THE ROBERT GORDON UNIVERSITY FACULTY OF MANAGEMENT ABERDEEN BUSINESS SCHOOL DEPARTMENT OF LAW. Year 2003/2004

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1 THE ROBERT GORDON UNIVERSITY FACULTY OF MANAGEMENT ABERDEEN BUSINESS SCHOOL DEPARTMENT OF LAW SHOULD CARICOM STATES SUPPORT A RULES BASED AGREEMENT FOR THE WTO REQUIREMENTS ON TRADE FACILITATION? Year 2003/2004 By Claude A Paul Student Matriculation Number Dissertation Supervisor: Dr Paul Arnell Submitted in partial completion of the MSC degree in International Trade Word Count 14235

2 CHAPTER 1 INTRODUCTION In many least-developed countries, such as those in the Caribbean, delays in the clearance of goods at the border are a constant source of concern for traders. Usually the problem stems from complex and outdated customs formalities, inadequate port facilities, and uncoordinated regulatory agency requirements. The reasons for their persistence have not been sufficiently analyzed in least developing countries, but there is a strong belief that such delays have a negative impact on trade. In this context any efforts to liberalize trade in such countries would be rendered ineffective without first addressing the problem of inefficient border and administrative controls. For this reason, trade facilitation is viewed in international trade circles as the means to address those concerns within the broader ambit of trade liberalisation. Trade liberalisation has been widely acknowledged as a necessary ingredient for successful economic development. In the five decades since World War II, nation states have been actively engaged in negotiations to dismantle the artificial trade barriers in an effort maximize the gains of trade. The modern version of international trade rules, which dates back to the GATT of 1947, was created as part of the so called Bretton Woods system 1. Since then successive rounds of 1 The Bretton Woods System includes a multilateral institutional framework of rules and obligations developed from the United Nations Monetary and Financial Conference in Bretton Woods, New Hamshire in July The IMF, the World Bank and the GATT 1947 were created to administer the rules. -. August, R. International Business Law, Third Edition, Prentice Hall, New York, 2001, at p 355.

3 negotiations between countries culminated in the Uruguay Round and led to the formation of the WTO in 1994 along with updated rules of trade. 2 The formation of the WTO heralded a new set of mechanisms for conducting trade negotiations between nation states. Ministerial Conferences held every two years, are supplemented in between by negotiations at the level of the General Council including the Dispute Settlement Body, the Trade Policy Review Body and specialised Councils within each respective area of trade. 3 These various forums have been engaged in efforts to enhance transparency in international trade mainly through the reduction of tariff barriers; however, increased attention is now focused on non-tariff barriers and their impact on national economies and trade. The Trade Facilitation Debate The 1996 Ministerial Conference held in Singapore 4, is generally accepted as the starting point of the debate within the WTO regarding the creation of a multilateral framework to establish binding disciplines with respect to trade facilitation. On one hand developed countries, such as the USA, member states of the European Union (EU) together with other developed and some high- and middle-income developing countries have consistently called for negotiations in 2 GATT 1994 replaced the 1947 version and came into force with the formation of the WTO in January The specialized councils are: the Council for Trade in Goods (Goods Council), the Council for Trade in Services (Services Council) and the Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS Council). 3 4 The 2 nd WTO Ministerial Conference was held in Singapore in 1996 identified the so-called Singapore issues - investment, competition, trade facilitation and transparency in government procurement.icc Website -

4 this regard. Most developing countries, on the other hand, have opposed such negotiations on the basis that the existing imbalances among WTO members in terms of negotiating capacity, economic clout, and political strength could result in long-term adverse impacts on the developmental interests of developing countries. 5 The debate on trade facilitation has been carried forward over successive ministerial conferences and featured prominently in the discussions of the 2001 Doha ministerial conference where it was agreed that this topic should be considered for a WTO rules-based agreement with particular reference to the modernization of Articles V, VIII and X of the GATT Accordingly the issue was given considerable attention in the period leading up to the 5 th Ministerial Conference at Cancun in Mexico, but remained unresolved given the breakdown in negotiations and the failure to make progress there. 7 Since then a series of negotiations led to a breakthrough in the WTO trade talks in July 2004, and produced a draft framework to be used as the basis for negotiating a legally binding treaty aimed at liberalizing trade. 8 In terms of trade facilitation, there is a commitment to improve co-operation between customs authorities and to start 5 ibid 6 ICC recommendations for a WTO agreement on trade facilitation found at ICC Website: 7 The Cancun Conference failed to reach agreement because of the divide between developed and developing countries. 8 On 31 July 2004, the WTO s 147 member governments approved a package of framework and other agreements, which.will greatly enhance members chances for successfully completing the important Doha negotiations.

