Upali Wickramasinghe - South Asia Watch on Trade ... · Available from : South Asia Watch on Trade,...

Upali Wickramasinghe

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rProgressive Regional Action and Cooperation on Trade (PROACT)

A MultilateralApproach toTradeFacilitation inSouth Asia

Published by : South Asia Watch on Trade, Economics & Environment(SAWTEE)

Copyright © : 2004, SAWTEE

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Citation : Wickramasinghe, Upali. 2004. A Multilateral Appeoach to TradeFacilitation in South Asia, V+57, Kathmandu: SAWTEE

First Published : 2004

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ISBN : 99933-817-7-2

Available from : South Asia Watch on Trade, Economics &Environment (SAWTEE)GPO Box: 19366, 254 Lamtangeen MargBaluwatar, Kathmandu, NepalTel: 977-1-4444438, 4415824Fax: 977-1-4444770Email: [email protected]: www.sawtee.org

This Discussion Paper has been prepared under the Progressive Regional

Action and Cooperation on Trade (PROACT) Phase II being implemented by

SAWTEE with financial support from the Novib, the Netherlands. The broad

aim of the project is to build the capacity of civil society organisation (CSOs)

of the South Asia region thereby contributing to create an atmosphere condu-

cive to formation of and commitment to common position of South Asian

Association for Regional Cooperation (SAARC) countries in negotiations at the

World Trade Organisation (WTO) by taking “development dimension” into

consideration.

We wish to thank Prof J. George and Dr Posh Raj Pandey for providing useful

comments. We would also like to thank Mr Kamalesh Adhikari, Mr Bhaskar

Sharma and Ms Dikshya Thapa for their support during various stages of

finalising this paper.

Acknowledgements

List of acronyms

AAR Authority for Advance RulingsACIS Advance Cargo Information SystemADB Asian Development BankAPEC Asia Pacific Economic CooperationASEAN Association of South East Asian NationsASEM Asia Europe MeetingASYCUDA Automated System for Customs DataBoP Balance of PaymentCAC Codex Alimentarius CommissionCBEC Central Board of Excise and CustomsCBR Central Board of Revenue CCIE Cisco Certified Internetwork Expert

CEGAT Customs Excise and Gold Control (Appellate) TribunalCGE Computable General EquilibriumCTD Customs Transit DeclarationCTG Committee on Trade in GoodsDGFT Director General of Foreign TradeEASY Electronic Assessment System EC European CommissionEDB Export Development BoardEDI Electronic Data InterchangeEDIFACT Directories for Electronic Data Interchange for Administration,

Commerce and TransportEPB Export Promotion BureauESCAP Economic and Social Commission for Asia and the PacificEU European UnionFAL Facilitation of International TrafficFAO Food and Agriculture OrganisationFBCCI Federation of Bangladesh Chamber of Commerce and IndustryFDI Foreign Direct InvestmentFTA Free Trade AgreementG-7 Group of SevenGAN Garment Association of NepalGATS General Agreement on Trade in ServicesGATT General Agreement on Tariffs and TradeGC General CouncilGCC Group on Customs Cooperation

GDP Gross Domestic ProductGNP Gross National ProductGSP Generalised System of PreferencesHACCP Hazard Analysis Critical Control PointHS Harmonised SystemHST Harmonised Tariff ScheduleICAO International Civil Aviation OrganisationICTs Information and Communications TechnologiesIDB Inter-American Development BankIDS Infrastructure Development SurchargeIEC Importer-Exporter Code

IEC International Electro-technical CommissionIMF International Monetary FundIMO International Maritime OrganisationIP Import PermitIPA Integrated Programme of Action

IPRs Intellectual Property RightsIRTU International Road Transport UnionISO International Organisation for StandardisationIT Information TechnologyITCC Import Trade Control CommitteeITU International Telecommunications UnionL/C Letter of CreditLCA Letter of Credit AuthorisationMERCOSUR Southern Common MarketMNCs Multinational CompaniesNAFTA North American Free Trade AreaNBR National Board of RevenueNBSM Nepal Bureau of Standards and MetrologyNC Nomenclature CommitteeNCC Nepalese Chamber of Commerce

NGOs Non-governmental OrganisationsNTBs Non-tariff BarriersOECD Organisation for Economic Cooperation and DevelopmentPBT German National Meteorology InstituteRBI Reserve Bank of IndiaRKC Revised Kyoto ConventionRTAs Regional Trading ArrangementsS&DT Special and Differential TreatmentSAARC South Asian Association for Regional CooperationSAFTA South Asian Free Trade AgreementSAPTA South Asia Preferential Trading ArrangementSLACCS Sri Lanka Automated Cargo Clearance SystemsSLSI Sri Lanka Standards InstitutionSMEs Small and Medium EnterprisesSPS Sanitary and Phytosanitary

