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Trade Facilitation Agreement

Introduction

One of the major outcomes of the ninth Ministerial Conference of the World Trade Organization, which was held on December 2013 in Indonesia, was an agreement about trade facilitation. The significance of this document is explained by the fact that the measures on trade facilitation can greatly lower the costs of trade transactions, which are mainly associated with the cost of customs clearance of export and import of cargo. Despite close attention that is paid to the costs of border control in the past 10-15 years, there still are cases of delays of goods at the border that last from several days to several weeks. This situation leads to a slowdown in the trade flow and increased costs, which companies often compensate for the expense of the consumer. Most high-level costs on trade deals are reached in the developing countries. It is associated with the fact that for them, it is more difficult to take the additional burden of this kind. Some problems with interaction are faced in the least developed countries. Many of them are situated far from other countries or do not have access to the sea. Frequently, these problems are exacerbated by poor transport infrastructure. As a result, commercial expenditures in the least developed countries are higher than those in developing countries. It entails disproportionate consequences for small and medium-sized enterprises. They often do not have enough facilities and opportunities to observe complex requirements. Besides, high costs of compliance with customs and border procedures as well as other non-tariff measures constitute a significant share in their budget with regard to their small trade volumes. These countries become uncompetitive suppliers. For them, it is extremely difficult to take a worthy place in the regional and international supply chain costs. The agreement about trade facilitation has become a classic mutually beneficial solution that will help all countries to simplify trade issues. The agreement may give additional impetus to the growth of the world economy. The purpose of the current paper is to study the benefits of trade facilitation agreement and possible difficulties in its implementation.

History

The history of negotiations on trade facilitation counts several decades. The negotiations were initiated in the early 1990s (Gantz, 2013). Later, the issue of trade facilitation was included in the agenda of the WTO Singapore Ministerial Meeting in December 1996 (Gantz, 2013). The next time, the issue of trade facilitation was discussed at the WTO Ministerial Conference in Doha in November 2001 (Gantz, 2013). In the declaration adopted at the end of the meeting, it was stated that negotiations on trade facilitation would be held after the Fifth Session of the Ministerial Conference that will take place in 2003 (Gantz, 2013). In August 2004, the WTO General Council approved the so-called July package (Gantz, 2013). Appendix D describes the modalities and mechanism of negotiations on trade facilitation. In the period from 2009 to 2013, a consolidated text of the negotiations was elaborated (Gantz, 2013). It served as a basis for further discussions until the final text of the agreement was produced. The text was edited 19 times before the final version of the Trade Facilitation Agreement appeared and was approved by the Ministerial Conference in Bali in December 2013 (de Chene, 2014). In the book The Practice of International Trade, it is mentioned that “WTO members conducted a trade facilitation agreement, which should reduce some of the costs of moving goods across borders and help Internet-enabled trade once the agreement is implemented” (de Chene, 2014, p. 25). The minutes of the entry of the agreement into force by the due date in July 2014 did not receive approval of the General Council of the WTO since India used its right of veto and opposed (de Chene, 2014). Currently, India and the United States proposed a solution of a speedy entry of the agreement into force after its approval by the other WTO members (de Chene, 2014). The agreement on trade facilitation is included in Annex 1A to the Marrakesh Agreement (de Chene, 2014). It means that its performance is mandatory for the member countries of the WTO.

The Notion of the Trade Facilitation Agreement

Trade facilitation is a simplification of trade between countries. The book Trade Facilitation: Defining, Measuring, Explaining, and Reducing the Cost of International Trade, defines trade facilitation as “The simplification and rationalization of customs and other administrative procedures that hinder, delay or increase the cost of moving goods across international borders” (Sourdin & Pomfret, 2012, p. 4). Thus, it can bring real advantages to the business.

The agreement provides certain aspects of trade facilitation. First of all, it is openness and transparency. These measures include the publication of laws and other regulations governing the processes of import, export, and transit, including information on checkpoints, the rates of duties and taxes, and the rules of classification (de Chene, 2014). These measures also contain availability of information about how to import, export and transit as well as recommendations on practical steps for import, export, and transit of goods, which can be obtained on the Internet. There are created information centers to provide the required information. In addition, information about the new laws and other regulations is provided before they come into force, thus providing stakeholders with the ability to give their comments. There are regular consultations between the authorities operating at the border and stakeholders.

The next aspect is the stability of the rules. It includes the provision of preliminary solutions, which should be valid for a reasonable period of time after issuance if the laws, facts or circumstances have not changed. The adoption of these solutions enables participants of foreign trade to calculate the conditions of a transaction in advance. A preliminary decision on specific issues of customs regulation for a certain period of time provides importers and exporters with confidence that after a transaction, the customs authorities will not reconsider their decision and recalculate customs payments (de Chene, 2014). The agreement states that a preliminary decision may be canceled retroactively only if it has been accepted by customs authorities on the basis of false or invalid information.

A further aspect is the protection of the rights and legitimate interests of participants of foreign trade activities. It includes measures such as the right to appeal to a higher authority or the court about any administrative decision. There is also a right to conduct a test of the goods and notify of the detention of the goods. The agreement contains a set of procedures of acceleration of customs formalities known since the Kyoto Convention (de Chene, 2014). In particular, they include pre-filing documents in electronic form, the use of risk management system during customs control, post-audit, the accelerated release of perishable goods and goods transported by air, cooperation agencies on the border, and joint control (de Chene, 2014). An important point is the separation of the release of goods and payment of customs duties and the use of financial guarantees to ensure the quick release.

