ADB High Level Meeting on WTO Key Doha Issues
Trade Facilitation – New area 1
3-5 August 2005, Osaka, Japan
Ladies and gentlemen,
It is a great honor and pleasure to talk about the WTO issues at this high-level meeting. I would like to thank the ADB for its leadership in organizing this timely event in the leading up to the December Hong Kong Ministerial Conference. My appreciation also goes to the Local Government of Osaka for hosting this important session for the region.
First of all, allow me to introduce briefly the World Customs Organization. It is an independent, intergovernmental organization, specialized in customs matter and established in 1952 in Brussels. The WCO has 168 member customs administrations, covering 99% of world trade. Our mission is to enhance effectiveness and efficiency of customs. In order to achieve this mission, we have three areas of activities: set standards on customs procedures; promote international cooperation including information exchange; and deliver technical assistance and help capacity building. The WCO has a strong relationship with the WTO as we developed and maintain the Harmonized System on tariff classification, which provides a basis for application of tariff and other trade measures, compilation of trade statistics, and tariff negotiations. Moreover, both the WTO Agreement on Customs Valuation and the Agreement on Rules of Origin designate the WCO as providing expert views. These works are all related to and have a considerable effect on the implementation of tariff reform. A number of trade representatives attend our meeting as observers. This important feature gives us an insight into current trade when framing our standards. The WTO TRIPS Agreement also recognizes the importance of border measures to effectively protect intellectual property rights, which the WCO supports customs in fighting against counterfeiting.
Today I was asked to talk about the trade facilitation agenda. Its background is normally explained that along with the series of GATT negotiations on tariff reduction there has been an increased awareness of trade transaction costs, especially the costs to comply with border procedures, which have often become higher than the sum of customs duties. Actually, several figures for trade transaction costs are quoted ranging from 2 to 10% of value of trade. The scope of trade facilitation can be broad, including infrastructure and domestic regulatory reform. However, in the WTO term, its scope is defined narrowly and focused on border procedures. This area is also called a new area, but I wonder if it is really a new area, as we have classic GATT 1947 rules on border procedures. Moreover, standards and best practice in customs area have been developed elsewhere, in responding to the changing environment in which it operates. I suggest that we regard this trade agenda as improving the existing GATT articles by drawing on these existing works and encourage their effective implementation under the WTO framework.
Now, allow me to review in more detail the changing environment for customs and other border agencies. The cross-border movement of goods, people, information and capital has continued to grow, significantly supported by the modern technology in transport and information & communication technology (IT). In this regard, the development of E-commerce or paperless trade had a huge impact on border procedures. These technological developments also brought about the global production and distribution system whereby companies send material and intermediate goods across the borders in looking for competitive production bases, often in the form of intra-company and group trade, and final products also move around the global, which require investing money and time for efficient logistics. On the other hand, as a result of the general trend of administrative reform, border agencies are under the pressure of working more efficiently with increasingly limited resources. Preserving integrity against corruption is also an essential prerequisite for good governance, widely recognized as the key to development.
All these changes resulted in the need of more transparent, predictable and speedy border procedures, based on internationally accepted rules and standards. The use of IT to address paperless trade is crucial in these efforts to modernize border procedures in a highly competitive environment. In fact, there has been an increased competition of investment where efficient border procedures are viewed as an integral part of improving trade and investment climate, and therefore an indispensable element of development strategy. They greatly contribute to global and regional trade integration of one country. Efficient customs procedures are also expected to contribute to improving revenue collection. While these are the direct background of trade facilitation agenda, trade security covering the entire trade supply chain has become high on the international agenda after the terrorist attacks on September 11th. Needless to say, trade security risks are not limited to terrorism, but also include threats to community, including health and safety risks caused by drug trafficking, counterfeiting and other trans-border organized crime.
To illustrate this change in environment, let me look at the evolution of customs function. Customs originally started as an agency for revenue collection of import taxes, but soon governments used tariff as trade policy tool to protect domestic industry as well. Taking advantage of its strategic location at the borders, customs has also been tasked to protect health and safety of nationals and society from inflow and outflow of hazardous goods, including drug trafficking, firearms, environmentally harmful goods and counterfeits. This includes the fight against trans-border organized crime. Recently, the international community focused on the role customs can play in the development of a nation through promotion of trade and investment. And finally, trade security is under limelight. I would like to point out that these responsibilities are not mutually exclusive, rather they are mutually supportive and customs are expected to retain all these missions.