SROs Statutory Regulatory Orders TBT Technical Barriers to TradeTPC Trade Promotion CentreTRIPS Trade Related Aspects of Intellectual Property RightsUN United NationsUNCEFACT United Nations Centre for Trade Facilitation and Electronic BusinessUNCITRAL United Nations Commission on International Trade LawUNCTAD United Nations Conference on Trade and DevelopmentUNECE United Nations Economic Commission for EuropeUNLK United Nations Layout KeyUNO United Nations OrganisationUR Uruguay RoundUS United StatesVAT Value Added TaxWCO World Customs Organisation

WHO World Health OrganisationWTO World Trade Organisation

Exchange rates (as of 18.09.2004)1 US $ = Bangladeshi Taka 60.631 US $ = Bhutan Ngultrum 45.251 US $ = Maldive Rufiyaa 12.851 US $ = Nepalese Rupee 74.02

Executive summary 1

Introduction 3

Basics of trade facilitation 5

International architecture of trade facilitation 17

Trade facilitation in South Asia 29

Issues, priorities and development strategies 47

Annexes 51

Endnotes 55

Bibliography 56

Contents

1

The progressive trade liberalisation un-der the General Agreement on Tariffs and

Trade (GATT) and now the World TradeOrganisation (WTO), and the subsequent reduc-tion in trade barriers have now brought the at-tention to reducing “other” costs of doing busi-ness. It is now understood that cumbersome,complex and often opaque import and exportrequirements could vastly increase the time re-quired for business transaction resulting in costescalation.

Realising this, developed countries have madeefforts to reduce such impediments to trade byimproved trade facilitation measures such asdoing away with duplicative documentation re-quirement through mechanisation andcomputeri-sation of trade related procedures andby streamlining regulatory apparatus.

However, developing countries, despite their will-ingness, still lag far behind in the area of tradefacilitation. While there could be several politicaleconomy factors that have contributed to thisstate of affairs, one major reason for their in-ability to provide stimulus for improved tradefacilitation measures is the lack of resources.Though studies have indicated that one time in-vestment in such measures could help countrysave tremendous amount of recurring expensesand even provide streams of benefits to the trad-ers, it is difficult for the developing country gov-ernments to mobilise the resource required forupfront investment.

Though some provisions of the WTO do relateto trade facilitation, the proposal to initiate ne-gotiations on trade facilitation within the multi-lateral discipline of the WTO has remained con-tentious. Trade facilitation was included in theWTO work programme by the Singapore Min-isterial Conference held in December 1996, and

is part of the Singapore Issues (other issues be-ing competition, investment and transparency ingovernment procurement). However, the inclu-sion of this issue for negotiations, subject to ex-plicit consensus on the modalities of negotiations,as agreed during the Doha Ministerial Confer-ence of the WTO, has created a sharp divisionbetween the North and the South. Arguably,Singapore Issues could be considered a majorcause for the failure of the Cancun MinisterialConference.

However, the 'July Package' agreed by the WTOGeneral Council (GC) on 1 August 2004 has laidall the speculations to rest on whether or not ne-gotiations will begin on this issue. Though thedecision on other three Singapore Issues have beenput on hold for the time being, negotiations ontrade facilitation are going to be completed as apart of ‘Single Undertaking’ and will be con-cluded when the Doha Round concludes.

Rather than remaining aloof, it is advisable forthe developing countries to take active part inthe negotiations with a view to protecting theirinterests and using this platform to secure as muchconcessions as possible from the developed coun-tries – including on technical assistance.

South Asian countries, which are at the lowestebb in terms of trade facilitation, should not onlytake a proactive negotiating agenda but also makeuse of negotiations under the WTO to furthertheir domestic reform agenda. In the process, itmay be necessary for these countries to conductcost-benefit analyses of implementing trade fa-cilitation measures keeping in mind their stagesof development, trade and finance needs. Suchanalyses are likely to take the mystery out of tradefacilitation puzzle so that South Asia will be readyfor the negotiations on trade facilitation withmuch confidence.

