Bridges Negotiation Briefing #2 | Trade Facilitation: Reducing Border Inefficiencies

28 November 2013

The trade facilitation talks aim to simplify customs rules and reduce inefficiencies that create long lag times in cross-border flows of trade. The topic has grown in prominence in recent years due to the increased integration of global supply chains, and the resulting need to increase efficiency within such chains.

Recent estimates - such as analysis done by the Peterson Institute for International Economics for the International Chamber of Commerce- have suggested that a trade facilitation deal could add close to US$1 trillion to the global economy.

Since trade facilitation was formally added to the WTO's Doha Round agenda in the early 2000s, the talks have proceeded with notably substantive engagement. At the time that the talks were launched, trade facilitation was included under the Round's principle of the "single undertaking" - in other words, that nothing in the Round is agreed until everything is agreed.

In the wake of the WTO's Eighth Ministerial Conference in December 2011, where the Doha Round negotiations were formally acknowledged as "deadlocked," trade facilitation quickly emerged as an area that could form the centrepiece of an "early harvest."

However, over the past year rifts have deepened within the trade facilitation negotiations, with problems arising on both a technical and political level. Geneva-based negotiations in the weeks leading up to the ministerial proceeded at a frenetic pace, making significant progress toward their goal of a Bali deal.

However, with gaps still remaining, WTO Director-General Roberto Azevêdo declared the process at an "impasse" just days before the ministerial. Political action by ministers, he said at the time, would be the last hope for achieving even meagre success in Bali.

Singapore issues

The trade facilitation negotiations formally kicked off in 2004, after years of discussions in working groups launched at the WTO's First Ministerial Conference in Singapore. Along with trade facilitation, WTO members had been examining whether to add a series of topics - trade and competition; trade and investment; and transparency in government procurement - to the existing Doha Round negotiations.

The four topics were collectively known as the Singapore Issues, and many had originally expected these to all be added to the Doha Round agenda. Eventually, WTO members began to consider agreeing on discrete sets of "modalities," rather than a collective set. In 2003, the Least Developed Country (LDC) group, with the support of over a dozen other developing countries including China and India, proposed dropping three topics, except trade facilitation, from the work programme.

In April of the following year, a "core group" of developing countries and LDCs said they were ready to discuss trade facilitation, but only for clarifying substantive modalities for negotiations. In July 2004, developing countries accepted negotiations on trade facilitation as part of a broader "July Package"- a framework deal aimed at keeping the Doha talks alive after the breakdown of the 2003 ministerial in Cancún.

The 2004 decision to include trade facilitation was widely viewed as a result of development language that was considered "unprecedented" in the global trade body's history, and perceived progress in agriculture following the 2003 Cancún ministerial.

According to the trade facilitation mandate, negotiations in this area aim to clarify and improve three articles of the WTO's General Agreement on Tariffs and Trade (GATT) 1994: Article V, involving freedom of transit; Article VIII, which deals with limiting border fees and formalities; and Article X, regarding publication and administration of regulations.

The text is divided into two parts: the first, involving specific commitments countries will take to improve their customs procedures (Section I); the second involving special and differential treatment for developing and least developed countries (Section II).

In the years that followed the July 2004 decision, members tabled a series of proposals on various topics, refining them repeatedly in order to eventually develop a text upon which they could negotiate. In December 2009, a draft consolidated text was released that encapsulated the proposals raised to date, which has served as the basis for the negotiations since.

Specific commitments

The first section of the trade facilitation draft text deals with a series of commitments that - if agreed - WTO members will take to expedite trade flows across their borders. These involve areas such as improving transparency, standardising documentation requirements and trade-related fees, and streamlining existing border procedures in order to eliminate inefficiencies and duplicated work.

The proposed commitments span across a range of areas. The 14 articles in the current text deal with topics such as whether to extend the right to appeal customs/border decisions to any person or company; whether to eliminate the use of customs brokers; whether members can employ private companies on the territory of other members to verify details of goods destined for import; and the issuing of binding decisions - known as advance rulings - by customs authorities ahead of the export or import of goods, so long as they fulfil certain conditions.

