Fi­nally, Faster, Cheaper Move­ment of Goods means through WTO trade fa­cil­i­ta­tion.

Fi­nally-some very good news on the trade front! The long-stuck World Trade Agree­ment (WTO) ar­range­ments on trade fa­cil­i­ta­tion have been ap­proved by just enough mem­bers to en­ter into force.


The Trade Fa­cil­i­ta­tion Agree­ment (TFA) was struck in Bali in De­cem­ber 2013. It is an un­usual deal in the WTO that pro­vides more flex­i­bil­i­ties to mem­bers than we nor­mally see. But the over­all ob­jec­tive is to move goods faster and cheaper across borders. The bot­tom line ben­e­fits for growth could be larger than tar­iff cuts.

Trade fa­cil­i­ta­tion is not the sex­i­est sound­ing topic. Eyes tend to glaze over when­ever it gets men­tioned. But the abil­ity to move cargo across borders faster and cheaper is ex­tremely im­por­tant. Ob­sta­cles at the border are un­pleas­ant for big­ger firms and can be cat­a­strophic for smaller com­pa­nies. Con­sumers pay more for prod­ucts than nec­es­sary.

It is not that gov­ern­ments have been ig­no­rant to the ben­e­fits of fa­cil­i­tat­ing trade at the border. They have tried for years to be more ef­fi­cient. At the global level, early rules dealt with free­dom of goods in tran­sit and tried to ad­dress is­sues of fees at­tached to im­port­ing and ex­port­ing prod­ucts. Some coun­tries struck out on their own to re­duce bar­ri­ers at the border.

Yet the ob­sta­cles to re­form can be sig­nif­i­cant. For in­stance, even with ex­cel­lent in­ten­tions, stan­dard op­er­at­ing pro­ce­dures can be dev­il­ishly hard to shift. Ex­ist­ing sys­tems have to be mod­i­fied or scrapped. Tech­nol­ogy needs to be up­graded. Many of these prob­lems re­quire a com­mit­ment for re­form plus— of­ten—money.

Even coun­tries that might be counted on to fa­cil­i­tate trade well con­tinue to have chal­lenges. As an ex­am­ple, fa­cil­i­ties for load­ing and un­load­ing con­tainer ships in the big­gest ports in ma­jor economies can be open for busi­ness from 6 am to 6 pm dur­ing week­days. Ships run 24/7 and de­lays at the port due to limited of­fice hours by staff mem­bers on­shore are deeply prob­lem­atic.

Many coun­tries have sim­i­lar bu­reau­cratic prob­lems co­or­di­nat­ing pol­icy at borders. Some have cus­toms of­fi­cials that work longer hours, but the agri­cul­ture min­istry staff who must in­spect food items may not have sim­i­lar sched­ules, leav­ing per­ish­able food items wait­ing for clear­ance.

Com­pa­nies face a myr­iad of ob­sta­cles at the border. Cus­toms of­fi­cials have to in­spect goods. In some coun­tries, in­spec­tion rates can reach 100%, mean­ing that ev­ery sin­gle item or con­tainer (or per­haps all food ship­ments or all health prod­ucts) have to be looked at by some­one be­fore goods can cross borders. In oth­ers with im­proved risk as­sess­ment pro­grams, the per­cent­age of goods that are checked is closer to 1 per­cent be­cause they can do a bet­ter job of screen­ing goods first be­fore in­spec­tion and zero in on only po­ten­tially prob­lem­atic items. This saves time and money for gov­ern­ments too.

Sim­i­lar vari­a­tions can be found in nearly ev­ery as­pect of cross­ing borders. The kind and type of pa­per­work de­manded by cus­toms and other min­istries is also of­ten dif­fer­ent. For any firm try­ing to use one of the hun­dreds of ex­ist­ing free trade agree­ments, the pa­per­work re­quire­ments are dif­fer­ent again.

