TRADE FACILITATION

Brian Rankin Staples

October 19, 1998

Draft
 TRADE FACILITATION
SECTION ONE: INTRODUCTION AND HISTORY

1.0 Introduction
This paper provides an outline of the concept and reality of trade facilitation primarily from an
emerging economy policy-making perspective. This will be achieved by presenting the basic
dimensions of trade facilitation in three stages. The first section reviews various issues, definitions
and conditions that have led to the necessity of trade facilitation, and a brief history of trade
facilitation. The second section profiles current trade facilitation resources and initiatives. The final
section examines some of the practical and policy challenges associated with implementing a trade
facilitation program.

1.1 Definitions

In recent years the term, trade facilitation, has become extremely popular and, therefore, applied to
an ever-growing number of activities. Given the very general origins of the word, facilitation,
(Latin/facilis: French/facile: make easy, promote, help forward), it is not difficult to understand
how the term, trade facilitation, has come to apply to a broad range of undertakings.

For the purposes of this study it is useful to define what is not meant by trade facilitation, even
though the following endeavors do, in fact, make trade easier or promote trade.

• Physical Infrastructure: improving roads, upgrading port facilities, airports and

transportation infrastructure in general.

• Non-Tariff Barriers (NTBs): NTBs and all forms of regulatory asymmetry do

prevent the free flow of international trade. NTBs, however, usually imply an
alleged World Trade Organization (WTO) violation of some nature. The
identification of NTBs in a consistent fashion and their gradual elimination is vital
to the equitable treatment of commerce, but for the purposes of this analysis, are not
included in the scope of trade facilitation. This report, however, will review and
discuss non-tariff measures, such as standards.

• Tariff Negotiations: Services and Investments/Intellectual Property Measures. All of

the above mentioned topics represent critically important trade issues.
Notwithstanding the priority of these matters on the international trade agenda, they
do not fully address the concept of trade facilitation as understood internationally or
by the private sector.

For instance, in many cases, trade facilitation from a development perspective can
involve tariff reductions for exports of clothing, footwear and/or leather goods from
emerging economies. Although tariff rates have fallen dramatically over the past
four decades (i.e., an average from 40% to 4%), many tariff issues remain but are
only indirectly related to the principle of trade facilitation.
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• Trade Promotion: Global trading opportunities have been created. Trade promotion
is the best way to fully exploit these opportunities. Trade promotion, however, and
trade facilitation are closely related, but distinct activities.

To summarize briefly, trade facilitation is clearly not "high" trade policy. Trade facilitation does
represent a deepening of the trade agenda, down from legislation, and regulation to the actual
practice and administration of multilateral obligations at the operational level. Trade facilitation is
technical and detailed by nature. Sylvia Ostry has referred to it as "the plumbing". "Plumbing" that,
nonetheless, when properly and comprehensively addressed, may yield significant and practical
benefits to national governments, international traders and international trade.

2.0 Historical Background:

Trade facilitation is by no means a new issue in international trade. Ancient and medieval
obligations, tolls, and charges were one means by which traders gained relatively peaceful entry
into foreign lands. They did, however, raise the price of products considerably. Traders, such as
Vasco da Gama, often explored new trade routes to avoid these fees. Importing spices directly from
India, by sailing around the Cape of Good Hope, Vasco da Gama could sell spices sixty to one
hundred-fold cheaper than Venetian merchants, who had to pay a multiple of overland tolls.

This bewildering array of discriminatory charges by local rulers inhibited trade. In this context,

It is not surprising that the consolidation of nation-states, which was

characteristic of the period from the fourteenth century on, gave a stimulus to
both local and foreign trade. The growth of trade and its regulation is
correlated with a stability of government exercising authority over wide
areas.1

Also during this period, the power of trade regulation gradually shifted "from town to state, from
Guild Merchant to Parliament." In England, prior to obtaining the full right of royalty to impose
duties, kings had attempted to offset declining feudal revenues by instituting a range of fees for
services such as inspection, weighing of goods, and mooring of vessels. The language associated
with these formalities, such as "manifest" (the listing of a ship's cargo) and "declaration" (used for
import entries) along with these techniques themselves, have survived in today's customs regimes.

Over time, English Parliament secured taxation and trade powers, and started to create several
democratic institutions, including one of the oldest departments of all governments: Customs. It
was during this time that we come across one of the first well-known trade facilitators, Edward III,
known as the "Father of English Commerce" because of the consolidation of customs during his
reign.

Subsequently, most export tariffs were eliminated. Import duties become more important as a
source of revenue and became more protectionist by nature. English tariff structures and regulations

1
J.B. Condliffe, The Commerce of Nations (Binghampton, N.Y.: W.W. Norton 8 Co.,
Inc., 1950)

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were still formidably complex until Sir Robert Walpole, in office between 1712 and 1742, initiated
a comprehensive simplification of the tariff system.

2.1 The Modern Era

Over time, trade facilitation became more of an international concern and less of an issue of
rationalizing a national Customs regime. Consider the following quotation from Condliffe
concerning the evolution of trade facilitation:

No aspect of economic policy between the wars has been so much discussed
as this failure to reopen the channels of international trade. In addition to the
voluminous writings by economists, there is a large body of documentation
contributed to the conferences of the International Chamber of Commerce, as
well as the studies of the Economic Intelligence Service of the League of
Nations and the reports of the numerous official conferences with which
these years abound.

The International Chamber of Commerce was itself a postwar phenomenon.

Founded in 1920, it labored throughout the interwar years to apply the
principles of private business to the current issues of international economic
policy. It did so by striving to work out agreements on specific issues among
the business groups concerned. Much of its work dealt with technical
questions such as double taxation, commercial arbitration, customs
formalities, international river communication, bills of lading, and the
interpretation of most-favored nation treatment. In these and similar
fields a body of agreed rules, which inevitably recalls the Law
Merchants of the early modern age, was hammered out in conference. It
is interesting to note that much of this work has now been incorporated
into the draft agreement for the International Trade Organization of the
United Nations. In addition, the leaders of the International Chamber of
Commerce were active in propounding business solutions to the questions
considered by the successive postwar conferences called to implement the
European peace settlement. The Dawes plan to commercialize reparation
payments was a case in point. The World Economic Conference called in
1927 to seek ways of promoting freer world trade also owed much to the
initiative and interest of the International Chamber of Commerce.

The documentation of this conference still provides the most comprehensive

survey of the international economic issues of the first postwar decade.2
[emphasis added]

2.2 Current Trends

The meaning and implications of trade facilitation are different today than they were as recently as
a few short years ago. The WTO is now a "single undertaking" that includes, or will shortly
2
J.B. Condliffe, The Commerce of Nations (Binghampton, N.Y.: W.W. Norton Co, Inc., 1950)

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include, nearly every trading nation in the world. The Harmonized Commodity Description and
Coding System, or Harmonized System (HS), an international product nomenclature, now covers
more than 95 per cent of world trade.

Trade facilitation in previous generations sought to harmonize different regimes, or at least

establish an element of mutual recognition between different regimes. Today, however, the WTO
and various conventions provide a common set of international standards or common trade and
customs "legislation" for all countries. The current trade facilitation challenge is to establish
common procedures and customs operations based on the above-mentioned international law. This
process appears to be as inevitable as it is logical.

Gilbert R. Winham provides the following perspective:

Now to sum up. Trade (or enterprise) and regulation have been a theme and
counterpoint through much of recorded history: that is, when regulation
receded, trade flourished; and when regulation was intense, trade languished.
This relationship developed because regulation was imposed by self-
aggrandizing territorial units that sought to use trade for their own purposes.
Today, however, with the development of trade agreements between nations
as a permanent factor in international commerce, the face of regulation has
changed. Now regulation is pitted against regulation; that is, the
regulation flowing from international agreements that seeks to promote and
stabilize economic exchanges between nations is ranged against the
regulation of national governments that often seeks to restrict those
exchanges. The issue today is not pure free trade, whatever that might mean.
Regulation is inherent in our highly ordered lives, and the irony is that to
reduce regulation of one kind it takes regulation of another kind.
Instead, the important question is: Where does the regulation come from, and
is its purpose to reduce or to expand the scope of our lives and economic
activity?

This chapter began by asking the question: What is the role of international
trade agreement in the modem nation-state system? The answer is to reduce
protectionist national regulation, but even more important to reduce the
uncertainty and unpredictability of the international trade regime, and
to promote stability. The greatest cause of uncertainty in the contemporary
trading system comes from the self-serving actions of self-interested nation-
states. Thus, it can be said that one nation's sovereignty is another
national’s uncertainty.3 [emphasis added]

To paraphrase Winham from the trade facilitation point of view: asymmetrical customs regimes
create uncertainty for international traders.

3
Gilbert R. Winham, The Evolution of International Trade Agreements (Toronto:
University of Toronto Press).

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2.3 Trade Facilitation Today

Trade facilitation, as understood by the majority of the private sector and most international trade
organizations, refers primarily to trade in goods and directly related services. The reason for this is
simple: globalization has led to astonishing increases in global trade. Trade currently represents
30% of world GDP and is expected to grow to 50% of world GDP by 2020.

National Customs authorities are having to process a much higher volume of trade. This is often
with the same number of employees or, in many cases, fewer employees. Meanwhile, the private
sector is expecting, and demanding, faster clearance of goods through Customs and increased
administrative efficiency for all varieties of Customs programs.

In most cases, Customs procedures and requirements vary from region to region, from state to state.
The result is very high administrative compliance costs which are currently estimated at somewhere
between 7% to 10% of global trade. For example, it was recently reported in the press that the
internal cost of preparing separate and distinct Customs paperwork for various APEC countries, for
a large North American automotive exporter, exceeded the duties paid on these exports.

