Trade Facilitation

1. Trade Facilitation WTO Doha Round & South Asia: Linking Civil Society with Trade Negotiations Sanath Jayanetti Institute of Policy Studies

2. Outline • Background & Definitions • Identification of trade facilitation needs and priorities • Costs and benefits of trade facilitation measures • Historical evolution in the GATT/WTO • Clarification of GATT Articles • Special & Differential Treatment • Negotiating Positions

3. Background & Definitions Today we have, • Ever higher volumes of trade; due to globalization, FDI, MNCs looking for cheapest inputs for their finished products in different locations, plethora of FTAs • Traders are demanding faster clearance for their goods and increased administrative efficiency; Trade velocity; modern supply chain management techniques have increased the usage of “just-in time” manufacturing, global production sharing and outsourcing

4. Background & Definitions (cont.) Trade Facilitation – the plumbing • Cutting red tape at the border • Reducing all transactions costs associated with enforcement, regulation and administration of trade policies (trade and tariff policy also plays a major role in trade facilitation) • Involves simplification, harmonization and rationalization of trade procedures Can be achieved through automation, applying modern risk analysis techniques, transport procedures, etc.

5. Background & Definitions (cont.) Source: Trade Facilitation from a Developing Country Perspective, National Board of Trade, Sweden, 2003

6. Background & Definitions (cont.) Organizations that deal with trade facilitation: • World Customs Organization (WCO) • UN Agencies such as: United Nations Conference on Trade & Development (UNCTAD), United Nations Center for Trade Facilitation & Electronic Business (UN/CEFACT), United Nations Economic Commission for Europe (UN/ECE), United Nations Commission on International Trade & Law (UNCITRAL) • IMF, WB • World Trade Organization (WTO), etc.

7. Identification of trade facilitation needs and priorities Need for • Transparency of methods and procedures • Avoid delays of border crossings • No corruption • Packaging and labeling requirements • Similar national standards • Facilitating physical movement of consignments (more relevant for land-locked countries) • Creation of more efficient payment and credit arrangements • Liberalization of exchange control, relaxation of stringent requirements on formalities on payments, insurance and other financial requirements

8. Identification of trade facilitation needs and priorities (cont.) A key feature of SAARC economic cooperation. Already established, • Group on Customs Cooperation • Group on Harmonization of Standards and Measurements Framework Agreement on SAFTA (Jan 2004) has made provision for trade facilitation measures under Article 8 (Additional Measures). Some of measures are: • Harmonization of standards… • Simplification and harmonization of customs clearance procedure; • Harmonization of national customs classification based on HS coding system; • Customs cooperation to resolve dispute at customs entry points; • Transit facilities for efficient intra-SAARC trade, especially for landlocked contracting states; etc. The political will to implement trade facilitation measures seem to be lacking in the region.

9. Colombo Port – Containers moving out

10. Costs and benefits of trade facilitation measures Benefits • Shortening of waiting time for goods in transit, customs release and clearance • Reduction of trade transaction costs for traders, especially for SMEs • Improved revenue collection and effectiveness of border controls • A more transparent and efficient regulatory climate for investors • Improvement of efficiency morale and integrity of customs agencies • Improved relations between authorities involved in border control related activities and the business/trading community • Better functioning of public agencies and a more reliable basis for implementation of government policy

11. Costs and benefits of trade facilitation measures (cont.) Costs Substantial initial investment, varies according to the level of reforms needed and existing infrastructure. But, considerable improvement can be made within the existing framework w/o incurring heavy capital investments through, inter-alia: • Synchronized business timings at borders • Customs procedures simplification and standardization • Harmonization of trade documents • Joint customs operations • Simplification of transit trade

12. Costs and benefits of trade facilitation measures – South Asia (cont.) • Article V • Problems with transit facilities between Bangladesh, India and Nepal • Article VIII • Bangladesh - Average 12 days to clear a cargo load, can take up to 30days for imported goods to be released through customs; Hidden cost ranges from Tk. 4,700 to Tk 86,800. • India - Exporter needs to obtain 258 signatures, make 118 copies of documents and wait for long hours. • Nepal - For customs clearance 83 types of documents have to be filled with 102 copies and 113 signature; The human resource requirements for completing the customs procedure is estimated to be 22 days. • Pakistan - There is a long circuitous road to get consignment into the country. • Sri Lanka - There are a number of charges on imports. • Article X • In general, No known inquiry points, no consultative mechanism and appeal process. Difficulty in accessing information. Source: Wickramasinghe, Upali “A multilateral Approach to Trade Facilitation in South Asia,” SAWTEE