5 negotiations on "further expediting the movement, release and clearance of goods, including goods in transit". 9 Aim This paper will examine the capacity of Caribbean states to facilitate trade in keeping with the requirements of WTO as outlined in articles V, VIII, and X of GATT Reference will be made to reform and modernisation efforts in Barbados, Dominica, Jamaica and St. Lucia. It has been suggested that while trade facilitation is a desirable goal for all countries participating in the international trading system there are conditions militating against immediate compliance of WTO requirements by small Caribbean states. The issue of capacity to comply assumes greater importance given the decision taken by the WTO to recommence negotiations in respect of the Doha Round. 10 In that regard it was agreed that: the negotiations shall take fully into account the principle of special and differential treatment for developing and least-developed countries recognising that those Members would not be obliged to undertake investments in infrastructure projects beyond their means 11. The question that arises then is whether it is in the interest of Caribbean states to delay undertaking The modalities for negotiation on Trade Facilitation - Annex 4 to the Draft General Council s decision on the Doha Agenda work programme (the July package ), agreed on 31 July 2004 found at: 11 Ibid

6 those reforms necessary to facilitate trade given the obvious benefits of participation in a more liberalised trading environment. CHAPTER 2 REVIEW OF LITERATURE PERSPECTIVES ON TRADE FACILITATION Trade facilitation is the name given to measures to simplify and reduce the impact of import, export and customs procedures. It encompasses the simplification, standardisation, harmonisation and elimination of the procedures, data requirements and administration involved in an international trade transaction. 12 Trade facilitation involves the effort by regulatory institutions within a nation state to expedite (legitimate) consignments of goods through the established borders control systems with minimum or no delays. While the definition incorporates a broad range of activities, the concept of trade facilitation is viewed from different perspectives by the various international organizations concerned with this issue. This section of the paper will focus on the various view points of the major players within international trade circles and their respective approaches in dealing with the related issues. 12 Trade Facilitation: Impact and potential Gains: A report written by Marcus Hellqvist, Senior Research Officer, National Board of Trade / SWEPRO.-Stockholm, August 2002

7 International Chamber of Commerce The International Chamber of Commerce (ICC) represents business interests internationally by promoting economic growth, job creation and prosperity within the global economy. 13 ICC s preferred definition of trade facilitation focuses on improvements in the efficiency of the processes associated with trading in goods across national borders. This requires the adoption of a comprehensive and integrated approach to simplifying and reducing the cost of international trade transactions, and ensuring that all relevant activities take place in an efficient, transparent, and predictable manner, based on internationally accepted norms, standards and best practices. Trade facilitation is not just a matter of improving customs procedures but should also target the growing range of controls being implemented at national borders by other authorities. 14 The ICC is understandably primarily interested in ensuring that trade is conducted in a manner that is predictable, transparent and at minimal cost. There is also the recognition that trade facilitation must be seen as being broader than a matter for customs authorities and that it extends to the many other regulatory agencies which exercise jurisdiction over border activities. Many of those agencies have separate and distinct legislative authority and tend to operate in isolation and often at cross purposes resulting in numerous regulatory compliance requirements and increased costs for traders. The International Chamber of Commerce promotes the use of standard trade definitions, called Incoterms as a means of facilitating trade. The current version Incoterms 2000 came into force on January 1, 2000, as a replacement to Incoterms 1990, and is used by persons involved in international trade including 13 What is ICC, found at ICC website

8 government departments, chambers of commerce and members of the legal profession. These official trade terms define the responsibilities of buyer and seller in international sales contracts and are in constant daily use throughout the world. It is important for traders to incorporate the correct Incoterms into their international contracts to avoid unnecessary legal problems. Courts may otherwise interpret trade terms according to often widely divergent national laws and unless the use of Incoterms is specified, expensive legal disputes can arise. 15 Incoterms make international trade easier and help traders in different countries to understand one another. These standard trade definitions that are protected by ICC copyright when used in international trade contracts. Incoterms is developed, maintained and promoted by ICC Commission on Commercial Law and Practice (CLP). 16 The ICC specifically uses another Commission on Customs and Trade Regulations to advance its work on trade facilitation. The primary purpose of this commission is to work towards the removal of obstacles that inhibit the free flow of goods, services and investment across borders. 17 In that regard the Commission promotes reform and modernisation programmes in Customs and other agencies by promoting the implementation of harmonised policies and procedures. The ICC is in favour of the establishment of a trade facilitation agreement that benefits all WTO Members through the establishment of mutually agreed rules covering trade procedures that improve the management process of traded goods as they ICC Website Link -