Throughout this evolution, customs community identified its task as carrying out effective and efficient control in a wider range of missions, while responding to the growing needs for trade facilitation. Although international standards already exist to this effect, their implementation has been challenging. In responding to these challenges, we need political support and commitment to getting rid of red tape by simplifying customs procedures, based on international standards. Another area that political will is needed is greater cooperation with other border agencies and trade community in order to realize more expeditious movement of goods, as customs is not the sole player in border procedures. These are the areas where the WTO can play a major role in bringing higher political attention.
With this background, let us move on to the past development of WTO trade facilitation agenda. Trade facilitation was first taken up as one of four “new areas” at the 1st WTO Ministerial Conference in Singapore in 1996, along with investment, competition and government procurement. The ministers agreed to launch a new round of trade negotiations in Doha in 2001, where the start of negotiations on the “new area” was made conditional on having consensus on their negotiation modalities. After an unsuccessful ministerial conference in Cancun, WTO negotiators reached agreement on the July Package that includes negotiation modalities on trade facilitation, which is the only area survived among the four “new areas”. Following the July Package, the Trade Facilitation Negotiating Group was established in November under the chairmanship of Malaysian Ambassador to the WTO, and they have had six meetings before the summer recess that started this week.
In this process the WCO adopted the International Customs Community’s Message to the WTO Cancun Ministerial Conference in 2003. While the Cancun Ministerial itself did not achieve its goal, this message well represents customs view on the WTO negotiations. It recognizes five potential benefits, namely: enhanced political will for simplified border procedures by bringing ministerial level commitment; strengthened support and cooperation with trade community; increased awareness of customs requirements and improved compliance; greater cooperation with other border agencies, including the introduction of single window; and impetus for a comprehensive customs capacity building with realignment of resources for infrastructure and institution building.
As you must have surely sensed, customs community tried to seize the opportunity to advance their own trade facilitation efforts.
In order to maximize the potential benefits, the message puts forward four suggestions, namely: active participation of customs administrations in preparing for national positions for negotiations; enhanced cooperation in the work of WTO and WCO at global level; involvement of other border agencies; and full support for the customs capacity building efforts. We believe that these suggestions are still valid and very much relevant to the state of negotiations as of today.
The WTO July Package has mandated the WTO negotiators to start the talk under the established modalities of negotiations. They define the scope of negotiations as clarifying and improving the three GATT Articles on border procedures, namely the GATT Article V on transit, Article VIII on fees and formalities, and Article X on publication and appeal. The modalities also touch upon the customs compliance issues, which should include the cooperation in applying the WTO Customs Valuation Agreement. Since this is a part of the Development Agenda, Special and Differential Treatment (S&D) for developing countries includes the understanding that entering the commitments should be related to the implementation capacity of each member, which goes beyond the traditional arrangement of granting a longer transitional period. In this regard, the modalities put emphasis on the provision of technical assistance and capacity building with the review of their performance in the future. The participation of developing countries to the negotiations will be facilitated by the identification of needs and priorities of each country. Finally, the July Package indicates the role of relevant international organizations, including the IMF, OECD, UNCTAD, WCO and World Bank, in taking a collaborative effort in technical assistance and capacity building to ensure better coherence. It also clearly stipulates that due account shall be taken of the relevant work of the WCO and other international organizations.
Let us look into the progress made by the WTO Trade Facilitation Negotiating Group, following the WTO July Package. Their early meetings concentrated on the awareness raising and education of negotiators on the trade facilitation agenda. This is the so-called capacity building for Geneva-based negotiators. Later the WTO Secretariat started to organize regional seminars, in cooperation with relevant international organizations, including the WCO. During the meetings international organizations have been invited and made presentations on available tools and various trade facilitation efforts undertaken in the past, including their cost implication. The past experience reveals that governments can start making a progress in trade facilitation with minimal cost implication. The WCO made contributions, including the submission of the information note on WCO instruments and GATT Articles V, VIII and X, which could be found both on the WCO and WTO web sites. In this connection, the Rev ised Kyoto Convention on simplification and harmonization of customs procedures is considered the most relevant instrument for trade facilitation. Both customs and business community regard the Convention as blueprint of modern customs procedures to implement effective control and facilitate legitimate trade
I will briefly introduce the Revised Kyoto Convention, which was originally adopted in the WTO Council session in Kyoto in 1973 and now has 63 contracting parties. It was revised in 1999 to keep abreast of development in Information and Communication Technology, as well as customs techniques, including risk management. The Convention includes standards, drawing on best practice from around the world, accompanied by detailed implementation guidelines, which give flexibility in further improving their content and are constantly updated. Ratification of the Revised Convention is in progress and currently 38 contracting parties have completed their domestic procedures while 40 parties are needed for the entry in force. The remaining parties informed us that the delay is caused by procedural problem of parliaments. The Revised Kyoto convention requires a high level of commitment and this leads to a review of legislation which is also a lengthy procedures. In fact, many countries have already incorporated the principles of the Revised Kyoto Convention in their national customs codes. Naturally, the real challenge lies in its enforcement. The WCO identifies three measures for enforcement, namely: peer pressure at the Management Committee of the Revised Kyoto Convention, which will be established once the Convention enters into force; market sanction; and technical assistance.