Executive summary

3

Trade facilitation is universally ac-cepted as a means of improving the

efficiency of international trade and eco-nomic development. Many policymakersoften claim that doing business in devel-oping countries is difficult because the bu-reaucratic requirements that should becompleted to import or export goodsand services are so cumbersome andcomplex, often requiring hundreds of sig-natures of officials from many institutionslocated in different locations. The for-malities on imports and exports include,among others, vastly duplicative officialdocumentation or regulatory require-ments that lack transparency; difficultiesin making payments or transfers; logisti-cal problems at ports and airports; arbi-trariness in making decisions; red tape; anddifficulties to obtain information on mar-kets and marketing practices. In many in-stances, ports are inefficient in handlingcargo. All these delays substantially increasecost of goods and services being ex-ported or imported, constraining theirmovements across international borders.High transaction costs make exports lesscompetitive in international markets andraise import prices, substantially alteringconsumer welfare.

International organisations dealing withtrade often urge developing countries tosimplify trade related documentation re-quirements and procedures and improvecustoms clearance with a view to reduc-ing transaction costs of trading activities.The basic theoretical argument of tradefacilitation runs something like this: tradefacilitation reduces transaction costs; re-duced transaction costs increase potentialfor the movement of goods and servicesacross national borders; increased tradeleads to economic growth and develop-

Introduction

ment, which, in turn, increases incomesof people that raise human well-being.The first relationship – trade facilitationlowers trade related transaction costs –has been well established (Wilson et al.2003). Although there is a rich set of theo-retical models attempting to explain theother causality effects, the empirical evi-dence is scanty and country specificitiesseem to have an important role to play indetermining how economic growthtranslates into human development. Thispaper deals with the first causality rela-tionship only.

Trade facilitation is an issue that is linkedto a number of critical areas with far-reaching implications: competitiveness,economic efficiency, government regula-tions and controls, issues of governance,institutional arrangements, legal structure,and political and social implications. Thisalso has implications for trade in bothgoods and services, while the require-ments of these two sectors can be verymuch different from one another. Forexample, customs procedures may affectthe competitiveness of merchandise trade,and immigration and certificate require-ments may be the main reasons for lowinternational trade in professional services.Therefore, the selection of trade facilita-tion measures would very much dependon the level of comparative advantageof the particular products under consid-eration.

The renewed interest on issues of tradefacilitation can be attributed to the inclu-sion of the issue of trade facilitation inthe agenda of the WTO. Many develop-ing countries consider this to be some-thing far from what they had expected,as they perceive trade facilitation to be a

Chapter 1

The renewed interest onissues of trade facilitationcan be attributed to theinclusion of the issue oftrade facilitation in theagenda of the WTO

4

A MULTILATERAL APPROACH TOTRADE FACILITATION IN SOUTH ASIA

toms Organisation (WCO) can only beviewed with suspicion as a camouflagedattempt to hide behind the weight ofthese organisations to delay the imple-mentation of trade facilitation measures.

This paper reviews the current issues inthe area of trade facilitation with a viewto understanding the potential implica-tions and benefits of implementing tradefacilitation, particularly under the WTOambit in South Asia. This would, hope-fully, lead to a dialogue between the po-litical leadership, officials, academia, thebusiness community and the civil society.Such a dialogue would be of help in de-veloping some consensus on the issue andprepare for the next round of WTO ne-gotiations. These issues need serious con-sideration because the consensus reachedamong WTO members to continue ne-gotiations on trade facilitation through the'July Package' holds significance for theSouth Asian countries as well.

Issues for comments• What can developing and least developed countries in general and South Asian countries in particular

do to improve trade efficiency?

• What extent of economic gains could South Asian countries make by implementing trade facilitationmeasures?

• What position should South Asia have with regards to the issue of trade facilitation at the multilaterallevel?

technical issue. In any case, developingcountries had received technical assistancefrom international organisations forimplementing certain measures wherethey had problems on a voluntary basis,without being supervised and scrutinisedby trading partners or by a supra-nationalbody. They were free to implement thepolicies on a pace they preferred to withthe own resources available to them, af-ter carefully evaluating the pros and consof such measures. The obligatory natureof rules under the WTO was the mainreason for developing countries to op-pose the inclusion of trade facilitation inthe WTO agenda. Since there is only athin margin between the WTO and manyof the so-called international organisationswhen it comes to the treatment as well asopportunities for them to participate indesigning policies, the request by devel-oping countries for trade facilitation tocontinue to be in the domains of interna-tional organisations such as the World Cus-

The obligatory nature ofrules under the WTO was

the main reason fordeveloping countries tooppose the inclusion oftrade facilitation in the

WTO agenda

5

2.1 Defining trade facilitationTrade facilitation does not have a com-monly accepted standard definition andthe institutions working on the area/issuehave evolved their own definitions de-pending on their mandate and objectives.Sometimes, the definitions being usedwithin the same organisation also varyaccording to the subject area under con-sideration. Puri (2003) identified four mainideals of trade facilitation: rationalisation,simplification, harmonisation and auto-mation of trade and customs procedures.This can be seen by examining the defini-tions adopted by various institutions(See Box 2.1).

