Trade facilitation and customs valuation
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WTO’s Trade Facilitation Agreement
The TFA contains several provisions for expediting the movement release and clearance of goods including goods in transit and easing trade bottlenecks at borders. It sets out measures for effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues. A key pillar of the TFA is a series of provisions for technical assistance and capacity building (TACB). Entering into force on 22 February 2017 all 26 LLDCs who are WTO members have completed their domestic ratification process.
Trade profiles of landlocked developing countries
Trade plays a critical role in achieving the development objectives of LLDCs and is key to realizing the Sustainable Development Goals (SDGs) in particular target 17.11: significantly increase the exports of developing countries.
COVID-19 and border measures
Countries have put in place a range of restrictions on the movement of persons across borders especially for non-essential purposes as well as export prohibitions on essential goods and food. There has been a proliferation of measures banning the export of essential medical supplies as well as food paired with measures to facilitate the import of the same types of product (i.e. value added tax and import duty exemptions).
WTO’s SPS Agreement: sanitary and phytosanitary measures
The WTO SPS Agreement sets out the basic rules for food safety and animal and plant health standards. It aims to strike a balance between WTO members’ rights to protect human animal or plant life or health and their obligation not to restrict trade more than necessary. Given the technical and costly nature of some of these measures certain sanitary and phytosanitary (SPS) requirements imposed by importing members could be difficult to meet for LLDCs for whom agricultural products might represent an important part of their exports.
Recommendations
LLDCs are a very special group of countries which face very atypical constraints. To address these challenges will require special measures to more fully integrate LLDCs into the multilateral trading system. This report has identified some of the areas and issues where targeted steps need to be taken to ease trade bottlenecks – not only by the LLDCs themselves but also transit countries and organizations involved. The paucity of up-to-date data and the difficulties to collect it from some of the remotest areas of the world make it hard to capture all the factors comprehensively and accurately.
Foreword by Director-General Ngozi Okonjo-Iweala
Among the outreach activities I have undertaken since becoming Director-General have been very detailed and substantive meetings with landlocked developing countries (LLDCs). They have told me how the particular barriers they face due to a lack of territorial access to the sea and isolation from the world’s largest markets restrict the free flow of trade and impose constraints on their socio-economic development. The COVID-19 pandemic has been especially damaging to their fragile economies which has brought new challenges such as container shortages high shipping costs and the closure of borders to stop the spread of COVID-19. In response I requested the WTO Secretariat to conduct this study on the logistical constraints impacting the trade performance of LLDCs and how trade bottlenecks could be reduced. I am very happy that the study has been produced in such a short time.
WTO’s Trade Facilitation Agreement
The TFA contains several provisions for expediting the movement release and clearance of goods including goods in transit and easing trade bottlenecks at borders. It sets out measures for effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues. A key pillar of the TFA is a series of provisions for technical assistance and capacity building (TACB). Entering into force on 22 February 2017 all 26 LLDCs who are WTO members have completed their domestic ratification process.
Landlocked developing countries and trade bottlenecks
Trade is critical to the economic growth of countries which means facilitating trade is a priority for governments. Landlocked developing countries (LLDCs) are without direct territorial access to a sea or ocean so ease of trade is linked to their survival.
WTO’s TBT Agreement: technical barriers to trade
The WTO’s TBT Agreement entered into force with the establishment of the WTO on 1 January 1995. It aims to ensure that product requirements in regulations and standards (on safety quality health and the environment) as well as procedures for assessing product compliance with such requirements (certification testing inspection accreditation) are not unjustifiably discriminatory and do not create unnecessary obstacles to trade.1 The TBT Agreement also emphasizes the importance of transparency and contains disciplines that strongly encourage the use of international standards as a basis for harmonizing regulations across WTO members.
WTO’s SPS Agreement: sanitary and phytosanitary measures
The WTO SPS Agreement sets out the basic rules for food safety and animal and plant health standards. It aims to strike a balance between WTO members’ rights to protect human animal or plant life or health and their obligation not to restrict trade more than necessary. Given the technical and costly nature of some of these measures certain sanitary and phytosanitary (SPS) requirements imposed by importing members could be difficult to meet for LLDCs for whom agricultural products might represent an important part of their exports.
COVID-19 and border measures
Countries have put in place a range of restrictions on the movement of persons across borders especially for non-essential purposes as well as export prohibitions on essential goods and food. There has been a proliferation of measures banning the export of essential medical supplies as well as food paired with measures to facilitate the import of the same types of product (i.e. value added tax and import duty exemptions).