It has always been the case that the same goods represent one person's export and another person's
import. Increasingly today, given the growth in related trade transactions, the importer and the
exporter are the same corporate entity. A corporate entity is always searching for ways and means
to reduce transaction costs to avoid the frustration caused by differing Customs regimes and
requirements, applied to the same international transaction. One way to reduce transaction costs is
to harmonize and simplify customs procedures around the world. This is the primary definition of
trade facilitation for the purposes of this analysis.

It is, however, not simply the growth in trade or even the growth in related trade and transfer
pricing that is fueling the need for trade facilitation. Another important factor includes increased
economic integration by an explosion of regional and bilateral free-trade agreements that often
feature complex customs requirements (i.e., rules of origin). Technological progress has also
introduced faster and cheaper forms of transportation and transportation management techniques,
such as the increased use of electronic commerce and JIT. Finally, there have been significant
changes in the nature of internationally traded goods, from complete or whole goods towards re-
exported sub-assemblies and intermediate products. This process is a byproduct of globalization
and increased competition that is forcing corporations to produce parts and components at the most
cost-efficient location and to then assemble the goods close to major markets. This phenomenon
results in a higher number of smaller shipments and creates more paper burden for both the public
and private sector.

The Internet is also fragmenting containers of goods that could have been custom cleared on a
single entry into dozens of individual shipments that each require separate customs documents and
clearance procedures. This creates a challenge for express couriers who anticipate exponential
growth in small shipments by individual consumers, as compared to shipments by wholesalers or
retailers. These consumers expect goods to be cleared immediately. It is no wonder that express
couriers are actively promoting, and participating in the trade facilitation agenda.

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SECTION TWO: TRADE FACILITATION RESOURCES

3.0 Major Trade Facilitation Organizations and Initiatives

The following sections outline, in point form, major trade facilitation programs that exist within the
public and private international trading community. As previously discussed, the following
program descriptions are intended to be comprehensive but not every single activity related to trade
facilitation has been enumerated.

3.1 The WTO Tools of International Trade

The three most standardized and fundamental tools of international trade regulation and customs
technique are the HS, the Customs Valuation Agreement (Article VII and the Agreement on
Implementation of Article VII) and the Agreement on Rules of Origin which determine the tariff
classification of an imported product, its country of origin, and its value for duty, and, only then,
can the international trader develop a landed cost.

3.1.2 Harmonized System (HS)

The HS is a legal and logical international product nomenclature developed through the World
Customs Organization (WCO), formerly known as the Customs Co-operation Council, based in
Brussels. Introduced by International Convention on January 1st, 1988, contracting parties have
committed to apply the HS at the specified 6-digit level, which covers 1,241 headings. Changes and
additions to the HS must be approved by the HS Committee and the WCO Council. Although the
HS is primarily designed for tariff classification purposes, it is also used extensively for alternate
applications such as identifying goods subject to import and export controls, freight tariffs, the
application of, or exemption from, value-added tax regimes, trade statistics and origin
determination.

The single largest advantage of the HS is that it provides a single trade language for all public and
private actors in the international trade arena. The concept of trade facilitation is dependent upon
the complete understanding and mastery of the HS.

3.1.3 Customs Valuation (WTO)

Article VII and the Customs Valuation Agreement establish the basic criteria for the valuation of
imports for duty purposes. The primary basis for valuation is the “transaction value” of imported
goods, which is the actual price paid or payable for the goods. The Agreement outlines allowable
deductions and required additions to the "transaction value." In cases where the transaction value"
cannot be determined, five alternate valuation methodologies are described.

It appears from the following quotation that valuation may be one of the oldest forms of customs
regulation:

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An example of tariff schedule from the distant past is as follows:

'Merchandise ... shall be liable to the payment of toll alike when exported
and imported. Imported commodities shall pay 1/5 of their value as foll. Of
flowers, fruit, vegetables ... and dried meat, the superintendent shall receive
1/6 as toll. As regards conch shells, diamonds ... and necklaces, experts
acquainted with the time, cost and finish of the production of such
articles shall fix the amount of the toll. ' If this tariff schedule seems a bit
primitive, at least it comes by that condition honestly. It was extracted from
Kautilya's Arthasastra, a manual for Indian statecraft written arguably
between the fourth and third centuries BC. One should note, however
that the provisions empowering experts to fix the amount of toll reflects
the concept of valuation for customs purposes. This concept is utterly
contemporary, and those familiar with GATT negotiations will recall that
an international code was concluded on this subject in the Tokyo Round in
1979. To find a concept so modern and technical in such an ancient
document is remarkable.4

This agreement provides for the special and differential treatment for developing countries, which
are currently experiencing a demonstrated need for education and training in valuation techniques.

3.1.4 Agreement on Rules of Origin

The importance of the rules of origin in international trade negotiations and customs administration
has grown tremendously over the last ten to fifteen years. This is due, in part, to the ever-increasing
number of regional trading agreements around the world. Free trade areas imply specific
preferences that are accorded to member parties. To gain access to these benefits, members develop
preferential rules of origin. As previously outlined, complicating this pattern is the process of
global manufacturing. In the past, whole goods would be produced at the most cost-effective
location. Today, in response to the demands of international competition, the private sector is
looking for the least expensive manufacturing location for each individual component or sub-
assembly. Nearly half of international trade is now in intermediate goods. The WTO recently
reported that "re-exports," wherein goods must cross two borders before reaching the ultimate
consumer, now represents the fastest growing dimension of international trade. These trends
present difficult origin documentation and tracing demands, on Customs authorities and
international manufacturers.

The Agreement on Rules of Origin intended to harmonize non-preferential rules of origin under the
auspices of the WCO by July 1998. This deadline had not been met. The Agreement also includes,
by way of an annex, a “common declaration," with respect to non-distorting, preferential rules of
origin. Generally speaking, for goods not wholly produced from one country, rules of origin
normally provide for determining origin, by way of a tariff shift in the HS, and/or by calculating
regional content. In some cases, such as in the NAFTA, regional value calculations are based on the
Customs Valuation Agreement.

4
Gilbert R. Winham, The Evolution of International Trade Agreements (Toronto:
University of Toronto Press).

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Besides identifying qualifying goods for tariff preferences, rules of origin are also used to
administer marking regulations, quota regimes, anti dumping duties and countervailing duties. HS
tariff classification and valuation for customs purposes, occasionally combined to determine origin,
establish the three fundamental elements of international customs practice and trade facilitation.

3.2 Related WTO Provisions

The following WTO Agreements also impact the trade facilitation agenda.

3.2.1 Agreement on Import Licensing Procedures

This Agreement is designed to ensure that the process of administering import-licensing systems is
non-discriminatory, neutral and does not restrict trade. Members are also obliged to publish
information concerning licensing procedures and simplify licensing requirements wherever
possible.

3.2.2 Agreement on Technical Barriers to Trade (TBTs)

As previously outlined, TBT normally infer a WTO violation of some sort and, therefore, are not
directly linked to the concept of trade facilitation. This Agreement, however, does create guidelines
for the transparent development of technical standards and regulations. The Agreement on the
Application of Sanitary and Phytosanitory Measures is similar in content.

3.2.3 Freedom of Transit: Article V

Promotes MFN freedom of transit through each Member's territory. See also the Agreement on
Trade and Services as it relates specifically to the facilitation of all modes of transportation.

3.2.4 Trade and Customs Administration

Article VIII calls for the simplification of fees and formalities related to the importation and
exportation of goods, and discourages the imposition of excessive penalties for minor breaches of
customs regulations. Related Article X requires the timely and comprehensive publication of all
laws, guidelines and decisions that may impact imports or exports. Article X also creates the
obligation to establish judicial and/or administrative tribunals to review customs administration and
customs decisions.

3.2.5 The Agreement on Pre-shipment Inspection (PSI)

PSI was originally conceived and implemented to prevent the flight of capital and under-valuation
of goods. Currently, private PSI companies check shipment details such as price, quality and
quantity on exports normally destined for developing countries. The PSI Agreement establishes
various guidelines for these practices including: non-discrimination, transparency, use of the
international standards, confidentiality, appeals and dispute resolution.

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3.3 International Organizations

3.3.1 World Customs Organization (WCO)

Of all the inter-governmental organizations that will be examined, the activities and the mandate of
the WCO are the most closely aligned to the issue trade facilitation. The WCO was founded in
1953 and features a membership of 142. The following is a brief description of some of the most
relevant responsibilities and undertakings of the WCO.

3.3.2 The Kyoto Convention (The International Convention on the Simplification and
Harmonization of Customs Procedures)

The WCO's objective is to increase the efficiency and effectiveness of customs administration
around the world by reviewing the technical aspects of customs programs and sharing the results of
these studies cooperatively with customs administrations around the world. These studies often
result in the creation of conventions that promote the standardization and simplification of customs
procedures around the world.

The Kyoto Convention, established in 1973, contains general provisions and special Annexes that
attempt to harmonize various customs procedures:

Annex A: Formalities Prior to the Lodgment of the Goods Declaration

Annex B: Clearance of Goods for Home Use
Annex C: Clearance of Goods at Exportation
Annex D: Origin of Goods
Annex E: Conditional Release Procedures and Processing Traffic
Annex F: Special Customs Procedures
Annex G: Relations Between Persons Engaged in International Trade and the Customs
Administration
Annex H: Disputes and Offenses
Annex J: Customs Applications of Computers

The Kyoto Convention is currently undergoing a major and necessary revision. The practice and,
therefore, the management of international trade has evolved tremendously over the last twenty
years. The updated Convention will recognize these changes by establishing improved provisions
for automation, electronic commerce, post-entry or audit-based reviews and risk management
techniques. Another failing within the current Kyoto Convention is the widespread use of
reservations and the small number of parties that contracted to individual annexes. The combination
of these two factors has prevented the Kyoto Convention from effectively harmonizing customs
procedures.

