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9TH WTO MINISTERIAL CONFERENCE, BALI, 2013

Briefing note: Trade facilitation — Cutting “red tape” at the border

Traders from both developing and developed countries have long pointed to the vast amount of “red tape” that still exists in moving goods across borders. Documentation requirements often lack transparency and are vastly duplicated in many places, a problem often compounded by a lack of cooperation between traders and official agencies. Despite advances in information technology, automatic data submission is still not commonplace.

Updated: 12 February 2014

THIS EXPLANATION is designed to help the public understand developments in the WTO. While every effort has been made to ensure the contents are accurate, it does not prejudice member governments’ positions.

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The United Nations Conference on Trade and Development (UNCTAD) estimates that the average customs transaction involves 20–30 different parties, 40 documents, 200 data elements (30 of which are repeated at least 30 times) and the re-keying of 60–70 per cent of all data at least once. With the lowering of tariffs across the globe, the cost of complying with customs formalities has been reported to exceed in many instances the cost of duties to be paid. In the modern business environment of just-in-time production and delivery, traders need fast and predictable release of goods.

A study by Asia-Pacific Economic Cooperation (APEC) estimated that trade facilitation programmes would generate gains to APEC of about 0.26 per cent of real GDP, almost double the expected gains from tariff reductions, and that the savings in import prices would be between 1–2 per cent of import prices for developing countries in the region.

Analysts point out that the reason why many small and medium-sized enterprises — which, as a whole, account in many economies for up to 60 per cent of GDP creation — are not active players in international trade has more to do with red tape rather than tariff barriers. The administrative barriers for enterprises that do not regularly ship large quantities are often simply too high to make foreign markets appear attractive.

For developing-country economies, inefficiencies in areas such as customs and transport can be roadblocks to their integration into the global economy and may severely impair export competitiveness or inflow of foreign direct investment. This is one of the reasons why developing-country exporters are increasingly interested in removing administrative barriers, particularly in other developing countries, which today account for 40 per cent of their trade in manufactured goods.

 

WTO provisions

The WTO has always dealt with issues related to the facilitation of trade, and WTO rules include a variety of provisions that aim to enhance transparency and set minimum procedural standards. Among them are Articles 5, 8 and 10 of the General Agreement on Tariffs and Trade (GATT) which deal with freedom of transit for goods, fees and formalities connected with importing and exporting, and the publication and administration of trade regulations.

However, the WTO legal framework lacks specific provisions in some areas, particularly on customs procedures and documentation, and on transparency. The spectacular increase in the amount of goods traded worldwide in the last few years and the advances in technology and the computerization of business transactions have added a sense of urgency to the need to make the rules more uniform, user-friendly and efficient.

 

The mandate and the negotiations

As a separate topic, trade facilitation is a relatively new issue for the WTO. It was added to the organization’s agenda only when the Singapore Ministerial Conference in December 1996 directed the Goods Council “to undertake exploratory and analytical work … on the simplification of trade procedures in order to assess the scope for WTO rules in this area”.

At the Fourth Ministerial Conference in Doha, in November 2001, ministers agreed that negotiations on trade facilitation would take place after the Fifth Ministerial Conference in Cancún in September 2003. This mandate was renewed on 1 August 2004 when the General Council decided by explicit consensus to commence negotiations on the basis of modalities agreed by WTO members. These modalities established the basis for the work plan adopted at the first meeting of the Negotiating Group on 15 November 2004. Detailed negotiations took place regularly after this and the negotiating text was been streamlined, clarified and improved until the final text was agreed by consensus at the 9th Ministerial Conference, in Bali (Indonesia).

According to paragraph 1 of the Modalities, the negotiations had to clarify and improve relevant aspects of Article 5 (Freedom of Transit), Article 8 (Fees and Formalities connected with Importation and Exportation) and Article 10 (Publication and Administration of Trade Regulations) of the GATT 1994, with a view to further expediting the movement, release and clearance of goods, including goods in transit. Negotiations dealt with the provision of technical assistance and support for capacity building in this area. The negotiations also aimed at provisions for effective cooperation between customs or any other appropriate authorities on trade facilitation and customs compliance issues.

The Negotiating Group, at its first meeting, agreed to invite the International Monetary Fund (IMF), the Organisation for Economic Cooperation and Development (OECD), UNCTAD, the World Customs Organization and the World Bank to attend on an ad hoc basis.

Two clear areas were established in the organization of the negotiations. Section I deals with technical aspects of the deal and explains in detail the necessary improvements for an efficient and effective agreement. Section II provides the basis for special and differential treatment and for technical assistance and capacity building needed for the implementation of the agreement, in some instances with specific deadlines and timetables.

The World Customs Organization and the World Bank also made written contributions to the negotiations, and identified areas in which assistance can be provided to developing country members.

According to OECD, which is also involved in the negotiations as an observer and which provides technical reports on the current problems and the benefits of a good agreement for all members, the measures that would make the biggest impact in terms of reducing costs are:

  • harmonization of documents
  • streamlining of customs procedures (such as pre-arrival clearance)
  • predictability in customs regulations (such as advance rulings on what tariffs apply to specific products or clear rules of procedure and availability of trade-related information).

 

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