13. Costs and benefits of trade facilitation measures – case study The flow of activities from clearing a shipment to returning the empty container – Sri Lanka 1.Clearing the shipment at the port (late morning/afternoon) 2.Transportation of shipment to destination (afternoon) 3.De-stuffing at destination (afternoon) 4.Return of empty container and truck to trucking yard (by this time office hours have ended) – extra charge after office hours 5.Overnight parking of the container and truck at trucking yard 6.Return of empty container to assigned area of the shipping line (following day morning) 7.Return of the truck to port to attend to another shipment (following day late morning/afternoon) Issues: • The empty container is not returned on the same day due to high rates charged for empty containers returned after office hours. • Practical difficulties in making lodging a request: • Difficult to arrive at an accurate prediction of expected time of return of the empty container to the shipping line. • Even if above difficulty was to overcome, there exists a high possibility that this time indication is known after office hours, which hinders lodging a request for after office return. • Additional Cost on transportation due to double shuttling involved in above point 4 and 6. • Delay in commencing a new clearance of a shipment in the following day

14. Historical evolution of Trade Facilitation (TF) in the GATT/WTO Relevant GATT Articles & WTO Agreements include: • GATT Article V (Freedom of Transit) • GATT Article VII (Valuation for Customs Purposes) • GATT Article VIII (Fees and Formalities connected with importation and exportation) • GATT Article IX (Marks of origin) • GATT Article X ( Publication and Administration of Trade Regulations)

15. Historical evolution of TF in the GATT/WTO (cont.) • Agreement of Implementation of Article VII of GATT 1994 (Customs Valuation Agreement) • Agreement on Import licensing Procedures • Agreement on Pre-shipment Inspection • Agreement on Rules of Origin • Agreement on technical Barriers to Trade (TBT) • Application of Sanitory and Phytosanitory Measures (SPS) GATS and TRIPS also include some trade facilitation measures. GATT Article XXIV (Customs Unions and Free Trade Areas) would also affect trade facilitation.

16. Clarification of GATT Articles Article V – freedom of transit of goods through the most convenient route, no unnecessary delays and restrictions, no levies (such as customs duties) only for services provided Article VIII – fees charged for import and export must be limited to cost of services, minimize the incidence and complexity of import and export formalities, need for decreasing and simplifying import export documentation requirements Article X – prompt publication of laws, regulations and decisions relating to import and export, laws relating to trade must be administered in uniform, impartial and reasonable manner and there must be provision for judicial review of administrative decisions

17. Articles V, VIII & X – Core Principles • Transparency • Consistency and predictability • Non-discrimination • Simplification and avoidance of unnecessary restrictiveness, and • Due process

18. Historical evolution of TF in the GATT/WTO (cont.) • Trade Facilitation (TF) was added to the WTO agenda in Dec 1996, Singapore Ministerial Declaration (para 21) – directed the Council of Trade in Goods (CTG) “to undertake exploratory and analytical work, drawing on the work of other relevant organizations, on the simplification of trade procedures in order to assess the scope for WTO rules in this area.” Became one of the four Singapore issues

19. Historical evolution of TF in the GATT/WTO (cont.) • 1997-1999, CTG collected information. Several seminars were held. For the 1999 WTO Ministerial in Seattle, several members (EU, Japan and US) made official submissions to WTO to launch negotiations on TF as part of new WTO Round. Meeting was unable to agree on a new agenda for the Seattle Round. • 2001 WTO Ministerial in Doha, attempts were made to include TF in the agenda for the new Round of negotiations. But no consensus.

20. Historical evolution of TF in the GATT/WTO (cont.) Doha Ministerial Declaration states that “…In the period until the Fifth Sessions, the Council for Trade in Goods shall review and as appropriate, clarify and improve relevant aspects of Articles V, VIII and X of GATT 1994 and identify the trade facilitation needs and priorities of members, in particular developing and least-developed countries. We commit ourselves to ensuring adequate technical assistance and support for capacity building in this area.”

21. Historical evolution of TF in the GATT/WTO (cont.) Work program concentrated on three main areas: • GATT Articles V, VIII, and X • TF needs and priorities of member countries Especially of developing and LDCs • Technical Assistance and Capacity Building Developing countries were of the view that they prefer TF measures to be handled autonomously and the need to address the implications of binding rules and human and financial resources, as well as difference in level of developments.

22. Historical evolution of TF in the GATT/WTO (cont.) Cancun Ministerial 2003, no declaration, Ministerial Statement. Doha Ministerial Declaration and the WTO General Council Decision of July 2004 (July Package) constitute the combined framework of current negotiations. (Doha Work Program, Decision Adopted by the General Council on 1 August 2004; WT/L/579) In the July Package it was decided to start negotiation for an agreement in the area of TF and drop the other three Singapore issues from the Doha negotiations.