9 cross national borders. 18 As a global business organization the ICC exerts its influence to encourage national governments to embrace the concept of trade facilitation for the benefit of business interests all around the whole. World Bank (International Bank for Reconstruction and Development) From the perspective of the World Bank, trade facilitation includes anything from institutional and regulatory reform to customs and port efficiency. The World Bank s involvement in trade reform has been geared towards easing border restrictions for merchandize trade and liberalizing foreign exchange markets, in developing countries to bring about their successful integration into the world economy. It has been noted that this increasingly depends on the implementation of a series of complex, behind-border measures that fall under the heading of trade facilitation. The World Bank has recognized that trade facilitation is important to achieve trade benefits that address the Bank's objective of reducing world poverty. Trade facilitation is one the most rapidly increasing areas of work for the Bank extending to all parts of the world. 19 In the last ten years the World Bank has provided loan financing for at least 80 projects relating to trade facilitation with an implementation cost totalling $1244 million. 20 The Bank s projects include: Customs Reform & Modernization Programme, Asia Pacific Trade Facilitation Programme, Sub-Saharan Trade and Transport Programme. In recent times the 18 Included in policy recommendations made by the ICC for 5 th Ministerial Conference held at Cancun, Mexico 19 Trade Facilitation found at World Bank Web site 20 see Appendix 1

10 bank has intensified its analytical work, diagnosis and studies in response to a growing demand by countries to cope with the issues of trade facilitation. The Bank is also fully supportive of the Global Facilitation Partnership for Transportation and Trade. 21 World Customs Organization The World Customs Organisation (WCO) considers trade facilitation as one of the key factors for economic development of nations. In the current international business environment, simple, predictable and cost-effective formalities for cross border movement of goods have become central to increasing economic growth through national participation in international trade. The volumes of goods that move across borders have increased exponentially due to changes in the international trading environment stemming from the global integration of modern production and delivery systems as well as from new forms of electronic commerce. This growth in trade has made it essential for Customs administrations to provide simple, predictable and efficient procedures for the clearance of goods and movement of people while simultaneously tackling increasingly complicated national and international requirements to ensure compliance with national laws, international agreements and meeting security challenges. The efficiency and effectiveness of Customs procedures has a significant influence on the economic competitiveness of nations and the development of the global marketplace. International trade and investment will flow toward efficient, supportive and facilitative locations. At the same time it will shift away from 21 ibid

11 locations which are perceived by business as being bureaucratic or associated with high costs. Customs systems and processes therefore must not be allowed to serve or be perceived as a barrier to international trade and growth. The efforts of the WCO are focused at developing Conventions, standards and programmes through which its Member Customs administrations are able to offer their governments enhanced trade facilitation combined with effective Customs control. The WCO instruments and programmes include: The Revised Kyoto Convention Risk Management Guide Application of Information and Communication Technology WCO Data Model Time Release Study Immediate Release Guidelines API Guidelines ATA System Export controls Recommendations These WCO instruments provide the tools to implement the principles relating to Customs aspects of trade facilitation set out in Articles V, VIII and X of the WTO Agreement. The WCO however does not impose any legal sanctions on members who fail to implement the recommended measures on a timely basis. As a result,

12 these mechanisms developed within the WCO to facilitate global trade have not been universally implemented. In addition the WCO also works actively to ensure capacity building through technical assistance programmes to implement the Customs related aspects in the GATT Articles on trade facilitation. Notwithstanding the limitation noted above, the WCO has played an important role in developing mechanisms to facilitate global trade. United Nations The United Nations views trade as a tool of peace and economic development for the eradication of poverty and enhancement of the freedom, equality and dignity of mankind. 22 The focus on international trade therefore is in the context of its potential to achieve these objectives. The UN s work on trade facilitation is carried through the United Nations Economic Commission for Europe (UNECE) and the United Nations Commission on Trade and Development (UNCTAD). Work in the trade facilitation area has been ongoing at UNECE and various other United Nations and international agencies for over 40 years, resulting in the development of over 200 trade facilitation instruments as listed in the UNECE/UNCTAD Compendium of Trade Facilitation Recommendations. 23 Trade facilitation and electronic business are vital factors in the development of 22 Trade Facilitation In A Global Trade Environment A document prepared as background material for the International Forum on Trade Facilitation, organized by the Committee for Trade, Industry and Enterprise Development (CTIED) and the United Nations Centre for Trade Facilitation and Electronic Business (UN/CEFACT) on 29 and 30 May 2002 in Geneva. 23 UNECE/UNCTAD (2002) Compendium of Trade Facilitation Recommendations

