Trade Facilitation Takes Center Stage

As the barriers to global trade come down, trade facilitation reforms are becoming an integral component in negotiations ranging from the Free Trade Agreement of the Americas to the World Trade Organization.

Trade facilitation" -- now the popular buzzword for a host of measures intended to simplify, harmonize and expedite border procedures worldwide -- has moved side-by-side with "market access" as a top priority for both businesses and governments looking to expand international trade opportunities.

The good news for those looking to extend their reach: Trade facilitation initiatives got a major boost in November 1999. At that time, an eight-point trade facilitation program was presented as the centerpiece of a Ministerial Declaration issued by many of the Western Hemisphere's trade ministers, who were meeting to negotiate the eventual establishment of a Free Trade Agreement of the Americas (FTAA).

While an FTAA encompassing all of the Americas and the Caribbean is still considered to be years away -- 2005 is the goal for completion - the 34 participating countries are taking interim steps toward that ultimate goal. Specifically, under the terms of the Ministerial Declaration, the hemispheric ministers began implementing the following measures on Jan. 1, 2000:

* procedures to expedite express shipments;

* streamlined procedures for the temporary importation of goods related to business travel;

* simplified procedures for low-value shipment transactions;

* accessible electronic systems for the trading community and a set of common data elements to expedite clearance procedures;

* dissemination of information on customs procedures, laws and regulations;

* development of national codes of conduct applicable to customs officials;

* application of the 1996 Harmonized Commodity Description and Coding System at the six-digit level; and

* use of risk management systems that will focus customs enforcement activities on high-risk goods and travelers, while facilitating clearance and movement of low-risk goods.

The goal, according to the declaration, is to have all of these initiatives fully implemented by April 2001, when the next ministerial meeting will be held.

Customs issues have long been considered one of the less glamorous aspects of doing business globally, and for the cynical onlooker, the fact that arcane customs issues emerged as the feature accomplishment of such a high-level meeting might suggest that little was accomplished. However, governments and traders are realizing that focusing solely on matters such as tariff reductions and the elimination of licensing requirements maybe worthless if border procedures tie up shipments or upset cost assumptions. In other words, customs procedures can be non-tariff trade barriers. Therefore, trade liberalization must include trade facilitation assurances for it to be meaningful.

So far, it is express carriers that have the most to crow about because they are expected to be the first beneficiaries of the commitments made in the November Ministerial Declaration. Under the FTAA plan, there are specific provisions calling for the clearance of express shipments through a participating country's customs points within six hours of the presentation of documents, including the pre-arrival processing of information and data related to the shipments. Secondly, business-people carrying samples and other promotional materials across borders also may attain relatively immediate benefits.

The WTO steps Up to the Plate

But for the failure of the World Trade Organization's (WTO) ministerial meeting in Seattle, WA, in late November/early December -- which was supposed to have resulted in an agreement to launch a new round of multilateral trade liberalization negotiations--trade facilitation might already have a position on the agenda of the WTO. The ultimate objective of moving the issue to the WTO would be to establish a rules-based system, under which international standards or norms would be set and member countries would be bound to abide by them. The United States, the European Union, Japan, South Korea and Switzerland each submitted specific negotiating proposals on the issue of trade facilitation, and the topic was generally considered non-controversial by both developed and developing countries.

The European Union's proposal to the WTO is quite detailed and in many respects resembles the points included in the FTAA Ministerial Declaration. It suggests that the WTO members negotiate rules to progressively modernize customs procedures. Under the proposal, members ultimately would offer automated customs clearance; pre-arrival processing; one-stop or single-window handling of shipments that require consideration by multiple agencies; remote filing; time limits on customs clearance; due process in the event of disputes; and transparency of customs rules and procedures.

The European Union proposal also includes a provision addressing post-clearance controls and audits. A virtually identical point had been included in early drafts of the FTAA Ministerial Declaration, but ultimately was dropped when it became apparent that a large number of Latin American governments were not prepared to take this step.

In the FTAA context, the European Union proposal is classified as a "control and release system," and essentially refers to the current U.S. system: 1. release the goods promptly under bond and 2. use post-entry audits to confirm whether all necessary duties were paid and regulatory requirements were met. The governments opposing inclusion of control and release systems in the FTAA declaration indicated that their primary concern was lack of manpower and technology to conduct post-entry checks.

The U.S. trade facilitation proposal to the WTO is less specific than the European Union's proposal, but includes an aid and education component that might address some of the concerns raised by the Latin American nations. The U.S. plan calls for "an agreement on the publication and administration of trade and investment regulations, and formalities connected with importation and exportation," plus a technical assistance program to ensure that WTO members can adapt their systems to comply. According to the U.S. proposal, the WTO's efforts should focus on "an undertaking of rules-based systemic and institutional reforms, rather than a lengthy complex negotiation involving precise harmonization of specific customs techniques."

The Current Stand and the Kyoto Convention

For now, the issue of trade facilitation on a global basis remains primarily the domain of the World Customs Organization (WCO), which is based in Brussels, Belgium, and includes representatives from some 150 customs administrations. In June 1999, the WCO revised the 25-year-old Kyoto Convention on the simplification and harmonization of customs procedures.

Under the terms of the new convention, the trade facilitation objective is addressed through statements of principles regarding harmonization, standardization, speed, smooth flow, transparency, automation, simplification, equal treatment and risk management tools (designed to target enforcement initiatives on the riskiest shipments). However, so far only four nations have signed the new convention -- Algeria, Sri Lanka, Zambia and Zimbabwe. A total of 40 nations must ratify it in order for it to take effect. Practically speaking, it may be some time before the new convention is adopted by a sufficient number of countries.

The WCO's officials participated in the WTO ministerial meeting in Seattle. By doing that, they had hoped to ensure that the new Kyoto Convention principles would be incorporated in the trade facilitation portion of the WTO's negotiating agenda. Further, they were looking for the WTO to help fund programs necessary to assist developing countries in implementing improved customs procedures.

For example, one WCO initiative already under the auspices of the WTO, the Customs Valuation Agreement, which governs how customs agencies establish product prices for customs purposes, has a 2000 deadline for implementation. However, many developing countries are still not yet in compliance, and the WCO is seeking support -- in the form of money for technical assistance programs -- from the WTO to help these countries deal with the task of reforming their valuation systems.

In the absence of a consensus on a new round of trade negotiations under the WTO, progress on trade facilitation now may be slowed, at least in comparison to the heightened expectations that accompanied the release of the FTAA Ministerial Declaration. As a result, there is some concern that progress will be limited to regional initiatives and to preexisting work programs. (The WTO has been doing background research to identify border impediments.)

However, the higher-level interest in the topic and the clear recognition of the role of border processing issues in promoting trade seem irreversible. As duty rates go down and other barriers to doing business abroad are eliminated, impediments at borders will become more apparent and draw greater attention. From here on out, expect trade facilitation reforms to be an integral component in virtually every negotiation that ultimately involves the movement of goods.

Brenda A. Jacobs is Counsel in the Customs and International Trade Group of the law firm of Powell, Goldstein, Frazer & Murphy LLP in its Washington, D.C., office.

Editor's Note: For an in-depth overview of the Free Trade Agreement of the Americas (FTAA), see "Facing the Next Challenge: FTAA," Bobbin, November 1998.

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