In light of these deficiencies, the Kyoto Convention is not only being revised but also completely
redesigned. Most of the content previously contained within specific Annexes is now being placed
within a general Annex of approximately ten chapters; complete with detailed guidelines. Some
specific Annexes will remain however. There will be no reservations against the general Annex and
possibly none against the specific Annexes either.

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The revised Kyoto Convention is the single most comprehensive and exciting prospect for
true international trade facilitation. During interviews with the private sector, many parties
expressed full support for the revised Kyoto Convention. All private parties suggested that the
provisions of the revised Kyoto Convention be more binding. In this regard, the private sector
would like the WTO to eventually incorporate the Kyoto Convention into its structure so that
conflict resolution could occur within an established dispute resolution structure.

3.3.3 Customs Reform and Modernization Program (CRM)

CRM is an evolving technical assistance product, within the WCO, that assists the process of
Customs reform. CRM is designed to provide a critical overview of customs institutions, not to
provide issue-specific assistance. CRM provides a diagnostic study training, or customs needs
analysis training, for policy members. This training assists policy makers in identifying areas
within their customs administration that requires capacity building. CRM then helps domestic
customs authorities implement the required changes and evaluate their impact on trade facilitation
and customs compliance.

3.3.4 Declaration of the Customs Cooperation Council Concerning Integrity in Customs (The
Arusha Declaration: 1993)

This is a critical declaration, which aims to address the issue of corruption within customs
administrations. The Arusha Declaration is indirectly linked to CRM and the revision of the Kyoto
Convention, as it promotes standardized customs procedures, electronic commerce and improved
relations between customs brokers and customs.

3.3.5 Other WCO Programs

The WCO is responsible for literally dozens of programs, guidelines (i.e. Express Consignment
Guidelines), Resolutions, Norms, Recommendations and Conventions (i.e. HS). This study does
not endeavor to outline all these initiatives. There is, however, one convention that merits a brief
recap: the Istanbul Convention or the Customs Convention on Temporary Admission (1993).

As suggested in its title, the Istanbul Convention addresses all manner of temporary admission as
witnessed by the following list of Annexes:

Annex A: concerning temporary admission papers

Annex B.1: concerning goods for display or use at exhibitions, fairs, meetings, or
similar events
Annex B.2: concerning professional equipment
Annex B.3: concerning containers, pallets, packings, samples and other goods imported in
connection with a commercial operation
Annex B.4: concerning goods imported in connection with a manufacturing operation
Annex B.5: concerning goods imported for educational, scientific or cultural purposes
Annex B.6: concerning travelers' personal effects and goods imported for sports purposes
Annex B.7: concerning tourist publicity materials

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Annex B.8: concerning goods imported as frontier traffic

Annex B.9: concerning goods imported for humanitarian purposes
Annex C: concerning means of transport
Annex D: concerning animals
Annex E: concerning goods imported with partial relief from import duties and taxes

3.4 UNCTAD

The United Nations Commission for Trade and Development has been actively involved in trade
facilitation promotion for nearly thirty years. Naturally, the primary focus of their involvement is to
encourage the input and participation of developing economies in trade facilitation initiatives.
These responsibilities are currently carried out by the Trade Facilitation Section of SITE (Services
Infrastructure for Development and Trade Efficiency).

In October of 1994, the United Nations hosted a Ministerial level, International Symposium on
Trade Efficiency in Columbus, Ohio. The focus of this Symposium concentrated on customs
procedures, and other micro-economic features that prevent full realization of the potential trading
benefits contained within the Final Act of the Uruguay Round. The attached Appendix "A"
outlines the WCO Recommendations that were adopted by the Symposium (referred to as the
Columbus Declaration), which have become critical guidelines in the pursuit of trade facilitation.

The United Nations International Symposium of Trade Efficiency also established UNCTAD 's
Trade Point Global Network. This program aims to create approximately 180 "Trade Points " in
109 countries. These Trade Points will be electronically linked to national centers for trade
facilitation and will act as providers of trade related information and data.

3.4.1 Other UNCTAD Initiatives

The majority of the trade facilitation activity by UNCTAD has involved the transportation sector.
Transportation initiatives include port development, developing an electronic transport
management tool, called the Advance Cargo Information System (ACIS), and the idea of National
Trade and Transport Facilitation Committees (NTTFC). NTTFCs bring together all transportation
stakeholders within a country to create and promote policies that enhance trade facilitation
efficiencies.

3.5 The Center for Facilitation of Procedures and Practices for Administration, Commerce and
Transportation (CEFACT-UN/ECE)

CEFACT evolved from the United Nations Economic Commission for Europe's (UN/ECE)
Working Party on the Facilitation of International Trade Procedures (WP.4).

Since 1960, this organization has diligently pursued the harmonization and automation of customs
procedures and information requirements, and has issued the internationally recognized UN/ECE
Trade Facilitation Recommendations.

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Perhaps, WP.4 and now CEFACT, are best known for their work on Electronic Data Interchange
(EDI). EDI is a form of electronic commerce that uses a structured exchange of data between two
parties. WP.4 developed the United Nations Electronic Data Interchange for Administration
Commerce and Transport (UN/EDIFACT).

EDI and EDIFACT are important elements of electronic commerce that allow for the dramatic
reduction of customs paperwork. They also facilitate the exchange of trade-related information
between parties that typically handle international trade transactions (i.e., insurance, customs,
freight forwarder, customs broker, etc.).

3.6 The International Trade Center (ITC) and the World Bank

The ITC works closely with trade promotion institutions and similar entities to encourage and
promote the international trade capabilities of small to medium sized enterprises. This is achieved
primarily through the provision of technical assistance and related training. The World Bank
provides financing to a variety of technical assistance projects related to trade facilitation.

3.7 The United Nations Commission on International Trade Law (UNCITRAL): 1996

Trade facilitation requires the harmonization of customs procedures. The related mandate of
UNCITRAL is to harmonize international trade law. UNCITRAL has developed significant
Conventions on the international sale of goods, the carriage of goods by sea, arbitration rules and
the UNCITRAL Model Law on Electronic Commerce.

3.8 Transportation Agencies: International Maritime Organization (IMO) and the

International Civil Organization (ICAO)

Both of the above-mentioned organizations deal with legal and safety issues surrounding their
respective modes of transport. They also, however, are interested in the prompt movement of goods
and, therefore, feature various committees and conventions that address the issue of harmonizing
trade facilitation standards.

4.0 Regional Trade Facilitation Initiatives

As previously discussed, the world is experiencing rapid growth in regional trading agreements,
including the creation of numerous free trade areas. The following is a partial description of some
of the major trade facilitation activities related to this phenomena.

4.1 The North American Free Trade Agreement (NAFTA)

Above and beyond required customs and origin procedures found within the NAFTA itself and
several NAFTA sub-committees that touch upon trade facilitation topics, the two major trade
facilitation initiatives with NAFTA are the Canada-US Shared Border Accord and the Heads of
Customs Conference (HCC). The Shared Border Accord, signed by Canadian and US Customs and
Immigration Agencies, creates a set of common objectives for a joint approach towards trade
facilitation and trade compliance.

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The HCC features regular, trilateral meetings to review common customs issues, including
enforcement cooperation and ways to improve the processing of the cross-border movement of
goods. Recently, the HCC endorsed the North American Trade Automation Prototype (NATAP).
Using EDIFACT syntax, NATAP is designed to facilitate trade by standardizing data elements and
electronic customs procedures.

4.2 APEC (Asia-Pacific Economic Cooperation)

The launching of the Osaka Action Agenda, in 1996, demonstrated APEC's commitment to
standardizing customs requirements throughout the region. In 1997, APEC Trade Ministers met in
Montreal and issued the following declaration:

Ministers reviewed a range of key APEC activities designed to facilitate

trade and lower the costs of doing business. This is important for all
exporters but particularly benefits small and medium-sized enterprises.
Recalling that the Subic Bay, Leaders instructed Ministers to '...intensify
work in 1997 on simplification of customs clearance procedures,
effective implementation of intellectual property rights commitments,
harmonization of customs valuation, facilitation of comprehensive trade
in services, enhancing the environment for investment, ' and agreed to
‘… align our national standards with international standards and to recognize
each other's national standards, ' Ministers endorsed current APEC activities
and work programs, and emphasized the importance of intensifying efforts,
in these priority areas.

Recognizing that simplification and harmonization of customs

procedures can make a major contribution to trade facilitation,
Ministers particularly welcomed the support fully on the recommendations
from the APEC Customs Industry Symposium held May 7-9 in Montreal.
They affirmed their commitment to close collaboration with their Customs
colleagues and the business sector in pursuing the agreed work program.
Ministers noted the importance attached by the Symposium to finding
technological solutions to expedite frequent traveler clearance, incorporating
the best practices of business and government. They also noted the
announcement by Hong Kong and Chile of their intention to participate in
the project for an APEC Business Travel Card.

Ministers reviewed a preliminary list of outcomes related to trade

facilitation this year and agreed that it should be made publicly
available, noting that work on trade facilitation engages almost all
APEC fora. Ministers instructed officials to compile a specific set of
deliverables, actions, and recommendations on trade facilitation for their
consideration in November. Ministers received proposals from Japan and
Mexico to enhance APEC investment work and from the Republic of Korea

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to establish an APEC Center for Conformity Assessment. Ministers

directed relevant APEC fora to consider the proposals.