This discussion paper looks at trade facili-tation from the perspective of transactioncosts, which emerge from complex docu-mentation requirements, administrative

Basics of trade facilitationChapter 2

procedures, international standards, prac-tices and formalities related to trade. Thepaper views that the primary objective oftrade facilitation is to minimise transactioncosts, enabling trading activities to be car-ried out with minimum efforts and costs.Transaction costs vary from country tocountry, depending on the level of effi-ciency of government bureaucracy andinfrastructure. Therefore, efforts atminimising transaction costs should takeinto account these divergences. In addition,such efforts should also take into accountthe extent of reforms necessary to achievetrade facilitation targets. The use of trans-action cost as the basis could also help indevising an objective method for choos-ing the most cost effective reformprogramme so as to be able to allocatescarce resources among alternative tradefacilitation measures.

WTO and United Nations Conference onTrade and Development (UNCTAD): “simpli-fication and harmonisation of international tradeprocedures, including activities, practices, and for-malities involved in collecting, presenting, commu-nicating, and processing data required for the move-ment of goods in international trade”(www.wto.org and UNCTAD 2001: 180).

Organisation for Economic Cooperation andDevelopment (OECD): “simplification andstandardisation of procedures and associated in-formation flows required to move goods interna-tionally from seller to buyer and to pass paymentsin the other direction” (OECD 2001).

United Nations Economic Commission for Eu-rope (UNECE): “comprehensive and integratedapproach to reducing the complexity and cost of

the trade transactions process, and ensuring that allthese activities can take place in an efficient, transpar-ent, and predictable manner, based on internationallyaccepted norms, standards, and best practices”(UNECE 2002).

United Nations Centre for Trade Facilitation andElectronic Business (UNCEFACT): “the system-atic rationalisation of procedures and documents forinternational trade (trade procedures being the activi-ties, practices and formalities involved in collecting,presenting, communicating and processing data re-quired for the movement of goods in internationaltrade)” (UNCEFACT 2001).

Asia Pacific Economic Cooperation (APEC): “thesimplification, harmonisation, use of new technologiesand other measures to address procedural and admin-istrative impediments to trade” (Wilson et. al. 2002).

Definitions of trade facilitationBOX: 2.1

Transaction costs varyfrom country to country,depending on the level ofefficiency of governmentbureaucracy andinfrastructure

6


2.2 Basic principlesIn a contribution to the deliberations ontrade facilitation under the WTO (2003a),Canada has identified broad trade facili-tation principles. According to the report,the principles are based on categories of-ten mentioned in either international meet-ings, discussions or in literature on tradefacilitation. These principles are sum-marised below.

2.2.1 Transparency

Ready availability of information on laws,regulations and administrative policies andprocedures as well as the accessibility tosuch information.

2.2.2 Simplification

Simplification of border-related rules andprocedures to achieve their legitimate ob-jectives in a practicable and efficient way.

2.2.3 Non-discrimination

Rules and procedures relating to trade notto discriminate between or among goodsand/or modes of transport.

2.2.4 Due process

Access to an unbiased administrative ap-peal process and the ability to seek re-dress in accordance with the legislationof individual members.

2.2.5 Cooperation

Enhanced cooperation amongst and be-tween government authorities, businessand the trading community.

2.2.6 Consistency and predictability

(i) Rules and procedures to be applied ina consistent and predictable manner; and(ii) to provide clear and precise proce-dural guidance based upon standard poli-cies and operating procedures and be ap-plied in a non-discretionary and uniformmanner.

2.2.7 Communication and consultation

Allowing for stakeholders' inputs whendeveloping, implementing and reviewingtrade related rules and procedures.

2.2.8 Protection and compliance

Rules and procedures to provide for anappropriate balance among facilitation,

enforcement, and health, safety and pro-tection against unlawful activities.

2.2.9 Standardisation

To the greatest extent possible, the imple-mentation of procedures and obligationsbe based upon international trade instru-ments and rules.

