The trade red-tape index

Now that import taxes are lower, thanks to free trade agreements and World Trade Organization (WTO) initiatives, the focus has largely shifted to non-tariff barriers to international trade i.e., red tape. This is all the more important in the e-commerce era. Non-tariff barriers may be due to poor procedures, protection of local industry or even corruption.

All these issues caused friction at recent G7 talks between President Trump and other leaders and in UK Brexit discussions. • WTO Trade Facilitation Agreement On February 22. 2017, the WTO Trade Facilitation Agreement (TFA) entered into force. This aim to expedite the movement, release and clearance of goods, including goods in transit. Most countries have now adopted the TFA, including Israel on December 8, 2017.

Developed countries have committed to immediately implement the agreement, which sets out a broad series of trade facilitation reforms.

The TFA’s provisions include improvements to the availability and publication of information about cross-border procedures and practices, improved appeal rights for traders, reduced fees and formalities connected with the import and export of goods, faster clearance procedures and enhanced conditions for freedom of transit for goods.

The agreement also contains measures for cooperation between customs and other authorities on trade facilitation and customs compliance issues. • Developing Countries? Developing countries, in comparison, will immediately apply only the TFA provisions they have designated as “Category A” commitments. For the other provisions of the agreement, they must indicate when these will be implemented and what capacity-building support is needed to help them implement these provisions, known as Category B and C commitments. So far, notifications of Category A commitments have already been provided by 90 WTO members. • OECD Trade Facilitation Indicators To discourage governments from dragging their feet and encourage them to implement the TFA, the OECD has published a set of trade facilitation indicators (TFIs) that identify areas for action and enable the potential impact of reforms to be assessed. These indicators amount to a red tape trade index. The red tape index covers the full spectrum of border procedures for more than 160 countries. • The Benefit? The OECD estimates that the potential trade cost reduction from a full implementation of the TFA is 16.5% of total costs for low-income countries, 17.4% for lower middle-income countries, 14.6% for upper middle-income countries and 11.8% for OECD economies • What does the red tape index measure? The OECD trade facilitation indicators measure: information availability, involvement of the trade community, advance rulings, appeal procedures, fees and charges, documents, automation, procedures, internal border agency co-operation, external border agency co-operation, governance and impartiality. Security concerns and political boycotts are apparently not covered. • How much red tape does each country have? TFIs are given values from 0 to 2, where 2 represents the best performance that can be achieved. The following are the average TFIs for some of the countries included:

Average TFI 0 to 0.5: Democratic Republic of Congo 0.36, Sudan 0.38.

Average TFI 0.5 – 1.0: Sierra Leone 0.52, Uzbekistan 0.63, Venezuela 0.68, Jordan 0.93.

Average TFI 1.0-1.5: Israel 1.45, Egypt 1.19, Kenya 1.21, Brazil 1.25, Russia 1.28, Argentina 1.31, China 1.36, Romania 1.42, Hungary 1.44, Greece 1.46, Turkey 1.48, Mexico 1.49, South Africa 1.50.

Average TFI 1.50-2.0: Cyprus 1.59, Italy 1.62, Japan and Canada 1.72, Australia and New Zealand 1.73, UK 1.75, France and Germany 1.78, USA 1.82.

Maybe Trump is right about the US having freer trade than other countries. • What about Israel? As mentioned above, Israel scored an average TFI of 1.45. The OECD comments that Israel exceeds or is closest to the best performance across the sample in all TFI areas. Performance has improved between 2015 and 2017 in the areas of involvement of the trade community, fees and charges, documents and streamlining of procedures.

Performance in the other TFI areas remains relatively stable according to the OECD, with the exception of appeal procedures, where some ground is lost when compared to the progress achieved by other economies.

And Israel has free trade agreements with Canada, Columbia (draft), Egypt, the EU, EFTA, Jordan, Mercosur, Mexico, Turkey and the USA.

As always, consult experienced tax advisers in each country at an early stage in specific cases. The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd. leon@hcat.co.