The key principles of Kyoto include transparency and predictability, maximum use of information technology, and risk management, whereby customs assesses the risk of cargo based on intelligence and allocates resources on examining the cargo identified as high-risk while allowing other cargo smooth flow. This implies the shift from 100% physical inspection to more focused and efficient control. Customs can identify those traders fulfilling customs requirements with good compliance record, and provide these authorized traders with simplified procedures. In order to avoid congestion at the point of clearance, customs should introduce audit-based control. These principles presuppose partnership approach with trade community.
WCO standards, especially those contained in Kyoto, are all compatible with and complementary to the WTO rules. Actually they provide tools to implement each of the three GATT Articles related to trade facilitation.
In this connection, I would like to touch upon the security concern in the post September 11th environment. Obviously security of international trade supply chain provides a basis for global trading system. Terrorist threats have become a global issue, which requires a global solution. There has been a call for global cooperative arrangements to secure trade supply chin in the efforts to avoid different and possibly conflicting national approaches and requirements to trade. At the same time, these arrangements should be complementary to existing bilateral and regional initiatives. Finally, it is necessary to make sure that these arrangements would avoid marginalizing developing countries from the global trading system. Meanwhile, as the cargo that poses threats only represents a small percentage of the total cargo, it is vital to ensure smooth flow for the vast majority of cargo. Hence, new arrangements should be based on the Revised Kyoto Convention and other WCO instruments to fulfill these requirements. Needless to say, the new arrangements should stay compatible with the WTO rules. Bearing in mind this need, the WCO has developed and adopted the Framework of Standards to secure and facilitate global trade at its Council session in June 2005. It consists of the four core elements, namely: use of advance electronic information to identify high-risk cargo; introduction of consistent risk management; inspection of outbound cargo, using modern technology such as X-ray scanner; and ensuring benefit for legitimate trade. These four elements are heavily drawn on the Kyoto other WCO instruments. In practice, the Framework will necessitate cooperation between different customs administrations, as well as customs and business. It is often said that security and facilitation are two sides of the same coin, as efficient and effective customs should be able to address both security and facilitation.
Now, I would like to return to the progress in the WTO arena. After initial stage of awareness raising, the WTO national delegations started to submit proposals to clarify and improve the three GATT articles. To date approximately 50 proposals have been put forward on the table. Proposals on Article V essentially deal with simplification and transparency of transit procedures. Proposals on Article VIII refer to a wide range of areas, including the introduction of risk management, pre-arrival clearance, automation, coupled with the submission of standardized electronic data, single window, border agency coordination, and time for clearance. Proposals on Article X contain use of web site in providing information, notification of legislation to the WTO, advance rulings, single inquiry point, consultation with trade community and introduction of appeal procedures.
Furthermore, several WCO instruments are addressed in the WTO proposals: in addition to the Revised Kyoto Convention, the Harmonized system on tariff classification, Istanbul Convention on temporary admission, Immediate Release Guidelines, Customs Data Model and Time Release Guide. They all contribute to expeditious customs procedures.
The submission of proposals has been made by both developed and developing country members. This shows the recognition that trade facilitation negotiations will bring a win-win situation. Indeed, many developing countries express their view that efficient border procedures will significantly facilitate south-south trade. When we review the content of submitted proposals that the WTO Secretariat compiled, the Revised Kyoto Convention and other WCO instruments covers all customs-related matters, in some cases with more detail. Many proposals so far have their focus on customs matters, but many developing countries have started to emphasize the need to address a wider scope than customs procedures. Since there is a general feeling among negotiators that the current compilation of proposals would represent most of conceivable improvements in the three GATT Articles, it would be high time to consider the scope of obligation for new rules. It should be coupled with the study of possible S&D measures.
