The Doha Round Negotiations on Trade Facilitation: An Overview *

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1 Schloss Leopoldskron, Salzburg, Austria, February 16 th -21 st 2007 The Doha Round Negotiations on Trade Facilitation: An Overview * It has become increasingly clear that it is not only market-access barriers that limit international trade, but also inefficient and outdated border clearance processes. The aim of the current negotiations on Trade Facilitation is to ease these border constraints by promoting measures that would simplify and harmonize international trade procedures. This means cutting red-tape, reducing delays, and increasing transparency at borders in order to facilitate countries participation in international trade. The magnitude of the costs that inefficient border systems add to the price of doing business is substantial. Studies have shown that reductions in transaction costs through trade facilitation measures may bring gains on the order of those projected for tariff liberalization (or even higher). The World Bank estimates that total trade transaction costs are likely 10-15% of the total value of the goods traded. Bringing the countries whose trade-facilitation capacity is below average even halfway up to the average level could increase overall trade by some $377 billion annually. Inefficient borders also add considerable time to business transactions. Documentation procedures and the time spent in customs and inspections together account for 75% of the total time it takes to import goods. For perishable goods such as agricultural products, reducing the time spent at borders would be particularly beneficial. Benefits from Trade Facilitation for Governments and Business The procedures and practices covered by the Trade Facilitation mandate have an impact on the structure of international supply chains, the ability of governments to collect border taxes, and, ultimately, the price of traded goods and the productivity in traded sectors. While current border systems mean high costs for exporters, the opportunity costs of not reforming them are very high for governments. * This Briefing Note was prepared for REALIZING THE DOHA DEVELOPMENT AGENDA AS IF THE FUTURE MATTERED, a seminar hosted by the William & Flora Hewlett Foundation, the German Marshall Fund of the United States, and the Salzburg Seminar, in Salzburg, Austria, February 16 21, The sponsors would like to thank John M. Weekes of Sidley Austin Brown & Wood LLP and Kari Heerman of the German Marshall Fund for their help in preparing this paper. World Bank, Global Economic Prospects 2004, World Bank, Doing Business in 2006, 1

2 Since borders in developing countries are comparatively inefficient, the poorer countries stand to reap the largest relative gains from Trade Facilitation reforms. Similarly, the gain for exporters is not proportional to firm size. Large firms may already have the scale to absorb high transaction costs. Since transaction costs make up a larger share of total costs for small- and medium-sized firms, they can be expected to reap larger relative benefits. Table A: Public and Private Benefits of Trade Facilitation Government Benefits Increased effectiveness of control methods More effective and efficient deployment of resources Correct revenue yields Improved trader compliance Accelerated economic development Encouragement of foreign investment Trader Benefits Cutting costs and reducing delays Faster customs clearance and release through predictable official intervention Simple commercial framework for doing both domestic and international trade Enhanced competitiveness Source: UNECE Trade Facilitation: An Introduction to the Basic Concepts and Benefits, 2002 ( The Last of the Singapore Issues Left Standing Several GATT Articles address aspects of the trade-facilitation agenda, namely Article I on most-favored nation treatment, Article V regarding freedom of transit, Article VIII regarding fees and formalities connected with importation and exportation, and Article X regarding publication and administration of trade regulations (See Table B). Trade Facilitation is also included in elements of special agreements like those covering Customs Valuation, Import Licensing, Pre-shipment Inspection, Rules of Origin, Technical Barriers to Trade, Sanitary and Phytosanitary Measures, and Intellectual Property Rights. Given its long history in the GATT, it might seem surprising that bringing trade facilitation into the Doha Round should have proved to be so controversial, but it was. When the Doha Round was launched in 2001, trade facilitation was just short of being included the negotiating mandate. 2