Some of these commitments, such as the use of customs brokers, remain in brackets, according to a copy of the stabilised text seen by Bridges. Expedited shipments - which involve those from exporters that use security, logistics, and tracking technologies to follow and control shipments at every point during their conveyance - is another area that has proven difficult to resolve.

Another particularly contentious area in Section I involves transit, which is an area of particular interest for land-locked countries. During the talks, some countries have tabled possible disciplines that would require that WTO members treat goods from all fellow members equally, for the purposes of transit, and allow traders from other countries the freedom to choose transit routes. One of the main areas of difficulty involves how to deal with goods being transported through "fixed infrastructure," particularly energy products such as oil and gas being moved through pipelines.

Other areas, such as single window clearance, are free of brackets. Single windows attempt to speed up the passage of goods through customs by consolidating all trade documentation requirements in one office also responsible for customs clearance.

Until recently, customs cooperation had been one of hardest parts of Section 1. This topic involves how to exchange information between importing and exporting authorities of member countries, in order to address fraud. Customs cooperation has been difficult because of concerns such as how to handle the increased volume of requests for such data, as well as the issue of confidential information.

Members were able to achieve a breakthrough in this area earlier this month. According to a copy of the stabilised text seen by Bridges, the article dealing with customs cooperation currently includes a series of provisions relating to confidentiality, ways to account for administrative burdens, details on the manner in which this information will be provided, and what the terms of these requests will involve.

Implementation: binding or best endeavour?

The trade facilitation mandate is notable in that it also includes language saying that developing countries will not be required to implement the commitments they take in Section I of the agreement unless they receive the technical assistance to do so.

Achieving this balance between establishing firm commitments in Section I with developing countries' respective needs for technical assistance and capacity-building to implement them, as outlined in Section II, has long been a major stumbling block.

In trade facilitation, commitments for developing and least developed countries can fall under three potential categories. Category A includes those provisions that will be implemented immediately upon the agreement's entry into force; category B includes those commitments that will require a transition period; and category C involves those commitments that will require both a transition period and technical assistance.

Developing countries have called for clear assurances that they will receive the necessary support to implement their new Section I commitments. Otherwise, they said, many of these commitments may need to be made on a "best endeavour" basis - a suggestion that many developed countries have said would nullify many of the agreement's potential benefits, since "best endeavour" often results in non-implementation.

The trade facilitation mandate, as outlined in Annex D of the July 2004 Package, notes that members shall work to "identify their trade facilitation needs and priorities," especially those of developing country members, and will also "address the concerns" of such members regarding the cost implications of measures taken under a trade facilitation deal.

Notably, the mandate also says that members, in particular developing countries, have made a commitment to "adequately ensure such support and assistance" during the talks, and that developing and least developed country members will also receive support - such as for infrastructure development - in order to implement new trade facilitation measures.

Much of Section II - which had been, until then, the "hardest nut to crack" - had been resolved in the days before the 26 November General Council meeting. The remaining differences, sources say, are primarily in Section I of the draft text. Brackets reportedly lie around 50 or so items - a substantial reduction from the several hundred that were in place just months ago.

Geneva impasse leaves Bali outcome uncertain

A week ahead of the Bali ministerial conference, WTO Director-General Roberto Azevêdo confirmed that the Geneva negotiating process had not been able to yield a Bali deal. The 26 November announcement shocked the trade world, and has left the prospects for the upcoming conference markedly uncertain.

In the weeks leading up to the ministerial, a deal had appeared close, with texts nearly completed in the agriculture and development parts of the Bali package. However, marathon-length negotiating sessions on trade facilitation ended without a final resolution on Monday 24 November.

The next steps for the trade facilitation agreement remained unclear at the time of this writing. Sources say the difficulties in Section I are both technical and political, making it difficult to predict what approach ministers might take to break the impasse, and whether an agreement will be possible at Bali at all, or even in the weeks thereafter.

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