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Trade Facilitation TRADE FACILITATION Brian Rankin Staples October 19, 1998 Draft TRADE FACILITATION SECTION ONE: INTRODUCTION AND HISTORY 1.0 Introduction This paper provides an outline of the concept and reality of trade facilitation primarily from an emerging economy policy-making perspective. This will be achieved by presenting the basic dimensions of trade facilitation in three stages. The first section reviews various issues, definitions and conditions that have led to the necessity of trade facilitation, and a brief history of trade facilitation. The second section profiles current trade facilitation resources and initiatives. The final section examines some of the practical and policy challenges associated with implementing a trade facilitation program. 1.1 Definitions In recent years the term, trade facilitation, has become extremely popular and, therefore, applied to an ever-growing number of activities. Given the very general origins of the word, facilitation, (Latin/facilis: French/facile: make easy, promote, help forward), it is not difficult to understand how the term, trade facilitation, has come to apply to a broad range of undertakings. For the purposes of this study it is useful to define what is not meant by trade facilitation, even though the following endeavors do, in fact, make trade easier or promote trade. · Physical Infrastructure: improving roads, upgrading port facilities, airports and transportation infrastructure in general. · Non-Tariff Barriers (NTBs): NTBs and all forms of regulatory asymmetry do prevent the free flow of international trade. NTBs, however, usually imply an alleged World Trade Organization (WTO) violation of some nature. The identification of NTBs in a consistent fashion and their gradual elimination is vital to the equitable treatment of commerce, but for the purposes of this analysis, are not included in the scope of trade facilitation. This report, however, will review and discuss non-tariff measures, such as standards. · Tariff Negotiations: Services and Investments/Intellectual Property Measures. All of the above mentioned topics represent critically important trade issues. Notwithstanding the priority of these matters on the international trade agenda, they do not fully address the concept of trade facilitation as understood internationally or by the private sector. For instance, in many cases, trade facilitation from a development perspective can involve tariff reductions for exports of clothing, footwear and/or leather goods from emerging economies. Although tariff rates have fallen dramatically over the past four decades (i.e., an average from 40% to 4%), many tariff issues remain but are only indirectly related to the principle of trade facilitation. 2 · Trade Promotion: Global trading opportunities have been created. Trade promotion is the best way to fully exploit these opportunities. Trade promotion, however, and trade facilitation are closely related, but distinct activities. To summarize briefly, trade facilitation is clearly not "high" trade policy. Trade facilitation does represent a deepening of the trade agenda, down from legislation, and regulation to the actual practice and administration of multilateral obligations at the operational level. Trade facilitation is technical and detailed by nature. Sylvia Ostry has referred to it as "the plumbing". "Plumbing" that, nonetheless, when properly and comprehensively addressed, may yield significant and practical benefits to national governments, international traders and international trade. 2.0 Historical Background: Trade facilitation is by no means a new issue in international trade. Ancient and medieval obligations, tolls, and charges were one means by which traders gained relatively peaceful entry into foreign lands. They did, however, raise the price of products considerably. Traders, such as Vasco da Gama, often explored new trade routes to avoid these fees. Importing spices directly from India, by sailing around the Cape of Good Hope, Vasco da Gama could sell spices sixty to one hundred-fold cheaper than Venetian merchants, who had to pay a multiple of overland tolls. This bewildering array of discriminatory charges by local rulers inhibited trade. In this context, It is not surprising that the consolidation of nation-states, which was characteristic of the period from the fourteenth century on, gave a stimulus to both local and foreign trade. The growth of trade and its regulation is correlated with a stability of government exercising authority over wide areas.1 Also during this period, the power of trade regulation gradually shifted "from town to state, from Guild Merchant to Parliament." In England, prior to obtaining the full right of royalty to impose duties, kings had attempted to offset declining feudal revenues by instituting a range of fees for services such as inspection, weighing of goods, and mooring of vessels. The language associated with these formalities, such as "manifest" (the listing of a ship's cargo) and "declaration" (used for import entries) along with these techniques themselves, have survived in today's customs regimes. Over time, English Parliament secured taxation and trade powers, and started to create several democratic institutions, including one of the oldest departments of all governments: Customs. It was during this time that we come across one of the first well-known trade facilitators, Edward III, known as the "Father of English Commerce" because of the consolidation of customs during his reign. Subsequently, most export tariffs were eliminated. Import duties become more important as a source of revenue and became more protectionist by nature. English tariff structures and regulations 1 J.B. Condliffe, The Commerce of Nations (Binghampton, N.Y.: W.W. Norton 8 Co., Inc., 1950) 2 3 were still formidably complex until Sir Robert Walpole, in office between 1712 and 1742, initiated a comprehensive simplification of the tariff system. 2.1 The Modern Era Over time, trade facilitation became more of an international concern and less of an issue of rationalizing a national Customs regime. Consider the following quotation from Condliffe concerning the evolution of trade facilitation: No aspect of economic policy between the wars has been so much discussed as this failure to reopen the channels of international trade. In addition to the voluminous writings by economists, there is a large body of documentation contributed to the conferences of the International Chamber of Commerce, as well as the studies of the Economic Intelligence Service of the League of Nations and the reports of the numerous official conferences with which these years abound. The International Chamber of Commerce was itself a postwar phenomenon. Founded in 1920, it labored throughout the interwar years to apply the principles of private business to the current issues of international economic policy. It did so by striving to work out agreements on specific issues among the business groups concerned. Much of its work dealt with technical questions such as double taxation, commercial arbitration, customs formalities, international river communication, bills of lading, and the interpretation of most-favored nation treatment. In these and similar fields a body of agreed rules, which inevitably recalls the Law Merchants of the early modern age, was hammered out in conference. It is interesting to note that much of this work has now been incorporated into the draft agreement for the International Trade Organization of the United Nations. In addition, the leaders of the International Chamber of Commerce were active in propounding business solutions to the questions considered by the successive postwar conferences called to implement the European peace settlement. The Dawes plan to commercialize reparation payments was a case in point. The World Economic Conference called in 1927 to seek ways of promoting freer world trade also owed much to the initiative and interest of the International Chamber of Commerce. The documentation of this conference still provides the most comprehensive survey of the international economic issues of the first postwar decade.2 [emphasis added] 2.2 Current Trends The meaning and implications of trade facilitation are different today than they were as recently as a few short years ago. The WTO is now a "single undertaking" that includes, or will shortly 2 J.B. Condliffe, The Commerce of Nations (Binghampton, N.Y.: W.W. Norton Co, Inc., 1950) 3 4 include, nearly every trading nation in the world. The Harmonized Commodity Description and Coding System, or Harmonized System (HS), an international product nomenclature, now covers more than 95 per cent of world trade. Trade facilitation in previous generations sought to harmonize different regimes, or at least establish an element of mutual recognition between different regimes. Today, however, the WTO and various conventions provide a common set of international standards or common trade and customs "legislation" for all countries. The current trade facilitation challenge is to establish common procedures and customs operations based on the above-mentioned international law. This process appears to be as inevitable as it is logical. Gilbert R. Winham provides the following perspective: Now to sum up. Trade (or enterprise) and regulation have been a theme and counterpoint through much of recorded history: that is, when regulation receded, trade flourished; and when regulation was intense, trade languished. This relationship developed because regulation was imposed
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