3 Article I: Most-favored nation (MFN) treatment Table B: Existing GATT Trade Facilitation-Related Articles Article V: Freedom of transit Article VIII: Fees and formalities connected with importation and exportation Article X: Publication and administration of trade regulations Requires that imports and exports must receive nondiscriminatory treatment in all WTO member countries in terms of the application of customs duties and procedures. Provides a basis for an environment in which the transit of goods is free from barriers to transport and discrimination among suppliers, firms, and traders from different countries Relates in general to customs clearance procedures and includes a general commitment to nondiscrimination and transparency in fees and rules applied to goods crossing borders Contains general commitments to assist in ensuring timely publication of regulations regarding imports, including fees, customs valuation procedures, and other rules. It also provides general obligations to maintain transparent administrative procedures for review of disputes in customs. Source: World Bank Trade Facilitation: Progress and Prospects for the Doha Negotiations, in Trade, Doha and Development: A Window into the Issues. ( It was one of the Singapore Issues that got their name from the 1996 WTO Ministerial Meeting in Singapore, where working groups on investment, competition, transparency in government procurement, and trade facilitation were established. The Doha Declaration stated that negotiations on these issues would take place only after explicit consensus on modalities was reached for each issue at the Cancún Ministerial Meeting. However, they were introduced prematurely, and thus trade facilitation was one of the ill-fated Singapore Issues that shared the blame for the collapse of the Cancún Ministerial Meeting, amid standoff and recrimination, in September Developing countries were particularly resistant to bringing the Singapore Issues into the negotiations. Their apprehensions were based on a concern that commitments on such issues would involve significant implementation costs. Ultimately, the agreement to launch Trade Facilitation negotiations was secured as part of the deal that emerged from meetings in July 2004, known as the July Framework Agreement. In Annex D of the July Framework, the Doha Round Trade Facilitation negotiating mandate was defined as clarifying and improving the relevant aspects of GATT 1994: Articles V, VIII, and X, with a view to further expediting the movement, release and clearance of goods, including goods in transit. Trade Facilitation was the only Singapore Issue to survive Cancún, and to allay the concerns of developing countries it was accompanied by concrete assurance of special treatment and technical assistance for negotiation and implementation. 3

4 The Trade-Facilitation Agenda The substance of the Trade Facilitation negotiations falls into three categories: Items related to GATT Articles V, VIII and X; Items related to agency cooperation on trade facilitation and customs compliance issues; Items related to cross-cutting issues. The WTO Secretariat has collected the proposals submitted for each category of the Trade Facilitation agenda in a public document, the index to which is generally accepted as the framework for the negotiations. This index groups items relating to the existing GATT Articles into several headings and sub-headings. They do not necessarily divide along the lines of the relevant GATT articles. In fact, many issues cut across Articles V, VIII and X. However, the issues to be negotiated can essentially be boiled down to several broad areas: Provision of information on regulations and procedures includes proposals on publication of trade regulations; notification of changes, new regulations and procedures; establishment of enquiry points; and the time between publication and implementation of regulations and procedures. Facilitating compliance with regulations and procedures includes proposals on advance rulings whereby exporters would be assured of procedures, fees, and treatment prior to arrival. It also covers decisions on the rights of exporters to appeal decisions made by customs officials or other agencies and procedures for so doing. Enhancing non-discrimination and transparency includes measures relating to information on and administration of trade systems, addressing corruption among officials, product detention, and procedures for testing products. It also covers the use of rapid alerts. Rapid alerts refers to the practice within customs unions particularly the European Union of notifying all members of the bloc when a country or exporter has not met required border standards in one member state. The discipline proposed is that rapid alerts should not be imposed unless the standards are uniform across customs union member states. Fees and procedures covers the guidelines for imposing fees and proscribing procedures at the border. In terms of fees, proposals are mainly concerned with prohibiting the collection of unpublished fees and minimizing the number and diversity of fees charged at the borders. On procedures, proposals aim to discipline documentation and data requirements and formalities imposed at borders. It also covers consular involvement and coordination among border agencies. Clearance covers proposals on expedited, simplified and pre-arrival clearance of goods and other aspects of clearance and release of goods. TN/TF/W/43 4