13 world trade and, therefore, central to the remit of the United Nations Economic Commission for Europe (UNECE). UNECE itself has developed over 30 trade facilitation recommendations and the only international standard for electronic business, UN/EDIFACT. To achieve improved worldwide coordination of these areas, the UNECE, which acts as the focal point within the United Nations on these matters, has established the United Nations Centre for Trade Facilitation and Electronic Business (UN/CEFACT). UN/CEFACT has adopted an integrated approach in this regard, focusing on the interdependency of trade facilitation and electronic business tools. UN/CEFACT is built upon the three pillars of trade processes and procedures; information; and technology. It seeks to provide simple, transparent and effective processes and standards for global commerce. In order to realize this goal, UN/CEFACT works to exploit advances in information technology and adopt new approaches to trade facilitation based on simplification and harmonization of business and governmental processes. World Trade Organisation Trade facilitation was added to the World Trade Organization (WTO) agenda at its Singapore Ministerial meeting (December 1996). Under the mandate approved at that time, it was agreed that the Council for Trade in Goods carries out explanatory and analytical work, taking into account the work for other relevant organizations, on the simplification of trade procedures, in order to assess the

14 scope for WTO rules in this area. Further to that mandate, considerable analytical work, based on proposals from a wide range of WTO Members, was carried out. Other international organizations were also associated with the work, and the WTO organized two important symposia, one in 1998 focusing on the overall priorities of the international business community, and the second in 2001 focusing on the technical assistance and capacity building needs of developing countries in trade facilitation. The issue was again discussed at the Doha Ministerial meeting in November The Doha Ministerial Declaration established that negotiations on trade facilitation would take place after the Fifth Session of the Ministerial Conference in 2003 in Mexico. The text of the Doha Ministerial Declaration on trade facilitation reads as follows:. Recognizing the case for further expediting the movement, release and clearance of goods, including goods in transit, and the need for enhanced technical assistance and capacity building in this area, we agree that negotiations will take place after the Fifth Session of the Ministerial Conference on the basis of a decision to be taken, by explicit consensus, at that session on modalities of negotiations. In the period until the Fifth Session, the Council for Trade in Goods shall review and as appropriate, clarify and improve relevant aspects of Articles V, VIII and X of the GATT 1994 and identify the trade facilitation needs and priorities of members, in particular developing and least-developed countries. We commit ourselves to ensuring adequate technical assistance and support for capacity building in this area. 24 Accordingly the issue was given considerable attention in the period leading up to the 5 th Ministerial Conference at Cancun, Mexico but remained unresolved given 24 Article 27 of the Doha WTO Ministerial Declaration

15 the breakdown in negotiations and the failure to make progress at Cancun. 25 Since then a series of negotiations led to a breakthrough in the WTO trade talks in July 2004, and produced a draft framework to be used as the basis for negotiating a legally binding treaty aimed at liberalizing trade. 26 The overall approach to trade facilitation within the WTO will continue to be subject to deliberations among Members. On one hand developed countries, such as the USA, member states of the European Union (EU) together with other developed and some high- and middle-income developing countries have consistently called for negotiations in this regard. Most developing countries, on the other hand, have opposed such negotiations on the basis that the existing imbalances among WTO members in terms of negotiating capacity, economic clout, and political strength could result in long-term adverse impacts on the developmental interests of developing countries. 27 There have been varied views expressed on this point in the past, with mainly developed countries arguing for the binding rules-based approach of the kind familiar in existing WTO Agreements, while others, mostly developing countries, suggesting the development of a set of guiding principles or other types of nonbinding forms of procedure as a first step in the process of establishing trade facilitation within the WTO. 25 The Cancun Conference failed to reach agreement because of the divide between developed and developing countries on a number of issues including trade facilitation. 26 On 31 July 2004, the WTO s 147 member governments approved a package of framework and other agreements, which.will greatly enhance members chances for successfully completing the important Doha negotiations ibid

16 The major challenges lie in implementation and the associated problems of expertise, financial resources, and government commitment to reform. There is universal agreement that this task will require the provision of significant technical assistance to developing and transition economies for the development of trade facilitation policies and capacities. The macro benefits of trade facilitation The potential economic benefits of trade facilitation are high, with one recent study investigating the relationship between trade facilitation in four important categories; port efficiency, customs environment, regulatory environment, and service sector infrastructure, and the impact on flows of traded manufactured goods, predicting an increase of US$377 billion globally, with the benefits falling disproportionately on exports. 28 In considering more specific initiatives on trade facilitation, for example an automated approach to customs services such as the ASYCUDA programme used by UNCTAD, the evidence shows it has brought about a reduction in the number of procedures from twenty to six, and in the time taken from an average three working days to one working day to release cargo consignments. It has been shown that each day saved in shipping time, in part due to a faster customs clearance, is worth 0.5 percentage point reduction of ad-valorem tariff Economic Development and Trade Facilitation found 29 ibid