23. Historical evolution of TF in the GATT/WTO (cont.) Modalities were given in Annex D of the July Package. Key issues are: • Clarification and improvement of relevant aspects of Articles V, VIII and X of the GATT 1994; enhancement of technical assistance and support for capacity building; effective cooperation between customs or any other appropriate authorities on trade facilitation and customs compliance issues (para 1); • Special and differential treatment for developing and LDCs (para 2); • LDC members – commitments not mandatory (para 3); • Identification of trade facilitation needs and priorities; concerns related to cost implications of proposed measures (para 4); • Technical assistance and support for capacity building (paras 5, 6 and 7); • Working with and work of relevant international organizations (paras 8 and 9). Since the July Package three meetings have been held of the Negotiating Group of TF at the WTO. (Last one on 7,9 Feb 2005)

24. Special & Differential Treatment (SDT) Developing and LDCs institutional improvements would require, in addition to very high costs, sustained effort over a long period, and countries at different stages of development have different needs, priorities, and capacities to implement global rules. • Under Doha Development Agenda: the work program on SDT is set out in Para 44 of Ministerial Declaration. • SDT under the July Package: With regards to the level of development and needs of developing countries, SDT will be an important part of negotiations; Proportionality to be achieved through lesser commitments by developing countries.

25. Special & Differential Treatment (SDT) – cont. Almost the entirety of Annex D of the July Package “Modalities for Negotiations on Trade Facilitation” is on making use of the SDT provision for developing and LDC countries. Proper implementation is the key issue. • The extent and timing of entering into commitments shall be related to the implementation capacities of developing and LDCs • LDCs are required to undertake commitments subject to their limitations • Address the cost implications for developing and LDCs of the proposed measures • TA support to the developing and LDCs to be provided by developed countries • If infrastructure support is not forthcoming implementation is not required • Collaborative effort to be undertaken with IMF, OECD, UNCTAD,WCO and the WB.

26. Negotiating Positions – as at 02/05 At the third meeting (since the July Package) of the WTO Negotiating Group on Trade Facilitation on 7 and 9 February: • Developing countries and their groupings raised the issue whether any agreement arising from the negotiations should be legally binding or instead be based on a system of incentives, and stressed that developing countries could only implement commitments  if they have the resources to do so, as agreed to in the text on trade facilitation. • Developed countries submitted papers that gave specific proposals on new obligations that WTO members should undertake on various aspects of trade facilitation.  These proposals were met with great caution by several developing countries. Source: TWN Report by Goh Chien Yen

27. Negotiating Positions – as at 02/05 Some of the issues raised by the Core Group (19 developing countries) • “what legal commitments if any will a new agreement entail." • "it will have to be discussed, whether the components of an agreement on trade facilitation will lead to dispute resolution or rules based commitments of compelled reforms or a more general incentives based reform commitment process that recognizes the large resources and lengthy timeframe involved." • "the specific task and challenge of this Negotiating Group is to make a concrete list of the specific components and criteria for promoting trade facilitation..., while keeping in mind that these negotiations are in the context of the Doha Development Round and are limited in scope to reviewing and clarifying GATT Articles V, VIII and X."

28. Negotiating Positions – as at 02/05 African Group stated that • Scope of negotiations is only limited to Articles V, VIII, X of GATT. • SDT is a key principle in Annex D. • As per para 3 of Annex D, it will "provide LDCs the basis for not undertaking commitments that are not compatible with their development, financial or trade needs or their administrative and institutional capabilities." • On para 4, "In this regard, we believe the provision of externally-sourced resources to support such review and identification of TF needs and priorities is essential. Further, a study on the needs and priorities of African countries, including flexibilities and costs of adjustment, must be conducted." • Provision of TA and capacity building is a must for African countries to implement the results of the negotiations.

29. Negotiating Positions – Proposals as at 02/05

30. Negotiating Positions – as at 02/05 Members agree to "clarify and improve relevant aspects of Articles V , VIII and X of the GATT 1994 with a view to further expediting the movement, release and clearance of goods, including goods in transit," EC • “publish and make easily available” all laws, procedures, and rules affecting imports, exports and goods in transit. • Above information to be available in a “simple accessible manner.” • When new rules are introduced members should notify WTO. • Wants private sector be consulted before having new or amended rules (expansion of Article X). • Members be obliged to provide legal right of appeal against customs and other agency rulings and decisions.

31. Negotiating Positions – as at 02/05 USA, Canada • Under Article X, members commit themselves to provide binding advance rulings on tariff classification when requested by traders to do so. USA • internet publication of customs rules and procedures; • to "establish specific parameters for fees charged by Members under Article VIII GATT 1994 and publish such fees on the internet and notify the WTO with a specified number of days in advance of implementation";  and • the need to "provide specific expedited procedures for express shipments."

32. Negotiating Positions – as at 02/05 Taiwan, Korea & Japan • To have an one-stop information center Korea • Members should be provided with opportunities to make comments on the new rules and procedures introduced by members Sri Lanka • Has made several statements in support agreeing to modalities of negotiations in Cancun based on the Annex ‘G’ of the draft Ministerial Text. Cost and implementation of the proposals submitted so far is the main issue.

33. Thank you