Trade Facilitation

Representatives of several trade missions, non-government organizations and academics attended the Trade Facilitation (TF) Review meeting, held on November 3, 2004 in Geneva at the Palais des Nations.  The meeting was jointly organized by CUTS International, EVIAN Group and UNNGLS. 

Michaela Eglin, trade consultant in Geneva, introduced the session on trade facilitation by giving a historical background of the trade facilitation negotiations in the WTO. She mentioned that in the first few years after the formation of the WTO, select members countries preferred negotiating the Singapore issues on a plurilateral basis, but due to the realisation that plurilateral agreements remain plurilateral for a long time, the Singapore issues were tabled for multilateral negotiations. The debacle in Seattle and the launch of the Doha Development Agenda stalled the possibility of moving forward on three Singapore issues; Competition, Transparency in Government Procurement and Investment. The final outcome was the trade facilitation was the only Singapore issue on the table.

Michaela was articulate in expressing the double standards adopted by a few developed countries on trade facilitation issues. She said that on one hand developed countries are quite concerned about the additional costs their businesses have to bear on account of the state of trade facilitation activities in developing countries, while on the other they are less concerned about the implications of the heightened security measures that they have adopted since the September 11 attacks, and the cost they impose in the trade of goods and services on the rest of the world. She said that there is very little research available on the costs that developing countries bear because of time delays and additional compliance on account of security measures adopted by developed countries, while a lot of research is available on transaction costs on account of developing country trade facilitation practises.

While concluding, she said that there is an essential need to provide capacity building on trade facilitation issues to developing countries especially the least developed countries, since the experiences of developing countries in improving their trade facilitation infrastructure has been mixed. For example there are some countries like Argentina and Chile who have provided evidence of the gains of improving trade facilitation, while there are also countries in Africa who think that trade facilitation will impose enormous burden on their government spending, that too at the risk of lesser spending on health and education. According to Michaela future developments in trade facilitation negotiations need strong political will, devoid of excessive scepticism, and require concrete capacity building initiatives by developed countries.

Eduardo Bianchi, Chief Economist, Institute for International Trade Policies and Strategies, Argentina, in his presentation expressed that there is a high degree of confusion in the definitional issues concerning trade facilitation and there is need for standardising the conceptual issues, without which any further progress will be difficult to achieve. He said that there are two divided views on the concept of trade facilitation. On one hand there our countries that want to restrict the scope of trade facilitation to custom formalities, on the other hand there are countries that want negotiations to encompass the complete gamut of activities that are related to facilitating trade between two parties in two countries. Eduardo was of the opinion that there is clear need for broadening the scope of trade facilitation because merely looking at custom formalities would be quite myopic. Trade facilitation negotiations should encompass banking, transport infrastructure as well as e-commerce since all of these are of importance in ensuring that goods and services are transferred without incurring excessive monetary and time costs.

Eduardo also stressed that if trade facilitation was broadened in scope, it will be more useful for least developed countries. Poor state of trade facilitation imposes higher costs on small companies compared to big companies. Due to small scale of operations, SMEs in least developed countries face the most costs on facilitating movement of their goods, while multinational corporations are able to minimise costs per unit due to their large scale of operations. Least developed countries will also attract more foreign direct investment if they actively reduce infrastructural and procedural barriers in trade.

Eduardo clarified that though trade facilitation may render gains to LDCs, it requires certain pre-requisites, which may not be available in LDCs since there are enormous capacity constraints to implement trade facilitation. Capacity constraints are not only infrastructural or financial but also human capacity constraints. Many custom officials in Africa are not even educated beyond high school. There is corruption and excessive political intervention. Thus trade facilitation may require governments to change several domestic practises and wrong conventions.

He emphasized that this current state of capacity constraints in trade facilitation, especially in least developed countries, will require stronger recognition of special and differential treatment in trade facilitation negotiations. Such S&DT will not only require special treatment in capacity building, financial transfers and additional time, but also in terms of special treatment in the dispute settlement mechanism.

Ambassador Kweronda-Ruhemba from the Uganda Mission to the WTO presented the ground realities that confronted developing countries on trade facilitation negotiations. He emphasized on the need to restrict the scope of trade facilitation to enable the negotiations to be more focussed and ensure domestic policy space. He also stressed the need for developed countries to provide technical and infrastructural assistance, unlike the broad language used in the July draft, by also encompassing clear evidence of benefits by including cost sharing measures.

Ambassador Ruhemba also raised important questions on the major challenges that confront TF negotiations. How should developing countries create the capacity to implement TF requirements, who will bear the costs, what implementation periods are we talking about, what are the legal consequences for failure to implement and who is the competent legal authority to oversee implementation, were few of the pertinent questions that he raised.

Ambassador Ruhemba expressed particular concern for land locked countries. He said that land locked countries are worse off since they are dependent on the trade facilitation improvements of neighbouring countries to gain from the agreement. He gave concrete examples to enumerate his point. It costs US$ 1400 for a container to travel from Amsterdam to Darussalam by air, while it costs US$ 2800 for the same container to travel from Darussalam to Kigali by road. Similarly in Mombasa a container needs eight stamps, signifying eight different inspections to travel out of the customs.

In conclusion Ambassador Ruhemba said that unless there are adequate mechanisms to ensure that everybody is gaining from the agreement, we should adopt a cautious approach and first try to turn these challenges into achievable objectives.

