News

Streamlining movement of goods is the goal of draft WTO trade facilitation treaty

16.11.2009

Daniel Moulis, Principal

Streamlining and expediting the movement of goods across international borders through simplified, transparent customs procedures is essential to boost trade and economic growth. This is called “trade facilitation”. WTO negotiations on trade facilitation began in July 2004, on the basis of the mandate set out in the so-called “July Package”.

A revised draft of the possible trade facilitation treaty – the only entirely new treaty expected to come out of the Doha Development Round – is in circulation amongst negotiating parties. In this newsletter we outline the importance of trade facilitation, and the key issues that the new agreement will seek to address.

The importance of improving procedures for cross-border trade

Cumbersome border processes stifle trade and entrepreneurship and deter foreign investment in local markets. According to the United Nations Conference on Trade and Development:

…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% 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 particular, trade transaction costs are a huge disincentive for small to medium size enterprises. These enterprises, which account for up to 60% of GDP creation in many economies, refrain from exporting altogether when the procedures are too hard and too expensive. As observed by the WTO, “the administrative barriers for enterprises that do not regularly ship large quantities are often simply too high to make foreign markets appear attractive”.

Despite the importance of standardising trading procedures, no WTO agreement dealing with trade facilitation was established in the Uruguay Round. This was largely due to the views of developing economies, which were reluctant to commit themselves to a binding WTO agreement subject to dispute-settlement rules. Whilst agreeing on the benefits of trade facilitation, developing countries expressed concern about their capacity to upgrade their trade infrastructure, and about the significant financial and technical burdens that WTO disciplines in this area would impose on them.

Moving closer to a set of standard rules in the WTO

The July Package required WTO Members to clarify and improve GATT rules on the movement, release, and clearance of goods, with the aim of reducing transaction costs, enhancing technical assistance and capacity building for developing countries in this area and improving communication and cooperation between the customs authorities of WTO members.

Confidence in the state of the negotiations has allowed the WTO to prepare a draft text of a possible trade facilitation agreement (“the draft text”). It proposes to reduce bureaucratic “red tape” and to increase transparency at the border so as to enable businesses, governments and consumers in both developing and developed countries to benefit from the opportunities of expanding global trade.

Key elements of the draft text

Key provisions of the draft text would:

  • support the process of transition by developing countries;
  • improve information disclosure by customs authorities and the use of the internet;
  • require transparent appeal procedures to be implemented;
  • ensure that fees and charges are cost-based;
  • allow the release of goods before final payment of duties;
  • establish standardised risk management procedures, including the recognition of “authorised traders”;
  • mandate a “single window” for the interaction of importers with regulatory authorities; and
  • eliminate pre-shipment inspections.
Support for developing countries

To alleviate the concerns of developing countries, special provisions are included in the draft text to provide them with technical assistance and support for “capacity building” and to assist in the implementation of better trade facilitation policies. Additionally, it is intended that the extent and timing of commitments by developing countries is to be linked to their implementation capacity.

Information disclosure and use of the internet

Customs authorities will be disciplined to improve the disclosure of information and the electronic exchange of information with traders. Enquiry points will have to be advised to traders also. Advance rulings requested by importers should be issued in a “time-bound” manner, and should be more widely circulated to other traders if suitable to do so.

Transparent appeal procedures

The establishment of an appeals system is crucial for traders for relief against the incorrect or unfair administration of trade procedures. Members will be required to establish non-discriminatory administrative and judicial appeal procedures against the decisions of border agencies. Set time periods must be put in place by Members. Upon request, traders will receive information regarding administrative decisions, including the reasoning and laws applied. Information regarding appeal procedures will need to be made available, and traders will have the right to independent legal representation on appeal.

Cost-based fees and charges

To enhance the predictability of the overall costs of a cross-border trade transaction, and to reduce the incidence of inconsistent or unwarranted charges, the draft text states that fees and charges connected with the cross-border movement of goods will not exceed the approximate cost of the service rendered. Details of trade-related fees and charges will be required to be published, if possible on the internet. Adequate notice will need to be given of new or amended fees and charges.

Early release of goods

Members would be required to maintain procedures that allow for the early release of goods from customs control prior to the payment of duties, taxes and fees. Members may require sufficient guarantee in the form of a surety, a deposit or another appropriate instrument before the goods are released. The guarantee is to be limited to an amount calculated to ensure compliance with the payment of such duties, taxes and fees.

Standardising risk management

Advanced economies utilise risk management software to differentiate between “low risk” and “high risk” goods. Low risk items enjoy streamlined processes. High risk goods can be identified for more detailed inspection and checking. However in the developing world, it is common for a majority of imported goods to be inspected by customs personnel. This causes huge delays in the movement of goods.

In an effort to increase efficiency in trade procedures, the draft text would encourage WTO Members to conduct physical examination of goods only if such a requirement has arisen after the implementation of appropriate risk assessment procedures.

The draft text also provides for “authorised traders”, which meet specific compliance criteria, to be officially recognised. Such traders will be entitled to reduced physical inspections of their cargo.

Establishment of a “single window”

In both developing countries and developed countries, traders are often required to submit regulatory documents to a wide range of government agencies. The draft text would require Members to maintain or establish a “single window” to facilitate simplified entry or export of goods.

This “single window” would allow traders to submit their trade information to only one recipient agency. The intention is that the information should then be accessed by all participating government agencies within that country to fulfill all import, export and transit related requirements.

Elimination of pre-shipment inspection

In developed countries, the emphasis of customs is on facilitating trade. In developing countries, with higher import duties, there is a stronger emphasis on revenue collection. Accordingly, developing countries are keen to ensure that importers do not undervalue their goods to pay less duty. Imported goods are not usually undervalued in developed countries as import duties are often set at low levels.

One way for customs to maximise revenue collection is to inspect goods at the pre-shipment stage to verify details such as the price, quantity and quality of goods. Developing countries, especially the least developed countries, feel there is a valid role for such inspections, including that they can help them to overcome their own institutional failings at the border. However such practices hold up trade and commerce, and are subject to abuse. Accordingly, the draft text provides for the elimination of pre-shipment inspections.

Conclusion

The international community believes that trade facilitation will be of great benefit to world trade. In particular, facilitating trade will assist developing countries, whose border process inefficiencies are sometimes more costly to industries than are tariff barriers.

The draft text is only that, ie a draft, and it has not been endorsed by negotiating parties. It is heavily bracketed and footnoted. Nonetheless it shows what the negotiating parties are prepared to discuss, in a less controversial corner of the Doha Development Round negotiations. It will, however, be caught up in the slower processes involving the “big issues” in the Round, and no predictions can be made about either the final content or the timing of any eventual agreement.

For more information, please contact Daniel Moulis or Marina Modir on +61 2 6163 1000, or at daniel.moulis@moulislegal.com and marina.modir@moulislegal.com

This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.