The rules that have to be fol­lowed for com­pa­nies claim­ing ben­e­fits un­der free trade deals vary as well. In many cases, border of­fi­cials strug­gle to cope with the com­plex­ity. The clas­si­fi­ca­tion of goods be­comes crit­i­cal, as cus­toms agents can have tremen­dous flex­i­bil­ity in de­cid­ing which rules will ap­ply depend­ing on how they de­fine a good.

The time needed to get over land, sea and air port clear­ance pro­cesses also varies tremen­dously. Sin­ga­pore can clear cargo des­tined for the ship­yards in as lit­tle as 23 sec­onds. Other places can take days or weeks. Each hour of de­lay at the border adds to the costs for the firm as mer­chan­dise is tied up in con­tain­ers or in ware­houses wait­ing for pro­cess­ing.

The pro­ce­dures for declar­ing cargo also vary depend­ing on coun­tries. ASEAN mem­bers have been quite pro­gres­sive in aim­ing to cre­ate “sin­gle win­dows” un­der which (in the ideal world), a trader in­puts data once on the items that need clear­ance. This in­for­ma­tion is au­to­mat­i­cally sent out to all the var­i­ous agen­cies that need to know about the ar­rival of goods (cus­toms, port of­fi­cials, agri­cul­ture, health, se­cu­rity, and so forth). All pa­per­work gets seam­lessly pro­cessed, with high risk ship­ments flagged for in­spec­tion and the rest quickly moved through the border on ar­rival.

But even in ASEAN the ap­pli­ca­tion of the sin­gle win­dow con­cept is quite un­even. All 10 mem­ber coun­tries are sup­posed to have the sys­tem in place al­ready as part of the ASEAN Eco­nomic Com­mu­nity (AEC), but this is still a work in progress. Even­tu­ally, the mem­bers are hop­ing to knit their sys­tems to­gether so a trader in one coun­try could have cargo data au­to­mat­i­cally routed to all 10 mem­bers with­out the need to do any­thing fur­ther.

The de­sire to cre­ate larger group­ings with uni­fied sys­tems is driven by the need to en­sure consistency and ease of do­ing busi­ness for com­pa­nies. This same pres­sure lead the World Trade Or­ga­ni­za­tion (WTO) to fo­cus in­ten­sively on trade fa­cil­i­ta­tion.

In De­cem­ber 2013, the (now) 164 mem­bers of the WTO an­nounced con­clu­sion of what is called the “Bali pack­age.” It con­tained a set of rules on fa­cil­i­tat­ing trade (plus a few other items) with the goal of har­mo­niz­ing and stream­lin­ing the pro­ce­dures for moving goods.

Par­tic­u­larly for coun­tries with firms en­meshed in global value chains or sup­ply chains, any de­lays or un­nec­es­sary costs at the border are very dam­ag­ing. Coun­tries with high bar­ri­ers to en­try will strug­gle to be com­pet­i­tive. Firms that have to fill out up to 30 dif­fer­ent forms (some or all of which need to be sub­mit­ted in per­son or in mul­ti­ple hard­copies) and wait 6 weeks for cargo clear­ance are not go­ing to be able to meet de­liv­ery times and costs de­manded by firms par­tic­i­pat­ing in sup­ply chains.

The Bali pack­age goes some of the way to­wards ad­dress­ing these is­sues. For ex­am­ple, it re­quires coun­tries to post in­for­ma­tion about all forms, doc­u­ments and fees as­so­ci­ated with moving cargo. This in­for­ma­tion should be put on­line as much as pos­si­ble. Firms should be given an op­por­tu­nity to com­ment on any pro­posed changes in rules or pro­ce­dures with suf­fi­cient time to respond.

Com­pa­nies can ask for what is called an “advance rul­ing.” This is where cus­toms de­cides the clas­si­fi­ca­tion of the good ahead of time and the of­fi­cials at the border can­not sud­denly re­clas­sify an item or de­cide that it does not meet the rules of ori­gin.