This is by no means an empty declaration. Consider the following Collective Actions that are being
coordinated by the Sub-Committee on Customs Procedures (SCCP):

• investigating the utilization of risk management techniques and electronic

commerce to clear cargo shipments

• adopting the HS

• complying with Kyoto Convention customs techniques and active participation in

the revision of the Kyoto Convention

• adoption of the WTO TRIPS Agreement and the WTO Customs Valuation
Agreement by 2000

• embracing UN/EDIFACT standards by 1999, introducing advance tariff

classification rulings and customs appeal provisions by 2000

• accession to the Customs Convention on the ATA Camet for Temporary Admission
of Goods by 2000

4.3 The European Union and G7

The EU has gone into Customs Cooperation and Mutual Assistance Agreements with several
countries, including one with Canada, dated February 28th, 1997. These Agreements cover the
simplification and computerization of customs operations, the free flow of trade and enforcement
information, and a common approach, wherever possible, to customs valuation. Over time, these
agreements may prove to be the foundations of Trans-Atlantic Trade Accord. In this regard, Canada
has recently entered into a Trade and Economic Cooperation Agreement (TECA) with the
individual EFTA countries. The parties are examining the possibility of a free trade agreement.

The G7 have taken an active interest in the topic of trade facilitation. The Lyon Statement of the G7
encouraged standardization as one way to promote trade, development and growth.

More recently, the G7 countries have initiated research into developing common data elements for
the purpose of facilitating customs through the use of electronic commerce. The search for common
data elements originated at the Denver Summit Leaders where the following statement was issued
on June 21St, 1997:

In Lyon we initiated an effort to standardize and simplify customs

procedures. We urge our customs experts to complete their work in the next
year and report prior to our next meeting on their efforts to standardize both
data required by customs and other related administrations to carry out their

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responsibilities and the form in which data are to be reported electronically,

and to reduce data requirements to a minimum consistent with effective
administration of customs responsibilities.

4.4 FTAA (Free Trade Area of the Americas)

Trade facilitation is a major focus of the FTAA. The Working Group on Customs procedures and
Rules of Origin have been:

• develop recommendations for the use of electronic commerce

• create a compendium of customs procedures and a customs manual for importers

and exporters

• establish simple, transparent rules of origin regime

• pursue standardization and simplification wherever possible.

The language around the FTAA process is interesting, in that sometimes the words “trade
facilitation” and “business facilitation” seem to be used interchangeably.

Sometimes, business facilitation is referred to as the "early harvest" of the FTAA process.
Naturally, standardized customs procedures throughout the Hemisphere would lower transaction
cost and, therefore, facilitate business. It may be, however, that business facilitation in this sense
also refers to training the private sector in technical trade disciplines, (i.e., HS, origin, customs
valuation, etc.), and teaching the private sector how to organize in preparation for trade
negotiations.

5.0 Trade Facilitation and Developing Economies

The issue of trade facilitation cannot be fully understood without explaining the needs of the
emerging economies and the 48 least developed countries. These countries, already under-
resourced, are increasingly marginalized from the world trade order and are overwhelmed by the
work programs of the multilateral trading system.

In light of these factors, the Singapore Declaration included a call for a High Level Meeting (HLM)
on an Integrated Framework for trade-related technical assistance. The HLM was held in Geneva
last September. For the first time, the six multilateral agencies (WTO, ITC, UNCTAD, WB, IMF,
and UNDP) met to discuss ways and means to provide better-coordinated, trade-related, technical
assistance to LDCs.

Trade-related technical assistance covers a tremendous variety of activities ranging from

institutions building, to market access issues, such as tariffs and quantitative restrictions. Trade
facilitation, however, did feature prominently at the HLM. Knowledge of “trade rules and
processes" is perceived as an important element of trade-related, technical assistance and found

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within the Report and Recommendations from the Joint WTO/UNCTAD NGO Symposium on
Trade-Related Issues Affecting Least-Developed Countries.

5.1 FTAA

The FTAA explicitly recognizes the special needs of smaller economies and have also developed a
Technical Cooperation Needs Assessment for Smaller Economies. FTAA activities to date are
more focussed on pure trade and customs issues.

6.0 Non-Governmental Organizations (NGOs)

The majority of NGOs that actively support trade facilitation programs are, not
surprisingly, international transportation organizations including, but not limited to:

• the International Express Carrier's Conference (IECC)

• the International Air Transportation Association (IATA)

• the International Chamber of Shipping (ICS)

• the International Road Transport Union (IRU)

• the International Federation of Freight Forwarders Associations (FIATA)

• the International Federation of Customs Brokers Association (IFCBA)

6.1 The International Chamber of Commerce (ICC)

Without question, the ICC is the primary, non-governmental, international organization, as it relates
to the subject of trade facilitation. The ICC is the only authoritative body, which speaks on behalf
of businesses in 130 countries. The ICC has thousands of members. The majority of members are
small to medium-sized enterprises and most of the enterprises are not from OECD countries.

As previously outlined, the ICC has pursued the concept of customs simplification and
harmonization since the early 1920's. The ICC also promotes harmonized business practices
through a variety of commission's instruments:

• Commission on Banking Techniques and Practices

• the Transport Commissions

• Commission on International Commercial Practices

• the Standing Committee on Extortion and Bribery

• ICC Incoterms: standard trade terms and definitions for use in international

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contracts.

• ICC, in conjunction with the WCO, administers the ATA Carnet System re the
temporary entry of goods.

• UNCTAD/ICC Rules for Multimodal Transport Documents

• UCP500/Uniform Customs and Practice for Documentary Credits: outlines

international practice for the payment of imports and exports.

• ICC Model Distributorship Contract: uniform contractual rules for distributor

agreements.

The ICC enjoys observer status at the WCO and provides specialized input for the following WCO
activities:

• WCO work on valuation. In addition to its work on the impact of customs duties on
trade in intellectual property and services, the Committee will continue to provide
ICC views to the WCO Technical Committee on Customs Valuation.

• WCO work on rules of origin. This on-going work on non-preferential rules is of

great interest to members. The Committee will endeavour to provide timely
information to interested members, about upcoming WCO work. The Committee
limits its input to the WCO, to non-sectoral issues on which there is ICC consensus.

• WCO work on classification and the Harmonized Tariff System (HTS). The ICC
will monitor this area of growing importance to members, for example, the recent
concerns about reclassifications. The ICC gives serious attention to WTO plans to
review the HTS. ICC comments will be limited to non-sectoral matters on which
there is ICC consensus.

Customs reform and the standardization of customs procedures worldwide were identified as
priority issues for the ICC in 1996. After reviewing "best practices" in this area, the ICC issued the
ICC International Customs Guidelines, wherein 60 guidelines are outlined in booklet format.
The guidelines relate to a wide variety of trade facilitation matters including: the reduction of paper
burden and the increased use of electronic commerce; the introduction of risk assessment
techniques, (i.e., pre clearance and post-clearance audits) and professional training for customs
employees.

The ICC was instrumental in having the issue of trade facilitation introduced at the Singapore
Ministerial Conference. The WTO ministers, in their Singapore Declaration of December 13th,
1996, agreed to direct the Council for Trade and Goods to draw on the work of other relevant
international organizations, on the simplification of trade procedures in order to assess the scope of
WTO rules in this area. In light of these ministerial instructions, the ICC encouraged the WTO to:

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• give focus to the WTO's mandate on the simplification of trade procedures by

concentrating on customs modernization as an essential complement to current
WTO work on customs valuation, non-preferential rules of origin and pre-shipment
inspection;

• work with the WCO to monitor progress in customs modernization and provide the
necessary political support to ensure that the revision of the Kyoto Convention
underway, results in a comprehensive set of rules for ensuring high standards for
customs procedures and practices, in the form of a binding, enforceable and truly
multilateral agreement;

• make recommendations to ensure that the highest possible number of WTO member
governments adhere to a revised and strengthened Kyoto Convention, in the context
of the further set of multilateral trade negotiations provided for in the Uruguay
Round agreements and are due to begin before the end of the decade.

• establish a WTO working group on customs modernization to:

° analyze the impact of customs-related barriers to trade on WTO

commitments;

° examine the steps that can be taken under current WTO rules, e.g., customs
transparency obligations under article X of the General Agreement on Tariffs
and Trade, to reduce customs-related barriers to trade; and,

° consult closely with representatives of business in this program.

7.0 Electronic Commerce

Throughout the concept and practice of trade facilitation, there is one dominant and ever-present
thread: electronic commerce. Electronic commerce can simplify, clarify and harmonize market
access techniques. Electronic commerce can be a means to address the issue of Customs integrity.
Above all, electronic commerce represents an opportunity to modernize existing procedures, rather
than only transferring existing, paper-based procedures, to an electronic format.

The following outlines some of the major electronic commerce activities as they relate to the
subject of trade facilitation.

7.1 OECD

The OECD has performed many studies on the issue of electronic commerce. Of particular interest
to the students of trade facilitation was the OECD Roundtable held on September 9th on
"Simplifying Customs Clearance Procedures." Revenue Canada made a presentation at this
Roundtable concerning their Courier/Low Value Shipment Program. The OECD Work on
Electronic Commerce reports that:

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The Trade Directorate (ECH) is following with interest work done in other
Directorates, e.g., Declaration on Transborder Data Flows, Guidelines for
Cryptography Policies, Consumer Protection, etc. It has an important
contribution to make to other ongoing work such as cross border trade in
telecommunications infrastructures and equipment, and related services, as
well as trade efforts of related government regulations and product standards
or their changes and international issues of encryption, areas where lack of
harmonization can significantly distort trade, including electronic commerce.
Other issues that may be taken up as they become relevant include
international market access and openness, and links to national trade policies.
The Trade Directorate may want to report on the necessity of international
negotiations and agreements. It will want to provide input in current
activities in the field of border tariffs and customs procedures.

The Trade Committee has shown interest in an elaboration of possible work

on electronic commerce. The Trade Directorate will prepare an extended
outline for discussion in the working Party and the Trade Committee in the
fall of 1997. The outline will propose an analysis of the consequences of
electronic commerce from a transaction point of view, rather than from a
technological point of view. This analysis would be a starting point- the
Committee will set the exact scope of its work - for a review of what
electronic commerce means in practical and operational terms for
international trade and the multilateral trading systems. The outline will also
cover the consequences of unequal access to electronic commerce.

