South Asia Watch on Trade, Economics & Environment (SAWTEE)

« View All Articles

What is in store for developing countries? Published: The News, 9 January 2005
By: Pradeep S Mehta

Given the domestic nature of trade facilitation and flanking issues, country experiences are bound to vary

The decade of the 1990s witnessed two significant developments in the international trading system. First, following the successful completion of the Uruguay Round of GATT (General Agreement on Tariffs and Trade) negotiations and establishment of the WTO (World Trade Organisation), tariff barriers on cross-border exchange of goods and services came down significantly. Second, with the communication revolution, cross-border movement of goods and services became much speedier than before.

Between 1992 and 2002, global trade in goods and services has increased by 60 per cent, i.e., from US $ 5 trillion to US$ 8 trillion. At the same time, non-tariff barriers adversely affect trade. One of these is border procedures, which is now being negotiated under the rubric of trade facilitation at Geneva.

According to the WTO, trade facilitation means "simplification and harmonisation of international trade procedures" and these procedures are "activities, practices and formalities involved in collecting, presenting, communicating and processing data required for the movement of goods in international trade".

Trade facilitation is not new to the WTO agenda. The first WTO Ministerial held in Singapore in 1996 had created a discussion mandate under the WTO Council for Trade in Goods (CTG), and this has been progressing by and by. As part of the four Singapore issues, it was agreed to negotiate the same at Doha. However, the following ministerial at Cancun collapsed on strong opposition to the Singapore issues from the poor world. However, trade facilitation was singled out for future work.

As a result, in July 2004, WTO members agreed to launch negotiations on trade facilitation. Annex D of the Framework Agreement states: "Negotiations shall aim to clarify and improve relevant aspects of Articles V, VIII and X of the GATT 1994 with a view to further expedite the movement, release and clearance of goods, including goods in transit".

From the point of view (and concerns) of developing and least developed countries, the framework agreement on trade facilitation has two major elements. First, it has been recognised that the principle of special and differential treatment should extend beyond the granting of traditional transition periods for implementing commitments. "In particular, the extent and timing of entering into commitments shall be related to the implementation capacities of the developing and least developed members. It is further agreed that those members would not be obliged to undertake investments in infrastructure projects beyond their means".

Second, for the first time in the history of WTO negotiations there is an explicit mention of cost implications. "Members shall seek to identify their trade facilitation needs and priorities, particularly those of the developing and least developed countries, and shall also address the concerns of the developing and least developed countries related to cost implications of proposed measures".

Generally speaking, it appears that a multilateral agreement (at the WTO) on trade facilitation will be beneficial to all members. Better trade facilitation measures will reduce transaction costs and increase revenue collection, according to a recent research project of CUTS. For example, after introducing an electronic declaration system for traders, Singapore generated savings estimated at one percent of gross domestic product with an expectation that it would cover its costs in three years.

Bolivia, after spending US $ 38.5m in customs reform programme, found that revenue collection rose by 25 per cent (in efficiency terms, i.e., after taking into account reduction in tariff rates). However, the experience of Philippines was different. It was reported that its new trade facilitation system led to an increase in revenue collection by 2 per cent, while the cost of sustaining the system led to an immediate budget crisis and a cessation of funding for the system.

Given the domestic nature of trade facilitation (particularly implementation aspects) and flanking issues, country experiences are bound to vary. This nature is evident from GATT provisions, which deal with transparency, public information, formalities associated with importing and exporting, and goods in transit. The main constituents of trade facilitation are:
* Port logistics

* Customs procedures

* Standards harmonisation

* Business mobility

* Trade information and e-business facilities

* Administrative transparency and professionalism

Do the poor countries have the necessary resources for achieving improvements in all these measures? The answer is no, especially when in many of these countries there is a competition for scarce resources, in particular for development needs. This is one of the reasons why most poor countries have been reluctant to undertake legal obligations under the WTO. At the same time, these very countries are convinced about the importance of trade facilitation in economic development, and thus agreed to pursue it as a part of domestic trade reforms. In India, the Kelkar Task Force on Direct and Indirect Taxes too advocated for such reforms unequivocally.

That it is worthwhile in national interest to pursue such voluntary reforms, has been proved so by an UNCTAD study. Globally, direct and indirect transaction costs are adding up to 10 per cent of total value of international trade, which is equivalent to approximately US $ 400 billion. Trade facilitation measures can significantly reduce these costs.

Nobody can deny that unnecessary transaction costs cause difficulties and delays in cross-border movement of goods. This is particularly true for small and medium enterprises, as they lack the means and resources for facilitating quicker movement of their goods. The challenge of WTO members is to recognise, understand and manifest these development dimensions during the Doha Round of negotiations on trade facilitation.

« View All Articles