Trade profiles of landlocked developing countries
Trade plays a critical role in achieving the development objectives of LLDCs and is key to realizing the Sustainable Development Goals (SDGs) in particular target 17.11: significantly increase the exports of developing countries.
Trade Policies for a Circular Economy
From its initial focus on minimizing waste generation the circular economy has evolved into a broad-based approach to make resource use more sustainable. A big part of the appeal of a circular economy is the opportunities it creates not only for resource savings and better human health and environmental outcomes but also for trade and economic diversification.
Export Prohibitions and Restrictions
Eighty countries and customs territories so far have introduced export prohibitions or restrictions as a result of the COVID-19 pandemic according to a new report by the WTO Secretariat. The report which is based on information from official sources and news outlets draws attention to the current lack of transparency at the multilateral level and long-term risks that export restrictions pose to global supply chains and public welfare.
The Development of Trade Policies in the Asia and Pacific Region Over the Past 30 Years Since 1989
This paper reviews the main developments of trade and related policies and measures in the Asia and Pacific region during the 30 years since establishment in 1989 of the Trade Policy Review Mechanism (TPRM). The objectives of the TPRM include facilitating the smooth functioning of the multilateral trading system by enhancing the transparency of WTO Members' trade policies.
Trade Issues Affecting Disaster Response
The frequency severity and economic impact of natural disasters are growing. Import surges resulting from disaster-response efforts can highlight underlying structural failings in the border clearance regimes of disaster-affected countries.
Implementing the Trade Facilitation Agreement
After a decade of negotiations and additional preparatory work the WTO Trade Facilitation Agreement (TFA) is poised to enter into force. It promises to streamline and substantially prune the red tape that all too often slows and impedes international commerce - thereby significantly reducing both cost and time needed to do business across borders. The paper chronicles the path from the conclusion of the talks at the 2013 Bali Ministerial Conference to the present day as we prepare for the Agreement to take effect. It reviews the state of the ratification process analyses implementation schedules and outlines work still to be done. The study shows that the emerging application of the TFA like its negotiation has once again confounded the sceptics – who first doubted that a TF Agreement would see the light of day and then questioned if it would ever be put into practice. While plenty remains to be done to implement the TFA across the full WTO membership its entry into force is set to happen – a valedictory moment.
Russia - Tariff Treatment of Certain Agricultural and Manufacturing Products
On 18 August 1997 the EC requested consultations with the US in respect of a ban on imports of poultry and poultry products from the EC by the US Department of Agriculture’s Food Safety Inspection Service and any related measures. The EC contended that although the ban is allegedly on grounds of product safety the ban does not indicate the grounds upon which EC poultry products have suddenly become ineligible for entry into the US market. The EC considered that the ban is inconsistent with Articles I III X and XI of GATT 1994 Articles 2 3 4 5 8 and Annex C of the SPS Agreement or Article 2 and 5 of the TBT Agreement.
Has the Multilateral Hong Kong Ministerial Decision on Duty Free Quota Free Market Access Provided a Breakthrough in the Least-Developed Countries' Export Performance?
This paper assesses the impact of the 2005 multilateral Hong Kong Ministerial decision on duty free quota free (DFQF) market access for products originating in Least developed countries (LDCs) on the latter's export performance. The analysis is conducted over a sample of 41 LDCs with data spanning the period 1998-2013. The empirical analysis examines both the average effect and the short term/medium term effect. Results indicate that on average this multilateral decision has exerted a positive effect on LDCs' performance on merchandise exports with this average positive effect being solely driven by a positive effect on LDCs' export performance on primary products; the average effect on manufacturing exports has been statistically nil. In the short and medium term this decision has exerted a positive effect on LDCs' merchandise export performance as well as on the components of the latter namely both primary product exports and manufacturing exports. However the positive effect on primary product exports appears to be far higher than that on manufacturing exports. These findings have important policy implications regarding reflections on the way LDCs could utilize their policy flexibilities in the WTO Agreements to diversify their exports away from the primary sector and toward manufacturing and/or services sector.