Bali con­tains a lot of lan­guage about clear post­ing of fees and charges, since im­por­tant ob­sta­cles to trade are in­for­mal charges, shift­ing charges or straight out bribes de­manded at the border. The sched­uled fees, du­ties and so forth can be paid on­line as much as pos­si­ble.

Some of the pro­cess­ing of goods clear­ance can take place ahead of the ar­rival of goods. Coun­tries can use schemes for Au­tho­rized Op­er­a­tors which al­lows trusted trad­ing firms with a solid track record to have fewer in­spec­tions and faster pro­cess­ing times.

In short, the rules ne­go­ti­ated in Bali should be ex­tremely help­ful for com­pa­nies in get­ting costs down and de­lays short­ened.

Hence the ex­cel­lent news that af­ter a rather long pause, the Bali pack­age has fi­nally en­tered into force.

For de­vel­oped economies, the whole pack­ages ap­plies at once. But, frankly, for most de­vel­oped economies, the Bali com­mit­ments may ac­tu­ally pro­vide less cover­age than is ac­tu­ally prac­ticed cur­rently. Thus the dif­fer­ence, post-Bali, for ef­fi­cient coun­tries is prob­a­bly mod­est.

Where Bali re­ally matters is for de­vel­op­ing coun­tries that tend to have un­even im­ple­men­ta­tion of trade fa­cil­i­tat­ing mea­sures, higher costs, and longer times for clear­ance. For de­vel­op­ing coun­tries, Bali comes in three parts: some ele­ments (Cat­e­gory A) kick in im­me­di­ately, some ele­ments (B) will be phased in over time on a clear timetable pro­vided by the mem­ber coun­try, and some ele­ments (C) are sup­posed to start pend­ing the re­ceipt of suf­fi­cient ca­pac­ity build­ing to im­ple­ment the agree­ment.

The WTO web­site sorts out which mem­ber states put which ele­ments of the agree­ment into which cat­e­gories. The agree­ment ap­plies only to the 110 mem­bers that have signed on to the com­mit­ments. Again, for de­vel­oped economies, ev­ery­thing is Cat­e­gory A and the en­tire agree­ment takes ef­fect now. But for de­vel­op­ing economies, firms need to see which com­mit­ments will be phased in over time. Cat­e­gory C pledges do not come with time­lines as im­ple­men­ta­tion de­pends on fund­ing. Least De­vel­oped Economies (LDCs) have dif­fer­ent obli­ga­tions.

The OECD es­ti­mates that full im­ple­men­ta­tion of the agree­ment will have sig­nif­i­cant gains—par­tic­u­larly for low in­come coun­tries. The cost re­duc­tion could be 14.1 per­cent. Par­tial im­ple­men­ta­tion de­liv­ers a lot fewer ben­e­fits for coun­tries and firms try­ing to op­er­ate across these borders.

It is now crit­i­cally im­por­tant that de­vel­op­ing coun­tries im­ple­ment Bali as com­pletely as pos­si­ble. This may not be easy, but the agree­ment in­cludes prom­ises for ca­pac­ity build­ing. Firms should do what they can to as­sist along the way.

For com­pa­nies try­ing to op­er­ate in a world of patch­work rules and, of­ten, lit­tle trans­parency in pro­ce­dures, full im­ple­men­ta­tion of Bali is badly needed. In fact, much of the Bali pack­age ought to be viewed as a floor rather than a ceil­ing. Some of the trade agree­ments in Asia in­clud­ing RCEP are try­ing to go be­yond Bali and to cap­ture the gains that come from uni­lat­eral, bi­lat­eral, and re­gional ef­forts to im­prove trade fa­cil­i­ta­tion. It is im­por­tant for gov­ern­ments, firms and con­sumers.

Talk­ing Trade is a blog writ­ten by Dr. Deborah Elms, Ex­ec­u­tive Di­rec­tor, Asian Trade Cen­tre, Sin­ga­pore.

Left: Thai­land an Myan­mar border cross­ing point at Tachilek-Mae­sai bridge.


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