Another important aspect of the agreement is the reduction of documentation requirements in connection with the import, export, and transit. It includes the recognition of electronic copies, the use of international standards of documentation requirements and the one-time provision of information in the electronic form. Simplification of transit procedures is essential especially for developing and least developed countries that do not have access to the sea. Recommendations on this matter in the agreement are aimed at the maximum reduction of requirements for people using the transit procedure and its maximum harmonization (de Chene, 2014). Thus, the agreement recommends the member countries to create a separate infrastructure for transit traffic, ban transit fees and other restrictions on transit, conduct pre-processing of information, use general financial guarantees and restrict the use of the customs escort to extreme circumstances only.

Advantages and Disadvantages of the Trade Facilitation Agreement

In general, representatives of business are very positive about the prospects of the agreement. It is confirmed by the results of numerous studies, including those conducted by international organizations. For example, for small businesses, the share of which in many countries constitutes 60% of GDP, trade facilitation is a great opportunity to develop overseas markets and present their products (Findlay, 2015). In some countries, it is impossible due to high administrative barriers. For developing countries, trade facilitation can become a serious impetus for development. The economic effects of the agreement are evaluated by international organizations as highly optimistic (Findlay, 2015). The authors Jean-Pierre Chauffour and Jean-Christophe Maur (2011) state that “The economic impact of facilitation of trade flows at the regional level is twofold” (p. 331). A new WTO agreement on trade facilitation can reduce trade costs by almost 14.5% for low-income countries and by 10% for countries with high income (Findlay, 2015). The reduction of barriers in the supply chain by improving management, transport and communication infrastructure may lead to an increase in the global GDP by 4.7%, while world exports can rise by 14.5% (Findlay, 2015). At the same time, the total abolition of tariffs could give a much smaller effect – 0.7% of the global GDP growth and 1.1% growth in exports (Findlay, 2015).

Ensuring transparency and relief of the burden of customs formalities and procedures will inevitably contribute to the reduction of costs in the implementation of trade operations and overcome the problems of delays in the supply of goods. The solution to all these problems is of particular interest to small businesses because it will provide them with new opportunities to participate in international trade (de Chene, 2014). The adoption of obligations on reforming customs procedures and formalities, improving the efficiency of international transportation as well as providing quick access to information and channels of express delivery will enable small businesses to expand their logistics potential and actively participate in global supply chains (de Chene, 2014). It will also help reduce the costs of the export of their products.

Trade facilitation is crucial for the reduction of the costs associated with international trade that remain high despite a sharp decline in the cost of transportation, improvements in the field of information and communication technologies and removal of trade barriers in many countries. Full implementation of trade facilitation agreement will allow WTO members to reduce the costs associated with international trade by an average of 14.5% (de Chene, 2014). The agreement creates tangible opportunities for the improvement of efficiency and acceleration of customs procedures. Therefore, it reduces trade costs and encourages participation in global value chains, which is characteristic of contemporary international trade.

Trade facilitation agreement can be criticized as extremely favorable to its original initiators – developed country members of the WTO. Initially, negotiations on trade facilitation have caused some concern among developing country members of the WTO. They feared that they would not be able to meet the high requirements (Findlay, 2013). In turn, it would lead to an increase in claims and disputes. As a result, the parties have agreed that developing countries should receive technical and financial assistance and support. The issue of financing the implementation of the agreement has been the most problematic during the negotiations. Thus, it is the main disadvantage of trade facilitation. Some countries insisted that funding and technical assistance should be discussed prior to making any commitment. As a consequence, to help to develop and the least developed countries in the implementation of reforms in trade facilitation, the agreement provides its phased introduction in the longer term. These measures will be based on the assessment of the costs and needs of the states as well as on the determination of individual terms of the fulfillment of obligations for each member country (Uddin, 2015). However, funding is not only an element of the cost of implementation but also an important factor in this process. For the implementation of the agreement, political will is primarily required (de Chene, 2014). The agreement is limited in its conception. It is aimed at solving small issues of procedural and regulatory character. This vision contrasts with a broader definition adopted by other organizations such as the World Bank, according to which trade facilitation is aimed at combating various restrictions on trade and trade competitiveness, including the decision of hard infrastructure issues.

Conclusion

Trade facilitation is one of the priority tasks of the modern time. Within the framework of the World Trade Organization, trade facilitation issues have traditionally been an important consideration. These days, it is clear that to ensure the timely delivery of goods in today’s global business conditions, it is extremely necessary to accelerate processes and improve the quality of procedures associated with the release of goods for free circulation. The main provisions of the agreement include the use of electronic payments, provisions on preliminary decisions of the customs authorities, procedures of accelerated shipping of goods and many others. The authors of many studies note that small and medium-sized enterprises cannot actively participate in international transactions since the burden of customs formalities is beyond their strength. In such a way, the trade facilitation agreement can bring numerous advantages for all countries, especially developing ones. The agreement may give an additional push to the growth of the world economy.

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