17 There is a clear link between trade reform and poverty reduction. 30 The removal of trade barriers in agriculture such as the high tariffs and farm subsides in the EU and the US are considered among the most important measures to poverty reduction in developing countries. A relatively simple programme to cut tariff peaks in rich countries to 10 percent in agriculture and 5 percent in manufacturing, reciprocated with cuts to 15 percent and 10 percent respectively in transition and developing countries, coupled with other complementary measures, would produce gains for transition and developing countries of nearly US$300 billion by This is projected to cut the number of people in poverty by 8 percent or 144 million individuals. The micro benefits of trade facilitation: At a micro-economic level, trade facilitation has a direct impact on total logistical costs, the sum of time and money involved in moving traded goods. 32 Lower transport costs can lead to higher wages, thereby having a direct impact on poverty reduction. The associated increasing and broadening of the exports of a country can reduce the vulnerability of the respective economy to exogenous shocks and have a positive impact on Foreign Direct Investment (FDI). A broad, well-designed, trade facilitation program can also impact positively on SME development, which has been found to be the engines of economic 30 ibid 31 ibid 32 ibid

18 development in many transitional countries, growing faster, engendering more employment opportunities and making a substantive contribution to the objective of broad based economic growth. 33 Single Window Concept A Single Window is defined as a facility that allows parties involved in international trade and transport to lodge standardized information and documents with a single entry point to fulfill all import, export, and transit-related regulatory requirements. In compliance of import, export and transit-related regulatory requirements, companies involved in international trade (including exporters and importers, freight forwarders, shipping agents, customs brokers, transporters, carriers and other parties directly involved in the movement of goods) are required to prepare and submit large volumes of information and documents to various governmental authorities. Very often each of those agencies has their own specific (manual or automated) systems and paper forms. The establishment of a Single Window is an approach to reducing the administrative burden, and requiring that trade related information and/or documents need only be submitted once at a single entry point. This can enhance the availability and handling of information, expedite and simplify information flows between trade and government and can result in a greater harmonisation and sharing of the relevant data across governmental systems, bringing meaningful gains to all parties involved in cross-border trade. 33 see World Bank, 2002

19 In addition, participating authorities and agencies can co-ordinate their inspections and controls through the Single Window and can provide facilities for payment of relevant duties, taxes and fees. The single window concept is more readily applicable in developed countries where this level of inter-agency cooperation is not only encouraged but demanded by the public. It requires the integration of systems, standardisation of data entry elements and harmonisation of legislation and procedures. In developing countries such a concept is a challenge to the status quo characterized by separate legislative authorities each with notions of independent jurisdiction, self importance and turf wars.

20 CHAPTER 3 WTO REQUIREMENTS ON TRADE FACILITATION EXPLAINED This section of the paper provides an explanation of Articles V, VIII & X of GATT Each article will be examined thoroughly with a view to determining their suitability for incorporation into a rules based agreement and the implications for implementation by Caribbean States. The full text of the articles is provided at Appendix 2. Article V: Freedom of Transit This article deals broadly with the concept of traffic in transit. It defines transit as "transit across the territory when the passage across such territory of a contracting party, with or without trans-shipment, warehousing, breaking bulk, or change in the mode of transport, is only a portion of a complete journey beginning and terminating beyond the frontier of the contracting party across whose territory the traffic passes." 34 Only goods (including baggage), vessels and other means of transport are considered to constitute traffic within the meaning of the article. Each Member is required to allow free transition through its territory for traffic in transit to or from the territory of another Member. Such transit shall be granted "via the routes most convenient for international transit". 35 There a further requirement that "No distinction shall be made which is based on the flag of vessels, the place of 34 Paragraph 1 of Article v 35 Paragraph 2 of Article v

21 origin, departure, entry, exit or destination, or on any circumstances relating to the ownership of goods, of vessels or of other means of transport". 36 The right of every Member to require traffic in transit through its territory to enter at the proper custom house is also emphasized. It further determines that, except in cases of failure to comply with applicable customs laws and regulations, such traffic coming from or passing through the territory of another Member "shall not be subject to any unnecessary delays or restrictions." 37 The text requires that this traffic to be exempt from customs duties and from all transit duties or other charges imposed in respect of transit, except for "charges for transportation or those commensurate with administrative expenses entailed by transit or with the cost of services rendered." Accordingly, all charges and regulations imposed by a Member on traffic in transit to or from the territories of another Member, shall be "reasonable, having regard to the conditions of the traffic. 38 This article calls for most-favoured-nation (MFN) treatment of traffic in transit with respect to all charges, regulations and formalities in connection with transit. In effect there are only two kinds of charges a Member may legitimately impose on traffic in transit: charges for (i) transportation and for (ii) administrative expenses caused by transit or services rendered. These charges have to be reasonable and 36 Paragraph 3 of Article v 37 Paragraph 3 of Article v 38 Paragraph 4 of Article v