Reducing Trade Costs in LDCs: The Role of Aid for Trade
This study analyses the role of Aid for Trade in reducing trade costs in least developed countries (LDCs). The analysis builds on questionnaires and case stories submitted as part of the Aid-for-Trade monitoring and evaluation exercise for the Fifth Global Review of Aid for Trade. Trade costs are high in LDCs and constitute a major impediment to their participation in international trade. The most important sources of trade costs in LDCs are inadequate transport infrastructure cumbersome border procedures and compliance with non-tariff measures for merchandise exports. In the case of LDC services exports major drivers of trade costs include ICT networks poor regulation low skill levels the recognition of professional qualifications and restrictions on the movement of natural persons. LDCs are well aware of the issue of high trade costs which is addressed by more than 90% of LDCs in their national strategies. Trade facilitation is the top Aid-for-Trade priority for LDCs which is also reflected in increasing Aid-for-Trade flows. The analysis of questionnaires case stories diagnostic trade integration studies and existing econometric work illustrates the important role played by Aid-for-Trade interventions in lowering trade costs in LDCs.
Making (Small) Firms Happy
This paper considers the asymmetric effect of Trade Facilitation Agreement (TFA) policies on heterogeneous exporters based on matching a detailed panel of French firm exports to a new database of Trade Facilitation Indicators (TFIs) released recently by the Organisation for Economic Cooperation and Development (OECD). We analyze the effect of these TFIs on three trade-related outcomes: (i) exported value (firm intensive margin) (ii) number of products exported (product extensive margin) and (iii) average export value per product exported (product intensive margin). We find strong evidence of a heterogeneous effect of trade facilitation across firm size. While better information availability advance ruling and appeal procedures mainly benefit small firms the simplification of documents and automation tend to favor large firms’ trade. This is coherent with the idea that while some elements of the TFA simply reduce the fixed cost of exporting (favoring small firms in particular) other chapters in the TFA reduce the scope for corruption at borders making large firms less reluctant to serve corrupt countries.
TBT and Trade Facilitation Agreements
The average international trade transaction is subject to numerous procedural and documentation requirements which add to the costs of doing business as an importer or exporter and also use up scarce government resources. While these requirements can be necessary to fulfil policy objectives questions are often raised about why and how they are implemented. The Trade Facilitation Agreement (TFA) adopted by WTO Members in 2014 seeks to expedite the movement release and clearance of goods across borders and reduce these trade transaction costs - by an average of 14.3 per cent as estimated by the 2015 World Trade Report. At the same time many WTO Agreements already contain provisions aimed at facilitating trade procedures and avoiding unnecessary costs. The Agreement on Technical Barriers to Trade (the TBT Agreement) is one of these: its provisions on transparency and conformity assessment procedures some of which are applied at the border are of particular relevance in this context. The TFA and TBT Agreements are in fact complementary with the TFA introducing some new requirements/recommendations which are likely to apply to certain TBT measures. This paper maps out the linkages between these two Agreements. It does so with a view to informing TBT officials of the requirements and best practices emerging in the trade facilitation area as well as raising awareness amongst trade/customs officials of existing rules and evolving practices in the TBT area. The 2015 World Trade Report refers to “border agency cooperation” as the main TFA implementation challenge identified by developing countries and also points to the importance of cooperation and coordination between ministries as one of the main success factors. Considering that a significant share of import/export procedures and controls arise from the implementation of TBT measures a better understanding of the linkages between the TFA and the TBT Agreement (as well as other relevant WTO Agreements such as the SPS Agreement) will be crucial for effective implementation. It will also contribute to more streamlined technical assistance activities and raise awareness among TBT officials of the opportunities generated by trade facilitation projects. The procedures and practices of the WTO TBT Committee especially with regards to transparency and specific trade concerns could also be of interest to the future TFA Committee as it embarks on its task of furthering the implementation of the TFA. All these in turn will help reap the expected benefits of the new Trade Facilitation Agreement.
The challenges of implementing the Trade Facilitation Agreement
This section of the report looks at the various challenges involved in ratifying and implementing the Trade Facilitation Agreement (TFA) particularly for developing and least-developed countries (LDCs). It first assesses the implementation needs of developing countries then goes on to evaluate the costs associated with implementing the measures covered by the TFA. It proceeds to explain the role of the Trade Facilitation Agreement Facility in meeting the challenges of implementation and to review the key success factors identified in previous trade facilitation reforms. Finally it underlines the importance of monitoring implementation of the TFA and its economic impacts.
Acknowledgements
The World Trade Report 2015 was prepared under the general responsibility of Xiaozhun Yi WTO Deputy Director-General and Robert Koopman Director of the Economic Research and Statistics Division. This year the report was coordinated by Coleman Nee and Robert Teh. The authors of the report are Marc Auboin Marc Bacchetta Cosimo Beverelli John Hancock Christian Henn Alexander Keck Jose-Antonio Monteiro Coleman Nee Simon Neumueller Roberta Piermartini and Robert Teh (Economic Research and Statistics Division); and Nora Neufeld (Market Access Division).