Another related issue is capacity building, which has been frequently taken up in the meetings. It has two stages: first, enable negotiators of developing countries to participate in the negotiations; and then, the implementation of commitments after the completion of the negotiations. Both of them require the identification of trade facilitation needs and priorities, especially those of developing countries. In this regard, two available tools are pertinent: self-assessment checklists and Time Release Study. Coordination with development partners is also important to assure a coherent approach. The WTO, in cooperation with the OECD, has developed a database on technical assistance, to which the WCO and other international organizations make contribution. Now the negotiators support the establishment of a new WTO web site, dedicated to technical assistance and capacity building, which could be linked to other useful web sites. One such example could be the Global Facilitation Partnership for Transport and Trade, launched by the World Bank in close cooperation with WCO and UN agencies, to share information on trade and transport facilitation initiatives among the interested public and private sectors. Its web site at www.gfptt.org provides a wide range of information. At the same time, there is an increased recognition that coordination could be achieved most efficiently at regional level, where regional development banks can make a valid contribution. All of which presupposes political commitment of recipient countries for taking ownership approach. This will bring much needed sustainable resources. Donors and relevant international organizations can assist these countries with accurate diagnosis and preparing programs with realistic expectation.
Let us look into the tools for needs identification, which provides a basis for technical assistance and capacity building. Self-assessment checklists are designed to evaluate the compliance of border procedures with the WTO principles. The WCO has developed checklists for customs purpose, based on a range of its standards to implement the modern customs procedures for trade facilitation, in line with the WTO rules. It will therefore give a snapshot of customs in relation to the three GATT articles. The aim of checklists is the establishment of national trade facilitation support mechanism for Geneva-based negotiators to enable them to participate in the negotiations with a clear view and objective. They are also expected to promote dialogue between customs, trade ministries, other border agencies at national level. Together with the World Bank we have carried out pilot projects of self-assessment in Jamaica, Uganda and Sri Lanka. Now we are reviewing the checklists, based on the pilot projects and the proposals submitted by WTO negotiators. The WTO Secretariat is also developing a simplified set of checklists.
Another tool is Time Release Study that measures the average time between the arrival and the release of goods, and for each step. This is a useful tool to identify problems and bottlenecks, caused by customs, other border agencies and trade. It is also helpful in measuring performance of IT and other facilitative measures, such as the introduction of pre-arrival declaration. We hope that the outcome of the study will stimulate efforts to improve the efficiency and effectiveness of border procedures. The WCO has developed a guide to conduct the Study.
Let me give you an image of the Time Release Study. The whole procedures are divided into the three stages: from the arrival of vessels carrying cargo to the lodgment of import declaration to customs; then, from the lodgment of import declaration to the release of goods by obtaining import permit; and finally, from the release to the removal of goods from customs storage.
The outcome of the Study will be different depending on the mode of transport and the content of cargo. This image is taken from the recent Time Release Study, carried out by Kenya. Sea cargo takes more time than air cargo, while the release time at land border is much shorter. While the result is country-specific and will be different in other countries, one can get a good overview of problem areas in each of transport-mode border procedures in the country concerned. By carrying out the study periodically, one can measure the improvement in border procedures.
Time Release Study can be used as measuring the effect of policy measures. The introduction of pre-arrival lodgment of declaration could economize the time needed from the arrival of cargo to lodge import declaration. Moreover, by receiving the necessary information to release the goods well in advance, customs can shorten the time needed from the lodgment of import declaration to the release.
In fact, the Study in Kenya confirms that the time needed for goods with pre-arrival lodgment of declaration is much shorter than goods with post-arrival lodgment.
Other border agencies can contribute to shortening the release time, because customs can issue an import permit to the goods only when other competent agencies complete their procedures to make sure that the goods concerned fulfill their requirements by providing the necessary permit or license to the goods concerned. This example in Kenya reveals that goods subject to duty-exempt or relief regime needs extra time to get the approval of trade ministries before the lodgment of import declaration.
I have so far reviewed the progress of the WTO negotiations. Then what will be the way forward? After summer recess further negotiating meetings are scheduled in Geneva. While a number of proposals have been submitted, substantial negotiations on these proposals are expected to take place from September. The WTO Ministerial Conference is scheduled in December in Hong Kong, China that can provide a basis for a future agreement. Needless to say, the outcome of trade facilitation negotiations will also depend on the progress in other Doha Agenda. In order to maximize the potential benefit of negotiations, coordination between trade ministries, customs and other border agencies, involving trade community for consultation, will be a key at national level. The WTO is expected to provide a framework of crosscutting issues of border procedures and coordination for international organizations and initiatives. We have much to do in leading up to the Hong Kong Ministerial Conference.
Finally, we put the information on the progress in the WTO negotiations on the WCO public web site.
Please visit our web site www.wcoomd.org
for more detailed information.
Thank you very much for your attention.
Kunio Mikuriya, Deputy Secretary General, WCO
The views expressed in this paper are the views of the author and do not necessarily reflect the views or policies of the Asian Development Bank (ADB) or its Board of Directors or the governments they represent. ADB makes no representation concerning and does not guarantee the source originality, accuracy, completeness, or reliability of any statement, information, data, finding, advice, opinion, or views presented.