5 Tariff-classification proposals mainly call for objective criteria to be applied when classifying goods for tariff charges so that classification cannot be used as a disguised trade restriction. Goods in transit, or procedures for goods crossing a border for final destination in a third country, is particularly important to land-locked countries. Discussions on facilitating transit cover fees, charges and procedures for transit, and the publication of information thereof. Proposals have also addressed, inter alia, non-discrimination issues, cooperation and coordination among agencies, and public-private cooperation. Beyond the issues required to clarify the relevant GATT articles, the Trade Facilitation negotiation framework includes proposals relating to a multilateral mechanism to facilitate communication among border agencies and proposals that touch on issues that cut across the substantive agenda. It appears that agreement on the substantive agenda is within reach. The focal point of the negotiations is the cross-cutting issues, namely Special and Differential Treatment (SDT) and the provision of technical assistance and capacity-building (TA/CB). Special Treatment and Technical Assistance: Focal Point of the Negotiations Considerable empirical work generated by the World Bank and others has illustrated very clearly the benefits associated with the Trade Facilitation agenda. All else being equal, most WTO member countries would likely push for a robust package on Trade Facilitation. The impediment is the cost of implementing such a package. Countries with limited financial resources are reluctant to take on commitments in improving Trade Facilitation when their development needs require their spending priorities be elsewhere. To address developing country concerns in this respect, members have agreed to unprecedented SDT and TA/CB in the Trade Facilitation negotiations. To go even further to assure countries they will not be unduly burdened, the Trade Facilitation negotiations do not include an explicit commitment to binding rules as a negotiating outcome. Special and Differential Treatment: The July Framework Agreement states that SDT in Trade Facilitation will be broader than the approach applied elsewhere in WTO negotiations, which simply involves shallower commitments and longer implementation periods for developing countries. The July Framework links the extent and timing of commitments to developing countries implementation capacities. Further, it states that developing countries will not be required to undertake investments beyond their means in pursuit of their obligations. LDCs are asked to take commitments only to the extent they are consistent with their individual development needs and administrative and institutional capacity. Trade Assistance and Capacity-Building: Unlike any of the other items on the Doha Round negotiating agenda, the provision of TA/CB is fully integrated into the Trade Facilitation negotiation process. In all other areas TA/CB offers are most often comprised of nonbinding pledges from developed countries to make best efforts to ensure that support is forthcoming. 5

6 The July Framework commits developed countries to adequately ensure TA/CB necessary for developing countries to fully participate in and benefit from the negotiations, as well as to implement the resulting commitments. In the case where commitments made in the Trade Facilitation negotiations require investments in infrastructure, developed country members are committed to ensure that the required financial support is available. Where that support is not forthcoming, developing countries are exempted from the requirement to implement the relevant provisions. Although the July Framework states that developedcountry members are not agreeing to open-ended commitments, many developing countries have insisted that TA/CB commitments must be made for the long-term, as opposed to one-off donations. An Agreement on Trade Facilitation is Within Reach There has been a high degree of active participation in the Trade Facilitation negotiations. Several proposals for addressing the issues at hand, including SDT and TA/CB, have been tabled and discussions have been constructive. Moreover, the discussions have been complemented by empirical work, notably by the World Bank, which has found that the measures that have been proposed are likely to make a meaningful difference to the Trade Facilitation performance of many members, with implementation costs not likely to be exorbitant. Therefore, a fairly modest amount of TA/CB is likely to be required. Support for the Trade Facilitation agenda has grown significantly, particularly among African and land-locked countries. Since the July Framework was agreed, Trade Facilitation negotiations have been marked by an atmosphere of cooperation among delegations a relative rarity in other negotiating groups. In remarks just prior to the suspension of talks, the Chair of the Negotiating Group noted that one could see the emerging results of a genuinely Member-initiated exercise of consolidation that had seen both a convergence of ideas and the first delineation of a common ground. Perhaps the most telling example of the accessibility of a Trade Facilitation agreement was an opinion piece published in the International Herald Tribune in July 2006, praising the benefits of Trade Facilitation, co-authored by European Trade Commissioner Peter Mandelson and Indian Commerce Minister Kamal Nath who are not often found on the same side of the negotiating table. In fact, there have been many strange bedfellows in the Trade Facilitation negotiations several proposals have been submitted by groups that include both developed and developing countries. However, there remains a so-called core group of developing countries that are less enthusiastic about an agreement in this area. Progress in the Trade Facilitation negotiation at this point is somewhat circular: many developing countries are hesitant to make commitments without assurance that they will receive adequate long-term assistance to meet them. At the same time, developed countries are reluctant to commit to providing assistance without a firmer understanding of the scale and nature of the support they are being asked to provide. Furthermore, the TA/CB required will be linked to the nature of SDT that developing countries receive for the substance of any agreement. Therefore, while there may be agreement on the generalities of the substance, the negotiations are experiencing some friction when it comes to details. 6

7 Despite the fact that negotiations on Trade Facilitation were delayed for three years, sufficient work has been carried out that, with continued good effort and good will, an agreement in this area can be concluded as part of the final outcome of the round. However, the task ahead should not be underestimated. It is clear that agreement on the substantive agenda is well-advanced, but to succeed in reaching agreement a balance must be struck between the substance of clarifying GATT Articles V, VIII and X, the SDT offered to developing countries, and integrating adequate assurance of TA/CB for the implementation of a final agreement. 7