Finally, Canada hosted the OECD Ministerial on Electronic Commerce in Ottawa, October 8-9,
1998. The OECD Work on Electronic Commerce stated that:

OECD government officials hope that by the October conference, business

and government will reach on consensus on a number of guiding principles
in order to produce a framework for electronic commerce policies at the
OECD Ministerial meeting.

7.2. ICC

The ICC has established an Electronic Commerce Project to develop harmonized guidelines based
on best global practice for self-regulatory electronic commerce. The ECP is composed of three
working parties that would like to form closer links with the WCO:

• a working party on E-terms that was developing a proposal for a new ICC service to
provide a global database of legal terms used in electronic commerce;

• a working party on information security that had recently completed a General

Usage in Internationally Digitally Ensured Commerce (GUIDEC); and,

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• a working party on electronic trade practices that was developing rules for electronic
trade transactions.

7.3 CEFACT

CEFACT has been attempting to create an international trade transaction model. The primary
objective of this pursuit is to facilitate the use of EDIFACT in international trade. Detailed models
expedite the use of electronic messages, and for this reason the modeling activities of CEFACT are
being developed within the Business and Information Modeling guidelines established by the
UN/EDIFACT Joint Rapporteurs Team.

7.4 UNCTAD's Automated System for Customs Data and Management

(ASYCUDA)

ASYCUDA, a customs software program, is the largest technical assistance project in UNCTAD.
ASYCUDA simplifies and automates customs functions in over 70 emerging economies. In most
applications, ASYCUDA has resulted in higher revenues, faster clearance of cargo and improved
data collection and dissemination.

8.0 Non-Tariff Measures (NTMs)

The earlier mentioned study, The Impact of Trade Liberalization in APEC, makes several
references to the importance of addressing NTMs:

In addition to tariff reduction, all members will individually address NTMs

by way of review, reduction, or elimination of non-WTO-consistent
measures. The action plans, together with Osaka Initial Actions, indicate that
eight APEC members outline specific steps for time-bound actions to reduce
NTMs. Moreover, MAPA includes several important items in services trade
liberalization: in particular, the explicit statement of support for the WTO
negotiating processes on services trade liberalization, and the adoption of
sets of APEC principles for the development of open markets, by the Bogor
timeframe, for energy services and telecommunications.

The objective of trade facilitation measures is to reduce the cost of doing

business by liberalizing trade, eliminating unnecessary administrative
burdens, and bringing down technical barriers to trade through the use of
new technologies and/or cost-effective processes. More specifically, these
measures include: (a) the move toward a paperless and harmonizing customs
system; and (b) conclusion of a mutual recognition arrangement on
conformity assessment for standards and alignment with international
standards.

For customs procedures, APEC will work to reduce transaction costs arising
from complex administrative requirements with the intention of moving to a

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paperless system, and to operate simplified, harmonized, efficient, and

transparent customs rules and procedures throughout the region.

In addition, in MAPA, members agreed to reduce the cost of compliance

with diverse standards and technical regulations imposed by 18 APEC
economies. Standards are necessary to safeguard consumer health and safety
and to protect the environment. Nonetheless, these diverse standards and
technical regulations along with the corresponding testing procedures for
compliance can effectively limit market access by preventing economies of
scale, raising production and/or testing costs and increasing the possibility of
products being rejected at the customs border of the importing economy.
Trade facilitation may also include the measures to facilitate the mobility of
business people, and those related to rules of origin.

However, the following quotation from The Impact of Trade Liberalization in APEC, illustrates
that not all NTMs were included in their impact analysis:

Evaluating non-tariff measures is a daunting task. MAPA measures include

the reduction of NTMs related to quotas and other quantitative restrictions,
export controls, and licensing. As most of the products covered under the
measures appear to be nonagricultural products, newly constructed
protection data sets would be required to make quantitative assessments of
the effect of the measures. Under the present stage of the development of the
database, it was impossible for the project teams to construct such a
database, and the project could not accommodate a simulation of the effects.
In this way, too, the study probably underestimates the impacts of full
implementation of MAPA.

It is clear from the above quotation that the recognized and calculated benefits derived from trade
facilitation (US$45 billion) does not include the additional benefits derived from addressing
NTMs. Liberalizing NTMs is significant, exactly because, it encourages the more efficient and
effective use of public and private resources. These are non-controversial benefits to examing
NTMs.

The OECD 1997 Update on Indicators of Tariff and Non-Tariff Trade Barriers (NTB) states that:

the identification of the sectors where NTBs exist and the type of instrument
used are essential first steps in this monitoring process.

The OECD, 1997 NTB Update describes the UNCTAD Coding System of Trade Control Measures.
This is a system which categorizes tariff and non-tariff measures into 100 different codes. The
related UNCTAD Database retains data on tariff and non-tariff measures, based on the Harmonized
System (HS) nomenclature.

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This UNCTAD system could be used as a rational basis for identifying NTMs for purposes of trade
facilitation. Addressing the issue of NTMs for trade facilitation purposes also features some
additional side benefits:

• Strengthening the capacity of emerging economies to critically monitor the MTN

activities of major trading partners, “the net welfare loss from … highly pervasive
NTBs in certain sectors is potentially high, because the distorting effect they can
have on trade flows, international resource allocation and productive (internal)
efficiency. Whereas in the case of a relatively small country, those welfare losses are
confined largely to the country imposing the protective measures, … NTBs
employed by major trades, notably the United States, European Union and Japan,
can also have serious repercussions on their trading partners, especially developing
countries (OECD, Indicators of Tariff and Non-Tariff Trade Barriers, Update
1997).”

• Increasing the ability of emerging economies to prepare justifiable domestic policies

consistent with WTO.

• Assisting emerging economies in preparing for the so-called “new” trade agenda
which features the convergence of international trade and domestic policies.

• Building negotiating capacity of emerging economies in the area of NTMs.

Currently, these are a variety of NTM negotiating techniques in use throughout the
international trading community:

° NTMs removed with listed exceptions;

° NTMs negotiated on an item by item basis on the “request and offer”
methodology;
° “tariffication” as found in the conversion of agricultural quotas during the
Uruguay Round;
° specific agreements containing clear guidelines for selected NTMs as found
in the Uruguay Round (rules of origin, import licensing, pre-shipment
inspection, etc.).

SECTION THREE: POLICY IMPLICATIONS AND PRACTICAL IMPLICATIONS

9.0 Trade Facilitation: Why Bother?

It is fair to ask the question: “Is trade facilitation only appropriate for economies that do not rely, to
any significant degree, on customs duty for revenue?” This may be a fair question, but it is not
necessarily easy to answer. The Economist recently published A Survey of World Trade (October
3rd-9th, 1998). One section of the survey specifically addresses the issue of tariffs and the
difficulties of accurately measuring tariff levels:

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In 1996, estimates he OECD, Canada’s import-weighted average tariff was

5.79%, it’s simple average was 9.29% and it’s production-weighted average
was 12.1%…. All of this suggests that the WTO still has plenty of tariff
cutting to do.

It is true that even as tariffs are being reduced they still represent trade obstacles. Furthermore, it
has been demonstrated that sometimes trade liberalization may actually increase tariff revenues, in
low-income countries, even though tariff rates have been lowered.

It is, however, also clear that OECD countries do not rely on duty for revenue, and that most non-
OECD countries do and will for the foreseeable future. Therefore, is trade facilitation a valid policy
option for all or only a luxury for OECD countries? The short answer is that developing countries
should also investigate trade facilitation options. Why? Because it has been estimated that customs
and related import formalities represent 5% to 10% of total merchandise trade. In a globalizing and
increasingly competitive environment where both the private and the public sectors are searching
for ways to reduce costs, no customs authority can afford not to examine ways to cut their cost
impact on traders and investors. Trade facilitation can provide savings to governments and traders
alike.

9.1 The Best Reason to Facilitate Trade: It Is Good for the Economy

Trade facilitation, which generally pertains to the standardization and modernization of customs
techniques, has been identified as a very cost-effective way to reduce administrative non-tariff
measures associated with importing and exporting goods. The APEC study, “The Impact of Trade
Liberalization in APEC,” found that:

The impact of trade facilitation, such as streamlining of customs

procedures, exceeds that of trade liberalization, i.e., tariff reduction.
Trade facilitation will create a gain of about.26 percent of real GDP to APEC
(or about US$45 billion), while the gain from trade liberalization will be 0.14
percent of real GDP (about US$23 billion). This outcome reflects the focus
placed on facilitation actions by APEC.

While most of the MAP measures are unilateral and non-discriminatory, the
gains to APEC, amounting to about US$69 billion, will be much larger than
those to non-APEC members, only US$2 billion. Free rider gains flowing
from APEC trade liberalization and facilitation are small and, therefore,
should not be a concern.

It is remarkable that these figures totaling US$69 billion, represent roughly the equivalent of the
official global development assistance funding in 1995.

9.2 Trade Facilitation Challenges

The benefits of trade facilitation are beyond dispute. Trade facilitation programs are being initiated
around the world. This is the good news. In this context, the more interesting and more important

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question becomes: what are and where are the obstacles to trade facilitation? Some of these
obstacles were identified at WTO Symposium on Trade Facilitation.

“The main concerns traders voiced during the Symposium could be summarized under five
headings:

• Excessive documentation requirements;

• Lack of automation and insignificant use of information-technology;

• Lack of transparency; unclear and unspecified import and export requirements;

• Inadequate procedures; especially a lack of audit-based controls and risk-assessment

techniques;

• Lack of modernization of, and cooperation among, customs and other governmental
agencies, which thwarts efforts to deal effectively with increased trade flows.

Other obstacles include:

• the need to amend trade and customs related legislation;

• the need to implement improved management techniques and to re-organize
management structures in order to manage the changes required by trade facilitation.

