efficiency in vessel turnaround attracts new trading, market center, distribution business.

Efficiency gains from streamlining and simplifying trade processes • A wide-body jet can carry fresh produce from supplier in one hemisphere to the buyer in the other hemisphere on the same or next day. • BUT it can take 10 days to : • Process orders • Obtain customs and TC approvals • Book and schedule transport and distribution • Obtain payment approvals • Complete the transaction • This means removing 10 days from the selling season, revenue that cannot be replaced

What Gains? • Port efficiency improvements (from 75th to 25th percentile) could reduce transport costs for a country as much as shortening it distance from its trading partners by 9,000 km (IDB 2000) • $100 million could be saved each year through the application of ICT (UNCTAD) • Singapore gained 1% of GDP • Tunisia case

Trade transaction is a complex process • Many documents • Many players • A typical trade transaction can take as many as 150 different documents to complete • Raw material and component supplier • Manufacturer/assembler • Customs agents/brokers • Customs authorities • Government authorities- export promotion/approval/stat. • Local transport and warehousing companies • Container handlers • Port and harbor authorities • Shippers (sea, air, road, rail, canal, …) • Bank and insurance companies • Each have own set of paper forms and interactions with other organizations (incl. counterparts in importing countries.

IMPORT Pay Taxes Clear Customs Release Goods MANUFACTURING/ VALUE ADD EXPORT /Dues Air, Sea, Land International Transport DOMESTIC SUPPLY CHAIN Customs Storage Port Raw Materials Packaging Transport Storage • Port Processes • Internal Transport • Storage • Container Handling • Loading Ship’s Documents “Informal Processes” IMPORTER • Manifest • Bills of Lading • Sea/AW Bill • Container Plans • Quotations • P.O.s • Delivery Notes • Con. Notes • Invoices • Statements • Invoice • Packing List • Declaration • Delivery Note • Payments • Remittance • Advice Book/Confirm Transport Shipping Documents Pay Taxes Clear Customs Release to Port /Dues Foreign Chambers Commerce • Certificates • Of Origin MANUFACTURER Port Port Customs Customs • P.O. • Contract Terms • Delivery Instructions • L.O.C. Informal Processes • Invoice • Packing List • Declaration • Delivery Note Receive Goods Overseas Embassies • “Legal • Invoices” EXPORTER FOREIGN BUYER Post/ Courier • Certificates • Of Origin • Form A • EUR.1 Chamber of Commerce Finance Ministry Pay Bank Bank • Licenses • Certificates • Government • Approvals • Licenses • Certificates • Government • Approvals Government Departments L.O.C. Packing List Invoice LOC Approval LOC Courier

Different ways to use ICT for TF • Systems built around different agencies • Ports • Customs • long term difficulties in technology areas such as flexibility, interoperability, international standards, volume, ongoing support and support costs. • Single windows A facility providing standardized information and documents with a single body to fulfill requirements for import, export and transit regulations and clearance Expedite and simplify information flows between trading community and the government

Paperless Trade reduces Time and Increases Efficiency and Security- Examples • Mauritius Trade Net has reduced average clearance times of goods from 4 hours to 15 minutes • Tunisie Trade Net (TTN) has reduced processing times of trade documents from max of 18 to 7 (3.5 days in cases not requiring technical controls). • Time savings in Singapore (STN) translate into 1% of GDP per year. • Advanced information sharing in all cases has contributed to security requirements • …

Design Approach It is more than simply applying information technology to trade processes. It requires a comprehensive approach and commitment at all levels Automate/ Single Window Codes and standards Customs only one among many Phased approach/demonstration effect Supporting and implementing structure Reengineer back-offices Simplify trade documents and eliminate duplication SAD Steering committees and working groups (cross agency) to design components and draw up action plans Streamline and simplify trade transaction processes

Implementation Approach • Phased Approach • Complexity • Quick wins to secure confidence • International Standards (UN EDIFACT, etc.) • International information exchange requires standards • Pilot users • Surveys / evaluation / fine –tune • Implementing body

Implementation Issues • Trade Processes - Chain effect • As good as weakest link in the chain • Benefits only visible when everything works • Complex • Many details that must fit together • Resistance to change • Organizational • Shift from paper to electronic processes • Prepare to manage project risks • Multiple activities / issues to address Inter-institutional dependencies

Success Factors There is potential dramatic improvements in efficiency and security that can be made in trade clearing process when administrative and political commitment joins forces with advances in information technology • Relevance To firms • Commitment at the highest level of government • Cooperation among private sector operators and various government stakeholders at all stages of the process • Adoption of a regulatory framework that allowed for electronic processing and signature • Simplification of customs requirements • Extension of electronic processing to all import and export administration and other agencies involved in trade transactions • Adoption of internationally recognized standards and codes in order to ensure a common language among different users and in different countries • Aligning the relative costs of processing paper documentation and on-line processing.

Paperless Trade: Implementation Experience and the way ahead