22 non-discriminatory. The general principle is that transit traffic shall not be used to generate taxes or any form of fiscal revenue by Members. It is interesting to note that Article V has never been applied under the dispute settlement system of the GATT or the WTO. Violations of its provisions have been asserted several times, but without any of these cases ever leading to the issuing of a panel report. In one such example, the European Communities claimed that Article 6005 (b) of the United States' Cuban Democracy Act of 1992 denied goods and vessels of the Communities transit through US ports. 39 It was alleged that the provision in question prohibited (i) vessels carrying goods or passengers to or from Cuba, or carrying goods, in which Cuba or a Cuban national has any interest, from entering any Unites States port, as well as (ii) vessels, which have entered a Cuban port for trade in goods or services, from loading or unloading freight in US ports within 180 days following departure from the Cuban port. A panel was established but suspended its work following a request by the EC. The panel's authority subsequently lapsed pursuant to Article of the DSU. The claim made by the EC asserts that this particular provision in US law violated the spirit of Article V of the WTO Agreement. Although there may be some justification for the provision from the USA perspective, it is a vivid illustration of how national policy can sometimes conflict with international trade rules. In such situations smaller and less influential states may be disadvantaged when these rules are overlooked or ignored by the more powerful countries within the 39 See WT/DS38/2, 8 October 1996 found at WTO website: www. wto.org

23 international trading system. These situations nonetheless are exceptional and the norm is that the provisions of Article V are widely accepted and applied in most regions of the world. Small Caribbean States are familiar with the concept of goods in transit, as it is not uncommon for cargo to be deposited in one island for transhipment to another, in smaller aircraft or vessels. In some instances, delays may be experienced through the unavailability of regular and appropriate transport given the limitations of some airports and sea ports in the less developed countries. These difficulties are not insurmountable but they can only be overcome through national economic planning and priority setting. The principles of Article V do not present any major setbacks for small Caribbean states and therefore should not pose any great difficulty for implementation. Article VIII: Fees and Formalities connected with Importation and Exportation Article VIII addresses fees and formalities connected with importation and exportation. It seeks to limit the costs and complexity of the importation and exportation process by imposing specific legal obligations on Members with respect to the fees and charges that may be charged in connection with importation and exportation and the penalties that may be imposed for minor breaches of customs procedures; as well as by explicitly recognizing the need to

24 reduce the number and complexity of import and export-related fees and formalities. The Article requires that the non-tariff fees 40 and charges imposed on or in connection with importation or exportation are limited in their amount to the approximate cost of the regulatory activities and do not represent indirect protection to domestic products or taxation of imports or exports for fiscal purposes. 41 The Article identifies a list of the types of fees and charges permitted such as, licence fees, document fees, stamp fees and inspection fees. The article prohibits members from imposing substantial penalties for minor breaches of customs regulations or procedural requirements, in particular when such breaches are the result of mistakes that are easily rectifiable and do not result from fraud or gross negligence. 42 Members are required to review the operation of its laws and regulation in the light of the provisions of Article VIII if requested by another Member or by the relevant WTO Body 43 Finally Article VIII encourages Members to "recognize" the need to reduce the number and diversity of the fees and charges and minimize the incidence and complexity of import and export formalities, and to decrease and simplify import 40 Non tariff fees refer to all fees or charges connected with importation or exportation except import or export duty. 41 Paragraph 1 of article VIII 42 Paragraph 3 of Article VIII 43 Paragraph 2 of Article VIII

25 and export documentation requirements. In this regard the Article does not appear to impose any explicit obligations on Members. The incorporation of this article into a rules based agreement is likely to be a fiercely contested issue. Many countries have designed a range of fees and charges as a means of collecting revenue from international trade. In the case of Caribbean States these include customs service charges, environmental levies, and surcharges which usually are imposed on an ad valorem basis. 44 Most times the fees involved exceed the cost of providing the service and in fact are intended for fiscal purposes. In 2003 the cost of administering the Customs Department in St. Lucia was approximately EC $10 million, while the annual yield of Service Charge imposed on imports amounted to EC $37 million. 45 The prohibition by the WTO against such fees and charges poses a challenge to Governments in small developing countries to undertake tax and administrative reforms including the introduction of transaction type taxes such as VAT. On the other hand the simplification and the reduction of import or export formalities is desirable goal for Caribbean countries. Some of them have began reforming their Customs Services, however the problems extend beyond Customs to other regulatory agencies whose border control requirements also fall within the purview of this article. 44 Ad valorem means as a percentage of the value 45 Annual Report of Revenue and Expenditure for 2003/2004 by Customs & Excise Department