Estimating the benefits of the Trade Facilitation Agreement
This section provides quantification of the various channels through which trade facilitation reform and in particular implementation of the Trade Facilitation Agreement (TFA) can benefit the global economy. First of all estimates of how much the implementation of the TFA could reduce trade costs are provided and the group of countries and regions that may see the biggest reductions is identified. Further estimates of the effects of the TFA on exports export diversification and GDP calculated using standard economic approaches are presented. In order to provide a range of estimates various implementation scenarios are considered. The differentiated impact of trade facilitation is analysed in order to provide insights on how the aggregate benefits of TFA implementation are distributed across country groups (developed developing and least-developed countries) enterprises and product groups. Finally the induced effects of trade facilitation on foreign direct investment border revenue collection and reduction in trade-related and other forms of corruption are examined.
Trade facilitation in context
Successive rounds of multilateral trade negotiations culminating in the Uruguay Round in 1994 succeeded in dramatically reducing tariffs and other barriers to international trade but trade costs remained high due in part to administrative burdens and inefficient customs procedures. In a world increasingly characterized by globalized manufacturing just-in-time production and integrated supply chains there has been a growing recognition of the need for global rules to facilitate trade. This section looks at how trade facilitation issues have been dealt with in the WTO and other fora including a review of the negotiations that led to the recent Trade Facilitation Agreement (TFA) a summary of the content of the TFA itself an evaluation of the steps that need to be taken to move forward and a survey of trade facilitation initiatives in regional trade agreements and other international organizations. This discussion is intended to establish the state of trade facilitation reform as it currently stands and to set the stage for the theoretical and empirical discussions to follow.
Introduction
In today’s open and interconnected global economy efforts to streamline speed up and coordinate trade processes as much as efforts to further liberalize trade policies will contribute to the expansion of world trade and help countries to connect to an increasingly globalized production system. While trade agreements in the past were about “negative” integration – countries lowering tariff and non-tariff barriers – the WTO Trade Facilitation Agreement (TFA) is about positive integration – countries working together to simplify processes share information and cooperate on regulatory and policy goals. The World Trade Report 2015 examines why the TFA is so important what its economic impact is projected to be and how the WTO is taking a number of important and novel steps to help countries to maximize its benefits.
Conclusions
Although traditional trade barriers such as tariffs have come down and innovations in transportation and communications technology have shrunk the distance between nations trade costs remain high particularly in developing countries. High trade costs isolate developing countries from world markets limiting their trade opportunities and impeding growth. High trade costs also appear to disproportionately affect small and medium-sized enterprises (SMEs) timesensitive products and goods produced in global value chains. Trade procedures that are more cumbersome than necessary and delay the movement release and clearance of goods constitute a significant part of these trade costs.
The theory and measurement of trade facilitation
This section first provides a conceptual framework for understanding the economic effects of trade facilitation – how improving trade procedures reduces trade costs and how that in turn affects the pattern and volume of trade the allocation of resources and economic welfare. Given that trade facilitation can in principle be implemented unilaterally this section examines the reasons why countries would want to include trade facilitation in a multilateral trade agreement. Finally it examines the indicators – from narrower customs-related ones to broader regulatory and infrastructural areas – that have been developed to measure trade facilitation and identifies what indicators can best be employed to estimate the economic benefits of implementing the WTO’s Trade Facilitation Agreement.
The world economy and trade in 2014 and early 2015
World trade growth remained modest in the opening months of 2015 following three years of weak expansion. Annual increases in merchandise trade in volume terms were very small in that period measuring just 2.5 per cent in 2014 2.5 per cent in 2013 and 2.2 per cent in 2012. The exports of developing and emerging economies grew faster than those of developed countries in 2014 3.1 per cent in the former and 2.0 per cent per cent in the latter. Meanwhile imports of developing countries grew more slowly than those of developed economies 1.8 per cent compared to 2.9 per cent. Seasonally adjusted quarterly trade volume indices for the first quarter of 2015 showed import demand accelerating in developed economies but slowing in developing countries.
Executive summary
Trade facilitation is critical to reducing trade costs which remain high despite the steep decline in the cost of transportation improvements in information and communication technology and the reduction of trade barriers in many countries.
Foreword by the WTO Director-General
When WTO members concluded their negotiations on the Trade Facilitation Agreement (TFA) in Bali in December 2013 they created the first multilateral agreement since the WTO was founded nearly two decades earlier. It demonstrated how global rule-making was functioning effectively to address impediments to today’s global commerce. As much as efforts to further liberalize trade policies the streamlining speeding up and coordinating of trade processes are contributing to the expansion of world trade and helping developing and least-developed countries (LDCs) integrate into today’s global economy.