Brian Staples, from Trade Facilitation Services, Canada in a short intervention emphasized on the need to ensure that the trade facilitation definition cover all activities that occur between legitimate traders. He said that the term “legitimate traders” will ensure that trade facilitation will not conflict with security concerns and also take into account corruption and illegal trading activities. He said that by taking this position on TF, trade would be favourable for good traders, while it will also build transparency to tackle wrong acts. Brian emphasized on the need for an open dialogue on the trade facilitation subject and the need for all concerned parties to move ahead with an open mind.

Several interesting comments emerged at the meeting.

A representative of the Canadian Mission presented the Canadian position at the meeting. He said that Canada was a demandeur in the trade facilitation negotiations and was actively involved in bilateral trade facilitation assistance. The Canadian Customs regularly assisted developing countries in increasing transparency and automation and actively participated in the “Customs Evaluation Assistance” in the World Customs Organization. He also pointed out that Canada thinks that the risk of being taken to the Dispute Settlement Mechanism would be low in the trade facilitation agreement

Vinod Rege, Advisor, Commonwealth Secretariat explained that the trade facilitation negotiations should provide adequate space for flexibility and customisation since there is a limit to which international TF rules can be harmonised.

In a question on what research is required in trade facilitation, Brian Staples pointed out the need to investigate research questions such as “How does timely delivery influence industry location?” “How does TF increase trade?” and “how to practically measure transactions costs?” He also stressed on the need to study the relationship between TF and the SPS and TBT agreements.

Transparency in Government Procurement

Representatives of several trade missions, non-government organizations and academics attended CUTS-CITEE’s review meeting on Transparency in Government Procurement (TGP), held on November 3, 2004 in Geneva at the Palais des Nations. CUTS INTERNATIONAL, EVIAN GROUP and United Nations Non-Government Liaison Service (UNNGLS) jointly organized the meeting.

The session moderator, Vinod Rege, Advisor to the Commonwealth Secretariat suggested that though TGP is out of the negotiating table for the moment, there is possibility of its emergence in the Hong Kong Ministerial. He elucidated the need for greater professionalism in government procurement. The corruption in government procurement starts at a political level and hence without political will, little can be done. Further, transparency is not only required by governments, but also by MNCs. The Enron debacle in India is clear evidence of the corrupt links between governments and MNCs. Government procurements is also linked to political contributions in several countries and hence it is difficult to ensure that central governments will engage in any negotiation in best endeavour on account of vested interests.

He also raised the question on the rules for government procurement. Any set of international rules on government procurement should be customized in relation to the situation in each country, and the emphasis should primarily be on basic procurement transparency.

The session speaker, Simon Evenett, University Lecturer, Said Business School, University of Oxford, UK presented interesting research findings on government procurement. On an average, government procurement accounts for 5 percent to 20 percent of GDP of different countries. On the other hand in individual products such as consumer goods, the share is quite low. However there are strong links between government spending and development, through public health expenditure, education expenditure etc.

He also said that though a plurilateral agreement on government procurement exists in the WTO, attempts at establishing a multilateral one have not been successful. Developed countries have also agreed to drop TGP along with two other Singapore issues, realising that government procurement from abroad is a small amount of total government procurement. The primary objections for a TGP Agreement were that scarce government spending resources should not be bound by international rules, rules may narrow means to promote industrial development by government procurement and the inherent limitation in separating market access and transparency.

He went on to say that select countries have also accepted the benefits of a TGP agreement by understanding its impact on reducing corruption, increasing competition and decreasing costs of procurement. Though TGP may not be on the international trade negotiation agenda at this moment, it is inevitable either unilaterally i.e. via conditionalities of the World Bank and IMF, or via bilateral agreements.

The session discussant, Ron Watermeyer, President, South African Institution of Civil Engineering, introduced some refreshing thoughts on TGP. TGP is all about good governance and attainment of national development objectives. There is considerable agreement on the requirements of a good government procurement system, however little on how to satisfy or implement such a requirement. Government procurement is necessary to fulfil certain non-commercial objectives using mechanism such as sustainable procurement, ethical procurement and procurement that favours cooperatives and livelihoods.  Procurement can also be used as a market based mechanism to change corporate behaviour.

He said that there is growing acceptance of standardised procurement systems that enhance competition and favour social objectives, since government procurement in developing countries is often a centralized approach. Further is there a need felt for an ISO standard on government procurement and what form of capacity building is required for implementation? Ron’s presentation gave rise to several contentious issues. Firstly whether government procurement models replicable? Secondly how does one objectively assess procurement models?

Simon Evenett addressed some concerns raised by participants regarding WTO rules causing undue harmonization and resultant reduction in policy space. He said that the TGP agreement, if it emerges on the WTO negotiation table, is expected to standardise base level government procurement standards. The same holds true for the Trade Facilitation negotiations. Further the statement that WTO rules harmonise national policies is a misnomer. The WTO simply lays down threshold level rules, and thus provides adequate scope for rational and relevant customisation, as long as the customisation is justifiable.  

Ron Watermeyer clarified doubts raised by participants on the possibility of objectivity in government procurement by stating that government procurement decisions, like any other decisions will always be subjective. However TGP aims to ensure that the decisions taken are transparent, rational and defendable.