Other serious challenges related to trade facilitation are reported in The Impact of Trade
Liberalization in APEC:

The static benefits of trade liberalization and facilitation are essentially the
efficiency gains obtained from reallocation of labor and capital, which
usually involves temporary, though occasionally high, adjustment costs.
Indeed, the expected impacts yielded by the model may not be fully
realized if this adjustment process does not work well. Deregulation and
competition policies are therefore important to ensure that market
mechanisms function well. Governments can also play a crucial role in
reducing the costs of job transition through, for example, provision of
training and education.

This quote illustrates that trade facilitation is a valid policy objective, but for facilitation to be
effective it has to be executed properly, and closely co-ordinated with other policy priorities (i.e.,
transportation, competition). Furthermore, this analysis makes it clear that trade facilitation is
costly: a one-time expense for long term benefits, but still expensive.

Notwithstanding the importance of these obstacles, possibly the single most significant challenge to
be found in the trade facilitation agenda is that trade facilitation itself is predicated upon trade
reform in general and customs reform in particular. As previously outlined, computerization is a
critical element in the trade facilitation process, however, it is not sufficient to computerize

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outdated procedures and requirements. In 1995, UNCTAD performed an in-depth study of their
widely used Automated System for Customs Data (ASYCUDA). Under the heading, “Lessons
Learned,” the UNCTAD review stated:

Reform in customs administration. ASYCUDA cannot be successfully

implemented without first undertaking a major reform of customs
procedures. This may include elimination of unnecessary processing steps,
simplification and elimination of certain forms, streamlining of the document
processing flow within the office, and adoption of international codes.

10.0 Meeting the Trade Facilitation Challenge

Recognizing that there are obstacles and challenges to be encountered on the path towards
comprehensive trade facilitation is not to say that the task is insurmountable. In the first instance,
given that trade facilitation is primarily concerned with the standardization and modernization of
customs procedures, the process of reform can be realized against internationally based standards,
such as the newly emerging Kyoto Convention, that are largely based in multilateral obligations
and agreements. This fact creates a common base and a common language for all facilitation
initiatives unlike other reform policy matters such as taxation. Effective customs reform in turn
requires a needs analysis:

Needs analysis. A careful analysis of actual needs and the situation of

individual countries are a prerequisite. Yesterday’s assumptions, however
valid then, may not be a guide to tomorrow, nor are assumptions that prove
to be valid guides to action in one country or region automatically applicable
in others. Accordingly, it is important to guard against wrong assumptions
through testing their validity as each project develops (UNCTAD, In-Depth
Study on UNCTAD’s ASYCUDA Programs, December 4th, 1995).

The WCO’s Customs Reform and Modernization program provides many of the diagnostic tools
necessary to perform a Customs-related needs analysis. It has been suggested that the issue of needs
analysis still warrants further standardization and dissemination, as many parties require assistance
to perform a trade-related needs analysis:

While it is expected that the needs assessment will be carried out by the
least-developed countries themselves in order to ensure that the process
overall is properly demand-driven, facilities for assistance to the
governments of individual least-developed countries in completing their
needs assessment can be made available upon request by the six
international organizations most closely involved in organizing the High-
Level Meeting (WTO Check-List for Conducting Trade-Related Technical
Cooperation Needs Assessment).

Indicate what technical assistance you will require in order to identify your
trade related technical assistance needs? Indicate what technical assistance
will be needed to better access and efficiently utilize the technical assistance

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provided (IDB, Technical Cooperation Needs Assessment for Smaller

Economies, Draft, 1998)?

Some considerations in standardizing and rationalizing customs reform needs analysis include:

• each element of the needs analysis (i.e., computerization, appeals, customs integrity,
etc.) should be capable of being modularized to fit the specialized and individualized
needs of various customs administrations;

• as discussed, many of the dimensions of customs are now based in international law
(i.e., value for duty, goods in transit, tariff classification and non-preferential rules
of origin, etc.). Naturally, a standardized customs reform needs analysis will be
based upon these multilateral norms whenever possible;

10.1 Policy Implications: A Recap

The object of trade facilitation is clear: streamlined and modernized customs procedures. The
process of achieving this objective can be rather complicated. The following recap, therefore, is
provided to outline a personal perspective of policy measures and best practices.

a) Protection of customs revenue is paramount. Facilitation measures, such as the expedited

release of goods imported by parties with "clean" customs records, have to be counterbalanced
by compliance mechanisms (i.e., penalties). Protection of customs revenue implies addressing
the issue of customs integrity in a direct manner.

b) There are a great number of trade facilitation initiatives occurring around the world. This can
sometimes lead to facilitation confusion. The Kyoto convention, including draft revisions,
provides the most comprehensive and convenient expression of trade facilitation
objectives, mechanisms and best practices.

c) Trade facilitation should be not be perceived solely as a risk to customs revenues, but primarily
as a way to reduce the cost of operating customs regimes, while at the same time attracting
importers and investment.

d) The current trade policy features a great deal of potential and uncertainty. Around the world
regional groupings are actively reviewing and considering dozens of free trade agreements and
preferential trading practices (i.e., APEC, FTAA, Lome, etc.). At the same time, there is much
discussion about a new WTO round. As interesting and exciting as these projects may be,
their completion is far from guaranteed.

In contrast to this uncertainty, are the undeniable benefits of properly executed trade
facilitation, which feature very few "free rider" gains. In this sense, trade facilitation
represents a higher and more certain rate of return on investment of trade policy time and
energy. Please consider the following quotation concerning the recent APEC Summit, from the
Financial Post, Thursday, November 19, 1998:

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… there was backtracking on tariff-cut commitments…. Nonetheless, it would be

premature to write off the APEC process. While it failed to move ahead at this
summit on a trade liberalization deal, it still has a useful trade-expansion role to play
in other ways. These include adopting a common APEC customs code…. They are
the kind of trade facilitation measures that APEC officials should concentrate on
now, says Michael Hart, senior associate of the Centre for Trade Policy and Law at
Carleton University, Ottawa, and a former senior federal government trade
negotiator.

Furthermore, trade facilitation represents the common foundation of other trade policy
initiatives, such as bilateral and/or multilateral agreements, should they be completed. Trade
facilitation is often a requirement of free trade agreements and in any case enhances a country's
abilities to exploit the opportunities offered by free trade agreements. Finally, pursuing trade
facilitation in and of itself, helps train and prepare trade personnel for trade negotiations (i.e.,
rules of origin).

e) As outlined earlier, it makes no sense to simply transform outdated and unnecessary customs
procedures from a paper format to an electronic format. This is to say, that trade facilitation
necessarily requires customs reform. Reform implies modernizing and streamlining customs
programs to an international standard. These standards are primarily found within WTO
obligations and the Kyoto Convention. Meeting one's WTO obligations and pursuing the
objectives of trade facilitation are one and the same task. This fact emphasizes the
additional trade policy efficiencies by adopting the trade facilitation agenda.

f) Reforming customs to an international standard requires an in-depth needs analysis of current

practices and procedures. Many diagnostic tools to perform a customs reform needs analysis
already exist:

• UNCTAD's ASYCUDA Program

• The WCO's Custom's Reform and Modernization Program
• private sector specialists
• a combination of the above

Most regional development banks and international financial institutions provide funding
for customs reform needs analysis. This funding can include the financing of a needs
analysis demonstrating which capabilities are required to actually perform a customs reform
needs analysis.

g) Given that trade facilitation and customs reform are valid policy objectives, what are sound
policy parameters in this regard? In my opinion, the most sophisticated advice can be found in
a speech by Vito Tanzi, Director, Fiscal Affairs Department, IMF, before the Customs
Co-operation Council:

In responding to the challenge, what are the basic elements of reform and the
characteristics of a future administration? Before addressing these issues, let us

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review for a moment the major problems that we have identified through our
technical assistance work. The six most common areas are:

Out-of-date customs procedures which have not kept pace with developments in
transportation and technology.

Inadequate legislation that makes it difficult to introduce the changes required to

support new ways of doing business. However, more often than not, administrations
use excuses related to legislation to delay or fail to adopt all new systems or
procedures, instead of working to change the legislation.

A belief that computerization is the answer to all problems. Little thought is given
to understanding the role of computers, the need to simplify procedures, and the use
of information produced by computerization to effectively control operations.

Little attention to the organization and staffing needs of a modern administration.

Many administrations accept passively the civil service rules including the controls
on organization structure, job classification, and salary levels instead of striving for
control of their own organization.

A lack of understanding of the need for co-ordination and co-operation between

tax and customs administrations. In an era when most countries have a value added
tax, there is more reason than ever before for close co-operation between these
administrations.

High levels of corruption continue to plague many administrations causing loss of

tax revenue and economic costs of countries.

How then do we address these problems?

Customs administrations must be technology based leading eventually to paperless

processing systems. This will include electronic reporting of import and export
transactions through electronic data interchange (EDI); selective checking based on
risk assessment techniques supported by extensive computerized data bases;
periodic declaration and payment; and, increased application of post-release
controls. Is this achievable? All of these procedures are already operational in
countries represented in this room. For countries where the infrastructure may be
less developed, difficulties will be encountered. But reflect for a moment, virtually
every country represented here can think of industries where very sophisticated
technology is already operational, for example, in airlines and banks. Therefore, it is
not unrealistic to expect this technology to be applied in the customs environment.

Greater reliance on post-release audit. Experience shows that this yields better
results than traditional controls. In one of our recent technical assistance missions,
we found that, with a staff of 22, the administration had issued assessments totaling
US$70 million over a five year period compared to virtually no results from more

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than 350,000 physical inspections of containers employing hundreds of staff over

the same period. Little thought had been given, in this case, to reallocating staff
from the unproductive physical inspection activities to post release audit. Of course,
countries with a well developed administration and a more sophisticated trading
community will be able to move faster to a post-release audit system of control than
counties where the administration has inadequate human resources or where
bookkeeping standards in the trading community are low.

