Around the globe, trade facilitation is increasingly seen as a top priority. At times referred to as the “plumbing” of international trade, trade facilitation is shorthand for reforms to make the movement of merchandise from one country to another faster, cheaper, and more reliable.
As international trade has become more important to the U.S. economy and those of other countries, the efficiency of trade logistics becomes more important. Rising competition and falling tariffs in markets around the globe have laid bare the cost of inefficient customs and ports. In fact, studies have shown that inefficient trade logistics in many developing countries adds anywhere from 5% to 25% to the cost of trade.
A country’s competitiveness in world markets can advance notably with a focus on trade facilitation. Singapore, for example, has been identified by the World Bank as a world champion in this realm: it takes just four documents, $400, and an average of five days for a shipping container to clear Singaporean customs. In Chad, by contrast, the same exercise takes more than 100 days and costs approximately $5,500, according to the World Bank’s “Doing Business” project.
According to the World Bank’s Logistics Performance Index, trade facilitation runs the gamut from “customs procedures, logistics costs, and infrastructure quality to the ability to track and trace shipments, timeliness in reaching destination, and the competence of the domestic logistics industry.”
While the trade facilitation agenda has traditionally focused on customs and infrastructure, the World Bank suggests that liberalizing services markets is equally important. High-quality, competitive private services such as trucking, warehousing, and customs brokerage make supply chains more robust and reliable, which in turn contributes to greater investment and more export opportunities.
Specific reforms that major trading companies have identified include greater use of information technologies and electronic delivery of customs information, harmonizing data requirements for export and import declarations, moving toward commercially meaningful de minimis levels, reviewing the bond guarantee requirements for expedited release of goods from customs, and swift clearance for low-risk imports.
While trade facilitation can bring great benefits if adopted unilaterally, the global, rules-based model of a World Trade Organization (WTO) agreement offers the advantages of certainty, stability, and a common approach. This is why the Chamber has been a leading supporter of the WTO Trade Facilitation Agreement. Its formal adoption on Thanksgiving Day 2014 made it the first multilateral trade agreement reached since the WTO’s founding. The TFA entered into force in early 2017.
The TFA is a cost-cutting, competition-enhancing, anti-corruption agreement of the first order. It will streamline the passage of goods across borders by cutting red tape and bureaucracy and establishing common approaches to the mundane but important task of clearing goods through customs. In this agreement, all WTO Members have accepted binding obligations for customs authorities to:
- Publish all customs forms, rules, and procedures on the Internet;
- Afford opportunities to comment on new or amended customs laws and regulations and maintain regular stakeholder consultation;
- Issue advance rulings (prior to importation) on a good’s tariff classification and provide for administrative or judicial appeal;
- Establish pre-arrival processing of required information by electronic means to permit clearance through customs before goods arrive in the country;
- Allow the release of goods from customs prior to the final determination of customs duties and taxes;
- Adopt authorized operator programs to speed clearance for firms that have established a good record of compliance with customs regulations, as in “trusted trader” programs;
- Provide expedited customs clearance for air cargo and release such goods as soon as possible after arrival; and
- Require each country to set a de minimis value below which duties are not required in order to expedite the release of low-value shipments (though no specific value was set).
Implementation of the TFA has the potential to increase global merchandise exports by up to $1 trillion annually, according to the WTO’s World Trade Report 2015. This was the first detailed study of the potential impacts of the TFA based on a full analysis of the final agreement text. It also found that developing countries will capture more than half of the TFA’s available gains.
Speaking for American companies trading and investing around the globe, the U.S. Chamber’s message has been that implementing the TFA is an excellent opportunity for developing countries. Implementation is a way for a country to signal to the global business community and donor agencies that it is open for business and ready to receive foreign direct investment.
Recognizing that neither governments nor the private sector can deliver on the full potential of the TFA on their own, the U.S. Chamber-affiliated Center for International Private Enterprise (CIPE), the International Chamber of Commerce, and the World Economic Forum together with the governments of Canada, Germany, the United Kingdom and the United States have joined forces in the Global Alliance for Trade Facilitation. The Alliance partners have worked closely in establishing a unique public-private platform to leverage business expertise, leadership and resources to support effective trade facilitation reforms measured by real-world business metrics.
Increasingly, big trade agreements are difficult to conclude and slow to arrive. Trade facilitation offers a large potential payoff that can deliver benefits quickly. It should be a top priority in the years ahead.