26 Article X: Publication and Administration of Trade Regulations The primary objective of Article X is the achievement of transparency. It requires each Member to promptly publish its trade-related laws, regulations, rulings and agreements in a prompt and accessible manner. The publication must be in such form "as to enable governments and traders to become acquainted with them." 46 This does not include confidential information that could be an impediment to law enforcement or harmful to commercial interest of any particular public or private enterprise. The Article cautions members to abstain from enforcing measures of general application prior to their publication 47 and to administer the above-mentioned laws, regulations, rulings and agreements in a uniform, impartial and reasonable manner. In this context, Members are required to institute or maintain tribunals or procedures for the prompt review and correction of administrative action relating to customs matters. 48 The overriding concern of this article is to ensure that Members and other persons affected, or likely to be affected, by governmental measures have a reasonable opportunity to acquire accurate information about such measures and accordingly to protect and adjust their activities or alternatively to seek a modification of the measures. Unfortunately governments in the Caribbean are notorious for 46 Paragraph 1 of Article X of GATT Paragraph 2 of Article X of GATT Paragraph 3 of Article X of GATT 1994

27 introducing measures that either have retroactive effect or very often no advance notice of implementation. In 2002 in St. Lucia, an amendment to the Schedule of the Environmental Protection Levy Act 49 increased the fee chargeable on used motor vehicles from EC$ to a maximum of EC$12, This was announced in the Budget Address by the Minister of Finance to take immediate effect. Although the Government subsequently agreed to delay the implementation date by a month, many consumers were adversely affected by the measure. The matter has since become the subject of a judicial motion lodged by a used car dealer who has challenged the legality of the said amendment. 50 In the absence of functioning administrative appeal structures, matter such as these have to dealt by the local courts, already overburden with other criminal and civil matters. The requirement of Article X for advance notification is not beyond the capacity of Governments in the Caribbean. Modern technologies including the internet and website development make it relatively simple to facilitate publication of trade related measures by governmental agencies. In reality very few countries in the Caribbean make an effort to publish this type of information in a manner that makes it readily available for use by foreign traders and other governments. Core principles of trade facilitation 49 Statutory Instrument No. 39 of Roserie and Company Limited v. The Attorney General, The Minister of Finance and Comptroller of Customs, SLUHCV2002/ May 10, 2004

28 The three GATT articles under scrutiny are based on the principles of trade facilitation and they correspond to concepts and obligations already applicable under current WTO commitments. These principles are also contained in various existing multilateral, regional or national trade facilitation endeavours and are widely accepted, particularly in developed countries. 51 The core principles of trade facilitation have been identified as transparency, consistency, predictability, non-discrimination, simplification, avoidance of unnecessary restrictiveness, and due process. Each one of those principles has relevance to the respective articles of GATT A brief examination of these principles will illustrate their relationship with afore-mentioned articles and a good basis for adoption into a WTO instrument on trade facilitation. Transparency implies the systematic availability and ready accessibility of information on the applicable border requirements and procedures to all interested persons. This must include advance publication of laws and regulations, operational procedures and administrative implementation guidelines. Consistency and predictability in the application of rules and procedures are a substantial complement of transparency and is a key concern to traders. Uncertainty in trade operations can lead to disruptions and increased transaction 51 Trade Facilitation Principles in GATT Articles V, Viii And X: Reflections On Possible Implementation Approaches - A paper mandated by the Working Party of the OECD Trade Committee to support ongoing discussions in the WTO Council for Trade in Goods in the area of trade facilitation. Found at OECD website:

29 costs. Traders need to know what to expect so as to make informed decisions about their businesses. Non-discrimination in the area of trade facilitation is about ensuring the impartial and uniform administration and application of all border-related regulation, procedures and practices. It goes beyond equal treatment between trading partner countries, to focus on the treatment of individual traders affected by borderrelated regulation, procedures and practices. Simplification and avoidance of unnecessary restrictiveness means doing away with requirements that are not, or no longer, necessary; updating others as appropriate to take account of changed contexts, technologies and markets; and adopting implementation approaches that are proportional to the policy objectives pursued. Due process concerns the availability of appropriate mechanisms for reviewing and correcting administrative action related to customs and border matters. Such mechanisms include formal avenues for appealing against administrative rulings, actions and the interpretation of applicable regulations and setting out the general procedures to be followed in this context. These core principles of trade facilitation are mirrored in the provisions of the GATT 1994 Articles V, VIII and X. They must be viewed as essential elements of any trade facilitation agreement that could be made operational through a set of

30 specific provisions, or implementation tools. 52 A possible way forward for the WTO would be to emulate the approach taken within the FTAA by introducing specific trade facilitation measures for adoption by Member Countries. 53 Any such measures must take into consideration the needs, priorities and capacities particularly of the developing countries. Caribbean countries on the other hand must demonstrate the willingness to embrace the principles and concepts of trade facilitation as part of efforts to reform and modernise their border control systems see Appendix 3 - FTAA Trade Facilitation Measures