A closer working relationship with the tax department and the exchange of
information and data on foreign trade activities of importers and exporters can help
improve revenue assessment. The tax department needs to know the amounts of
VAT paid on imports and, in the case of exports, that the goods have actually left the
country. In some cases, there are benefits to joint audits by Customs and the tax
department, particularly for VAT administrations.

Service orientation and goods relations with the trade community improves
compliance. It can be achieved through clear, transparent procedures; regular
meetings between Customs, importers, brokers, freight forwarders, and port and
airport authorities; joint training sessions/seminars; implementation of services
offices; and distribution of information. More often than not, in the countries in
which we work, Customs administrations do not provide sufficient information to
the trade community.

Professionalism and a high level of integrity are essential requirements of any

Customs administration. Both can be more easily developed through increased
autonomy. Increased autonomy means the ability to control budgets and implement
changes as well as accountability for performance and the requirement to seek out
and remove corrupt officials. You are responsible for the operation, image, and
integrity of your organization.

How are we going to get there?

The Customs administration of the future must be totally flexible and able to
respond quickly to the needs of government. It is not enough to introduce the most
sophisticated technology as this alone will not guarantee success. For the
administration to function well, all its components must be in order, that is, its
operational procedures; organizational structure and management systems, including
information system, supervisory system and internal control; human and financial
resources; and the legislative basis.

Redefine the Customs operational role and procedures comprehensively. It is time

for many Customs administrations to rethink the way they are doing their business.
New control strategies need to be introduced that allow for minimal interference
with trade, yet ensure proper enforcement of fiscal and trade laws. Experience has
shown that importers are more willing to pay what is due if procedures are efficient
and Customs has a service-oriented attitude.

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Adopt innovative and flexible management systems. This involves decentralization

of responsibilities and decision taking and more autonomy and accountability for the
administrators in the field. Headquarters should concentrate on central management
functions, including administrative policy; strategic planning; review of the
operational systems; analysis of performance; and internal audit.

Strive for autonomy over the management of resources. Decisions related to

human, physical and financial resources should be the responsibility of the
administration combined, of course, with greater accountability of performance
evaluation.

Privatize functions that can be effectively performed at lower cost by the private
sector. Laboratory service, duty and tax payment at the banks, computer systems
development and/or operations are all operations that could and perhaps should be
performed by the private sector. Warehouses should not, of course, belong to or be
operated by Customs, but this still happens in some countries.

Invest in your human resources. Traditional approaches to recruiting and training

will have to change. Methods that rely mainly on recruitment at lower levels and
"learning on the job" have to change if the administration is to keep pace with
developments. If Customs administrations are going to rely, in the future, on
technology and audit based systems, different skills are going to be required.

Establish a firm management control, in particular as it relates to integrity.

Integrity in an organization requires a clear, well articulated code of conduct, the
willingness to take disciplinary action and effective internal control systems.

10.2 Certain Practical Considerations: A Recap

Trade facilitation involves a wide variety of customs and related measures. The following provides
a brief outline of practical considerations and pitfalls that policy makers may want to keep in mind
while pursuing a trade policy agenda.

(a) Customs Valuation. Customs valuation under the GATT Values Code (GVC) has recently
become a contentious issue with emerging economies. On the one hand, it is a difficult and
complex undertaking to implement the GVC, while on the other hand, traders are
demanding an international standard for valuation purposes. It is clear that standardized and
reliable valuation methodologies have practically become a prerequisite to increased trade
and investment. It seems, however, that the WTO's five-year implementation deadline is
unreasonable. This is especially true in light of the fact that even Canada, a developed
country with ample resources, took five years to complete implementation of the GVC.

(b) Problems with Electronic Customs Solutions. As previously outlined, trade facilitation
must be technology-based. Electronic solutions to trade facilitation are, in turn, based on
modernized and internationalized customs procedures. These issues are beyond dispute,

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despite a note of caution. Many customs regimes in developed countries are experiencing
serious difficulties with their electronic customs programs. Recently, the United States
customs program crashed for an entire day. Canadian customs brokers have complained to
Revenue Canada that it is often faster to clear goods on the paper-based regime, due to
difficulties with their electronic customs programs. Admittedly, some of these problems
may be due to Y2K considerations and complications, but there is no question that the
process of transferring to technology-based regimes includes complications and difficulties.
Therefore, modernized paper-based solutions should not be immediately abandoned.

(c) Post-Audit Problems. Post-release audits allow the facilitated entry of goods and often
result in higher revenues for national customs authorities. There are, however, certain issues
that must be considered while implementing a scheme of post-release control.

• Post entry review is normally based on product and importer profiles. Without
proper statistical information competent profiles can not be created.
• Some types of goods inflict damage once they have entered the country and the
marketplace (i.e., prohibited goods such as dangerous weapons, pornography and
mislabeled commercial products). These goods must be inspected and stopped at the
border in pre-entry physical inspections.
• The importing communities in certain developed economies are becoming quite
concerned about the implications of post-entry audits (i.e., penalties, retroactive
reviews of past importations). It seems that the private sector does not always fully
appreciate and understand the implications of post-entry audits, notwithstanding
their general support for the concept of post-entry audits. It is, therefore,
recommended that post-entry review not be implemented without the full
cooperation of the private sector. The private sector must be extensively consulted
and involved in facilitating post-entry audits (i.e., record keeping, due diligence,
reasonable care).

The following is a tentative summary of best practices concerning post-importation customs

audits recently released by the International Chamber of Commerce.

1. Post-importation customs audit should be performed as follows:

a) on the basis of a written auditing order by a central customs authority (other
than the local customs office of importation) which:
• defines the subject matter of the audit and the period to be audited;
• outlines the obligations and rights of the audited importer; and
• is subject to legal remedies.
b) within a limited period after importation under the statue of limitation;
c) as soon as possible after importation;
d) by auditors specially trained in customs law and commercial practice; and
e) at a time agreed upon, taking into account the availability of importer's
personnel.
2. Post-importation customs audit should be a neutral objective instrument which:

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a) should not discriminate between importers (e.g., in terms of size of company,

nationality of owners or shareholders, nature or origin of the imported goods)
and;
b) is not used:
• as a non-tariff barrier (to delay or impede customs treatment and release of
goods);
• as a tool to fight dumping and state subsidies outside a formal anti-
dumping or anti-subsidy proceeding under the existing WTO/GATT rules;
and;
• as a measure of customs criminal law outside a formal criminal
investigation.
3. As long as no suspicion of a violation of a customs law, based on factual
grounds, exists and no formal criminal investigation has been opened, the audit
should be based on the available commercial documents and data (e.g., import
declarations, contracts, invoices, credit and debit notes, book entries) and the
information freely obtained from the representatives, employees or agents of the
audited company.
4. The customs auditors should not be allowed to:
a) apply unfair and discriminatory methods;
b) undertake measures which are reserved for criminal investigators under
special conditions of national criminal procedural law (e.g., search,
confiscation, formal hearings and arrest);
c) issue by themselves retroactive assessment of import duties;
d) directly contact a foreign supplier or seller without prior consent of the
audited company; and
e) request that the owners or directors of the audited company are available for
the whole time of the audit.
5. The auditors should be obliged to:
a) check all facts including those in favor of the importer (declarant) and to take
into account all information supplied by him;
b) not extend the audit beyond a reasonable time;
c) not interfere in the current business of the audited importer;
d) give the audited importer or authorized person an opportunity to respond to
all relevant findings during the audit;
e) summarize the essential findings in a written audit report; and
f) give a copy of the final audit report to the audited importer or authorized
person before assessments are issued.

(d) Rules of Origin. Of all the areas for which I would like to provide practical assistance,
rules of origin is the area of greatest concern. Under NAFTA, Canada, the United States and
Mexico recently released their origin audit manual, which runs approximately 800 pages
long. Rules of origin have become captive to special interest lobbies, which have developed
a command of the Harmonized System. For example, the rules of origin for apparel, under
NAFTA, took a giant step backward and essentially forbid the use of imported fabrics,
yarns and even some fibers in the manufacture of qualifying apparel. Likewise, NAFTA-

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qualifying, color televisions require the use of North American picture tubes. Rules of
origin also represent a staggering administrative burden to traders within the NAFTA.

Recently, the U.S. Customs Trade Compliance Office recently issued guidelines to
substantiate the country of origin for textiles and textile products. These guidelines require
the exporter to provide production records, in English, a listing of production machinery
used in the manufacture of textile articles, and the number and names of persons employed
in the production of textile articles. There is no better spokesperson for rationalizing rules of
origin, than John P. Simpson, Deputy Assistant Secretary, Regulatory, Tariff and Trade
Enforcement, U.S. Treasury Department. Mr. Simpson recently gave a speech describing
the difficulties with rules of origin and providing his solutions to these problems. It is
significant that Mr. Simpson was actively involved in negotiating the rules of origin in the
FTA and NAFTA, and that he was also responsible for the administration of the rules of
origin under NAFTA in the United States. His comments are provided below.
The administration complexity of the NAFTA may make it unsustainable if we
attempt to go beyond Chile and expand the NAFTA to a hemispheric scale. The
NAFTA's shortcomings result largely from well-intentioned efforts to respond to the
requirements of various groups, without adequate consideration of the consequences
for NAFTAs functioning as an agreement to liberate and stimulate trade. While
some of the NAFTA's flaws can be corrected, a customs union is an inherently
superior arrangement. But it cannot be achieved quickly. In designing a hemispheric
free trade agreement that could serve as a transition to a customs union, the
following objectives should be pursued.

(1) Reduce Red Tape. The final rule implementing the North American Free Trade
Agreement, as it was submitted to the Federal Register, was almost 500 pages,
not including the preamble and analysis of comments received in response to an
earlier public notice in the Federal Register.