World Trade Report 2015
The World Trade Report 2015 examines why the Trade Facilitation Agreement is so important what its economic impact is projected to be and how the WTO is taking a number of important – and novel – steps to help countries to maximize its benefits.
Trade Facilitation Agreement
The Trade Facilitation Agreement is the first multilateral trade agreement to be concluded since the WTO was established 20 years ago. Once it enters into force the Agreement is expected to reduce total trade costs by more than 14 per cent for low-income countries and more than 13 per cent for upper middle-income countries by streamlining the flow of trade across borders. This brochure produced to mark the WTO’s 20th anniversary looks into the provisions of the Agreement and its potential benefits.
Trade and Tariffs
Over the past 20 years global trade in goods has nearly quadrupled reaching US$ 19 trillion in 2013 compared with US$ 5 trillion in 1996. This represents an annual growth rate of 7.6 per cent on average. Over the same period there has been a 15 per cent reduction in average tariffs applied by WTO members. This brochure produced to mark the WTO’s 20th anniversary looks at the evolution of trade and tariffs over the past 20 years.
A New Look at the Extensive Trade Margin Effects of Trade Facilitation
We estimate the effects of trade facilitation on the extensive margins of trade. Using OECD Trade Facilitation Indicators – which closely reflect the Trade Facilitation Agreement negotiated at the Bali WTO Ministerial Conference of December 2013 – we show that trade facilitation in a given exporting country is positively correlated with the number of products exported by destination and with the number of export destinations served by product. To address the issue of causality we employ an identification strategy whereby only exports of new products or exports to new destinations are taken into account when computing the respective margins of trade. Our findings therefore imply a positive causal impact of trade facilitation on the extensive margins of trade. The results are to a large extent robust to alternative definitions of extensive margins to different sets of controls variables and to various estimation methods. Simulating the effect of an increase to the regional or global median values of trade facilitation we are able to quantify the potential extensive margin gains of trade facilitation reform in different regions.
The Long and Winding Road
The paper chronicles the negotiating history of the recently concluded Trade Facilitation Accord. Analysing the various stages of the decade-long effort to get the Agreement off the ground it examines what was at stake in the negotiations how they evolved and why they finally succeeded - despite many obstacles and detours along the way. The study also suggests ways in which the exercise has broken new ground – for Trade Facilitation rule-making at the global level for how WTO Members negotiate agreements and for the world trading system as a whole.
Trade Facilitation Provisions in Regional Trade Agreements Traits and Trends
The paper first surveys the Trade Facilitation landscape at the regional level and analyses the main forces shaping it. It identifies key factors driving regional Facilitation approaches examining their priorities features and underlying philosophies. The study also highlights significant trends in regional Trade Facilitation provisions and analyses their implications. The paper then compares regional and multilateral initiatives looking at areas of convergence and divergence and highlighting where potential gaps exist. It analyses negotiating positions in the respective frameworks and discusses both the benefits and limitations of the resulting Trade Facilitation provisions. Examining the impact of the recently concluded WTO Agreement the study highlights its potential value added.
Using Supply Chain Analysis to Examine the Costs of Non-Tariff Measures (NTMs) and the Benefits of Trade Facilitation
It has become increasingly common to produce goods in a number of geographically dispersed stages linked by international trade. This tendency known by names such as “production fragmentation” “processing trade” and “vertical specialization” has important implications for the analysis of non-tariff measures (NTMs) and trade facilitation. First different types of NTMs or trade facilitation issues are naturally associated with different stages in the movement of goods. Different price gaps can be assigned to these stages making it possible to decompose the overall amount of distortion and to prioritize the policies with the largest potential efficiency gains. Second NTMs may accumulate in long supply chains implying that their trade-distorting effects are greater for goods produced in a fragmented manner than for goods with simple production processes. There is evidence that trade costs are more important for high technology goods or goods undergoing several stages of processing. Issues with product standards may be particularly important for goods with long supply chains. The link between NTMs and supply chains also has implications for economic development and for the relationship between liberalization in services and goods.
Conclusion
The WTO Valuation Agreement is fifteen years old at the time of writing. It is applied by the 153 WTO Members representing all levels of economic development to the full variety of their import trade transactions. If one takes into account the predecessor GATT Valuation Code these valuation rules have been in use in international practice for over thirty years. What then do WTO Members think of the Agreement? What are its major failings if there are any and what improvements can be made? What is the future for common customs valuation rules?