31 CHAPTER 4 TRADE FACILITATION IN A CARIBBEAN CONTEXT The Caribbean region is by no means homogenous but reflexes a rich cultural diversity among the various islands. This can be observed from the existence of a number of sub groupings based primarily on language derived in large measure from their colonial heritage. Spanish is spoken by the majority of persons, however is confined mainly to the two largest countries, Cuba and the Dominican Republic. French and Dutch are restricted to the territories still governed by France and the Netherlands. English is spoken by the populations of former British dependencies and now independent countries that make up the majority of a fifteen member economic grouping called CARICOM. 54 The observations in this section of the paper relates mainly to the English speaking countries, however specific references are made to the Jamaica, Barbados, St. Lucia and the Commonwealth of Dominica. The issues related to trade facilitation in the context of the Caribbean will be viewed from the perspective of international trade transactions with some references to intra-caricom trade where appropriate. 54 CARICOM is an acronym for the Caribbean Community established by the Treaty of Chaguaramas in July 1973.

32 CARICOM is an example of the integration of economies permitted by the WTO Agreement. 55 These arrangements include free trade areas or customs unions, which are encouraged on the understanding that they are intended to facilitate trade between the constituent territories and not to raise barriers to the trade of other contracting parties with such territories. Under the CARICOM rules of origin goods produced within one member states is permitted duty-free access into another member state, provided that they meet certain qualifying conditions. Goods from outside of CARICOM are subjected to a common external tariff (CET) when imported into member states. While the CET may provide some form of protection to regional producers, it is the principle means of collecting revenue in most Caribbean states. The CET outlines the various rates of import duty chargeable as a percentage of the value of the goods being imported. On average, indirect taxes on international trade represent more than 50% of the annual revenue yield in most Caribbean countries. 56 The value of imports from outside of CARICOM shows a decline of 43% between 2000 and 2002 moving from US $9.8 billion to US $5.5 billion. 57 Over that same period imports from the USA dropped by 48% compared to a decline of 55 Article XXIV of WTO Agreement Annual Report of Caribbean Development Bank 57 Trade Statistics found at CARICOM Website:

33 27 % in imports from the EU. 58 Inter regional trade shows a similar pattern of decline moving from US1.1 billion to US $ 0.4 billion or a 56% drop in the value of imports. 59 US trade accounts for approximately 39% of CARICOM s international trade transactions illustrating the strong link between the performance of the US economy and those in the Caribbean. This period reflects a reduction in the level of revenue collected on international trade and a corresponding increase in borrowing as a means of financing national programmes. This general decline of imports may also be a reflection of a shift in trade patterns and greater reliance on services. While the data of trade in services for the period is not available, the data for the previous three years 1998 to 2000 reveals an increasing trend in the CARICOM s balance of services growing by 15% from US $ 0.26 billion to US $ 0.3 billion. The assumption is that this trend is likely to continue as regional governments continue to pursue policies options geared towards an increasing reliance on services such as tourism to boost economic activity. The typical Caribbean economy has been structurally and functionally integrated into wider metropolitan economies. All the productive sectors - sugar, bananas, tourism, international business and financial services, petroleum, manufacturing - depend on extra regional rather than regional or domestic markets for their 58 ibid 59 ibid

34 survival and viability. In consequence, only a tiny fraction of economic activities depend upon the regional market. In Jamaica it is estimated to be 1.8%; Trinidad and Tobago 7.4%; Barbados 9.1%. 60 These figures illustrate the failure of CARICOM to facilitate intra-regional trade. Having been economically dependent on external markets for well over 400 years, it is a tremendous challenge for Caribbean to focus its efforts internally and make greater use of its own capital, skills, technology, entrepreneurship and markets. The creation of a Caribbean Single Market and Economy (CSME) 61 offers the ideal opportunity for the region to pool its resources together and become a more viable entity within the realm of international trade. CARICOM Single Market and Economy (CSME) The CARICOM Single Market and Economy (CSME) is designed to facilitate the pooling of the region s financial, human and natural resources to build the economic capacity required to effectively respond to the challenges resulting from globalization and the emergence of super trading blocs. The CSME will create a single economic space by unifying the markets of all the member states of CARICOM. The main pillars of the CSME as articulated in the Grand Anse Declaration 62 are: 60 The Caribbean Single Market and Economy: The Way Forward - A speech delivered by the Rt. Hon. Owen Arthur -Prime Minister of Barbados at Frank Collymore Hall Bridgetown Barbados on April 23, The Conference of Heads of Government of the Caribbean Community (CARICOM), at its tenth meeting at Grand Anse in Grenada in 1989, articulated a vision for the way forward for the Community through a deepening of the integration process into a single market and economy 62 Statement issued at the conclusion of the 1989 CARICOM Heads of Government Conference held at Grand Anse in Grenada.