A free trade agreement that requires almost 500 pages of rules is, a fortiori, not
an agreement that meets the needs of business, especially small business. As a
result, in 1994 the U.S. Customs Service NAFTA Help Desk received over
21,000 inquires from confused importers and exporters. Many companies have
chosen not to use the NAFTA owing to its complexity.

(2) Eliminate RVC Requirements. The chief cause of red tape and record keeping
requirements in the NAFTA is the so-called regional value content requirement,
which is Byzantine in its complexity. In addition, the NAFTA value content
rules require companies to maintain records that they never kept before, to
require information from suppliers that they never needed to give before and to
provide certifications about the origin and regional content of goods shipped to
customers. Even after the greatest care, companies, their suppliers, and their
customers may all have to undergo a long and arduous audit by any one -- or
even more than one -- of the three governments involved.

(3) Use Simplified Tariff Change Rules of Origin as a Transition. Partly to

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assure national legislatures that the benefits of NAFTA would stay in North
America, but mostly to prevent individual companies in each of the three
countries from jumping into the camp of NAFTA opponents, the tariff shift rules
of origin in Chapter 4 of the NAFTA are gerrymandered to meet the demands of
industry sectors, subsectors, and individual companies. The result is an
unlovely set of rules that reflect commercial and political interests more
than any sort of rational, consistent principle. Moreover, in order to
accommodate all the special needs, the U.S. had to create 392 new tariff
breakouts, which made the tariff schedules even fatter and more prolix. To the
extent it can be done without jeopardizing sacred interests, future agreements
should avoid tariff shift origin rules that go below the 6-digit level at which the
tariff is internationally harmonized. Wherever possible, consideration should be
given to using rules being developed by the WTO for non-preferential use.
Using the WTO rules for a new free trade agreement will produce the sensible
result that a product's country of origin for all purposes, preferential and non-
preferential, will be the same. [my emphasis added]

(4) Create Sectoral Customs Unions. Better yet, begin to move away from rules of
origin altogether. If by the year 2004, when Uruguay Round tariff reductions are
complete, the duty difference among all parties to an Americas free trade
agreement is less than, say 2.5 percent, rules of origin can be dropped to create
what is in effect a sectoral customs unions, with a common rate of duty
harmonized at the lowest level in effect in any of the parties. As long as each
member of an Agreement undertakes to collect the common rate of duty and not
to refund it, an article imported from outside the free trade area can be allowed
to move freely throughout the free trade area, for further manufacturing or for
sale, with all parties secure in the knowledge that it was subjected to the same
duty that would have been imposed had it initially entered their own country.
This is an important step in paving the way to a customs union.

(5) Standardize and Share Electronic Export and Entry Data. Historically,
governments have treated international transactions as if they don't begin until
shipments of goods actually cross the border into their territory. The trade
community, on the other hand, sees these transactions as a whole: one buyer, one
seller, one sale. Key facts about a transaction don't change because goods cross
an invisible political boundary. The cost of redundant reporting of information,
and of reporting information that is different only in inconsequential ways, turns
out to be more substantial than previously realized. We can reduce this cost,
which is borne by both governments and the trade community, by harmonizing
the data required for releasing both exports and imports, and by allowing all
information to be transmitted electronically.

(6) Remove Transportation Barriers. Transportation inefficiencies imposed by

government regulations and restrictions impose a heavy cost burden on
international trade. Cargoes are required to be unloaded from one carrier and
transferred to another to complete what should be a single, seamless trip; carriers

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from one county unloading goods in another country are required to make the
return trip empty; carriers with cargo to unload at two or more ports in a foreign
country are prohibited from picking up an additional cargo to transport between
these ports, and thus operate at partial capacity. Despite the costs in terms of
both money and time, these antiquated transportation restrictions remain largely
untouched by free trade agreements.

Don't Use Standards as Trade Barriers. Elimination of customs duties in a free

trade agreement won't mean much to manufacturers if they have to manufacture or
package products to different specifications for each market to which they ship.
Governments create standards for purposes that are ostensibly wholesome: to protect
the health and safety of our citizens, and to protect our agriculture from plant and
animal diseases. A problem arises because governments are not sufficiently mindful
of the cost to business of seemingly minor differences in standards from one country
to another. The differences are usually groundless. There is a large opportunity for
harmonization of standards. Governments should put aside the temptation to defend
standards that protect favored industries, and seize that opportunity.

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APPENDIX
Recommendation I
Customs authorities should, in consultation with other interested parties, both governmental and
non-governmental, clearly define their corporate objectives, and develop and publish an overall
Strategic Plan, which sets out the manner in which it intends to achieve these objectives.

Recommendation 2
Customs authorities should urgently examine their existing practices, and institute a program of
reform for those procedures that are identified as inefficient or redundant. Reference should be
made to existing International Conventions on Custom’s process simplification and harmonization
(i.e., the Kyoto Convention). This should be undertaken with national trade and transport interests,
to ensure full co-ordination of carrier, port and Customs controls.

Recommendation 3
Customs authorities should make maximum use of information technology to assist them in the
efficient performance of their duties. Computer applications for the Customs processing of
commercial and financial transactions should be developed, taking into consideration the
experiences of all countries. Consideration should be given, where applicable, to implementing
UNCTAD 's program for Customs computerization and reform, the Automated System for Customs
Data (ASYCUDA). Computer interfaces, aimed at using UN/EDIFACT data interchange standards,
which allow for the electronic submission of manifests, goods declarations, etc., should be
developed and made available to traders.

Recommendation 4
Customs authorities should ensure the effective use of scarce manpower resources by using risk
assessment, profiling, selectivity and targeting techniques to identify high risk consignments for
physical examination. The proportion of consignments to be physically examined by Customs
should be kept to a minimum, consistent with the accomplishment of control objectives.

Recommendation 5
Customs authorities should take steps to make available facilities for pre-arrival processing of
transactions, which can deliver significant trade facilitation benefits, and, with appropriate
safeguards, does not compromise in any way the control objectives of Customs. The electronic
submission of pre-arrival cargo data further facilitates this process.

Recommendation 6
Customs authorities should examine closely the possibility of speeding up, as much as possible, the
process of releasing goods based on a minimum of essential information, however, they should
ensure that all information necessary for proper revenue collection, accounting and precise
statistical reporting is communicated to them.

Recommendation 7
Governments should rationalize the cargo clearance process, which frequently requires the
intervention of several government agencies in addition to Customs, through coordinated
interventions by the agencies concerned, or by investing responsibility for all cargo clearance
activities in one single authority, i.e., Customs.

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Recommendation 8
Customs authorities should simplify procedures for determining Customs value, which can cause
significant delays in the clearance of import consignments. This can be achieved using the
valuation method prescribed in the GATT Valuation Agreement, as administered by the WCO,
which is administratively less complex than other methods currently in use in some countries.

Recommendation 9
Governments should endeavour, where possible, and when high Customs tariffs are developed for
national revenue, to broaden their tax base so that Customs tariffs may be moderated. Excessively
high Customs tariffs encourage evasion through a variety of fraudulent practices and make
enforcement more difficult.

Recommendation 10
Governments should take steps to foster a cooperative rather than a confrontational approach to
Customs operations. The Memorandum of Understanding (MOU) program of the WCO should be
used as a vehicle for greater cooperation between Customs authorities and commercial operators.

Recommendation 11
Governments should take steps to ensure the highest level of integrity and professional standards
within their Customs service. The measures identified by the WCO in the Arusha Declaration on
Integrity in Customs should be implemented. Effective measures are also required to discourage
low standards of integrity in the trading community.

Recommendation 12
Governments should institute reform programs aimed at enhancing the efficiency and effectiveness
of their Customs services, thereby avoiding, as much as possible, for example, the need to use the
services of pre-shipment inspection agencies to carry out Customs-related activities. While recourse
to such services might be necessary in certain circumstances, it should be regarded as an interim
measure and conducted in conformity with the agreement on pre-shipment inspection (PSI),
annexed to the Marrakesh agreement.

Recommendation 13
Governments should consider, as appropriate, setting minimum standards for shipping agents,
freight forwarders and Customs clearing agents/brokers or encourage these professions to set their
own standards and monitor performance, since the factors causing delays in the release of goods
include inefficiency and lack of professionalism on the part of some members of these professions.

Recommendation 14
Customs authorities should ensure maximum transparency and fluidity of their operations by
providing the trading community with the necessary information on Customs formalities and
requirements. Such information should be kept up to date and should be easily accessible.

Recommendation 15
Customs authorities should enhance their controls and facilitate import clearance by considering,
on a bilateral (or multilateral) basis, the routine electronic transmission of export data from the

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country of export to the Customs authority of the importing country, in accordance with the laws
and regulations concerning disclosure of information.

Recommendation 16
Customs authorities should ensure, in countries where foreign trade statistics are based on Customs
data, the reliability of the raw statistical data, as well as their timely transmission to the institutions
responsible for compilation of the trade statistics.

Recommendation 17
Governments should ensure that Customs services are adequately resourced to perform their
designated role efficiency, effectively and to a high standard of professional ethics. A Customs
service starved of resources will certainly be an obstacle to trade

Recommendation 18
Customs authorities should offer training (including through scholarships) especially directed to
Customs professionals in developing countries, for training nationally or abroad, in cooperation
with the WCO and/or UNCTAD. This training should cover the requirements of international
Customs conventions and regional integration, with emphasis on operational aspects.

Recommendation 19
Governments should ensure, through their representatives on the World Customs Organization 's
ruling body, that the WCO is adequately resourced to carry out the urgent technical assistance tasks
which it is called upon to do. The World Customs Organization, as the international organization
for Customs matters, has a key role to play with regard to the implementation of many of the above
recommendations by its member administrations.

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