2.3 Historical perspective of tradefacilitationAlthough trade facilitation is seen as a newagenda within the WTO system, it is notnew to the trade negotiations or to otherinternational organisations. For example,United Nations (UN) and its affiliatedcommissions and institutions as well asother specialised institutions such as theWCO have been working on trade facil-itation for over half a century. In addi-tion, regional cooperation arrangementssuch as APEC, North American FreeTrade Area (NAFTA), the EuropeanUnion (EU), Association of South EastAsian Nations (ASEAN), South AsianAssociation for Regional Cooperation(SAARC), Southern Common Market(MERCOSUR) and bilateral trade ar-rangements have taken trade facilitationin their work programmes. APEC, forinstance, has developed a set of trade facil-itation principles in 2001 and at present isin the process of implementing them withthe objective of achieving the goal of re-ducing transaction costs by 5 percent by2005 (APEC 2001a). The Japan-Singaporebilateral free trade agreement (FTA) an-nounced in 2001 has provisions on a widerange of trade and investment facilitationinitiatives in its agreement (Woo 2002), andthe Canada-Costa Rica FTA includes achapter on trade facilitation.

Trade facilitation was very much a partof the GATT since its inception. How-ever, the issue took prominence when thiswas brought under the mandate of ne-gotiations in the 1996 Singapore Ministe-rial, which instructed the WTO GoodsCouncil to start exploratory and analyti-cal work, taking into account the workof other relevant organisations in orderto assess the scope for WTO rules in thisarea. Following this direction, the WTOprepared a background note, which re-

APEC has developed a setof trade facilitation

principles in 2001 and atpresent is in the process of

implementing them with theobjective of achieving the

goal of reducing transactioncosts by 5 percent by 2005

7

viewed major works on the subject by15 other international organisations, in-cluding non-governmental organisations(NGOs). Other international organisationswere also associated with the work.

Since then, the work on trade facilitationin the WTO has passed through severaldistinct stages (WTO 2003b). In the firstphase, a fairly broad and comprehensiveview can be discerned in terms of theissues deliberated in the 1998 symposiumof which a major part was devoted tounderstand the major issues and concernsof the international business community.This includes, among other things, (i) ex-cessive documentation requirements; (ii)lack of automation and insignificant useof information technology (IT); (iii) lackof transparency (unclear and unspecifiedimport and export requirements); (iv) in-adequate procedures (especially a lack ofaudit-based controls and risk assessmenttechniques); (v) lack of modernisation of,and cooperation among, customs andother government agencies, whichthwarts the efforts to deal effectively withincreased trade flows.

The second phase started with the 2001symposium, which deliberated on issuesof interest to developing countries suchas customs and border-crossing proce-dures, and the technical assistance and ca-pacity building needs in trade facilitation.The conference underlined the impor-tance of technical assistance and capacitybuilding for facilitating trade and identi-fied the following elements as essentialfor the successful execution of trade fa-cilitation related technical assistanceprogrammes:

• The political will of governments toundertake trade facilitation related re-forms;

• Coordination and cooperationamong the providers of technical as-sistance;

• Transparency of reform pro-grammes as well as of the legal sys-tem;

• The involvement of all stakeholders(governments, business community,

customs) in the execution of tradefacilitation measures;

• The responsiveness of trade facilita-tion programmes to special needs ofrecipients; and

• The use of agreed benchmarks intheir execution.

In the preparation for the Seattle Minis-terial at the end of 1999, several mem-bers presented proposals on trade facili-tation in the GC1. Some members calledfor the launch of negotiations at Seattleto establish a framework of rules anddisciplines or to strengthen the existingWTO rules viz. Articles V, VIII and X ofthe GATT 1994 with the objective ofminimising administrative and proceduralburdens on traders. It was also proposedto develop and implement a capacitybuilding programme in conjunction withthe design of WTO disciplines with theaim of ensuring that all members are ableto implement the negotiated rules and dis-ciplines.

Between the summers of 1998 and 1999,the WTO held four more meetings toconduct further exploratory and analyti-cal work in order to focus on more spe-cific issues of trade facilitation: importand export procedures and requirements,including customs and border-crossingproblems; physical movement of con-signments (transport and transit), includ-ing payments, insurance, and other finan-cial requirements, which affect the cross-border movement of goods in interna-tional trade; electronic facilities and theirimportance for facilitating internationaltrade, including technical cooperation anddevelopment issues; evaluation of theexploratory and analytical work to assessthe scope for WTO rules in the area oftrade facilitation. During these meetings,many WTO members and internationalorganisations presented their own expe-rience dealing with trade facilitation andsuggested ways and means of strength-ening the work on trade facilitation.

The Seattle Ministerial was a total disas-ter, particularly so for trade facilitation asit was overshadowed by other issues suchas anti-dumping. Nevertheless, the Com-

In the preparation for theSeattle Ministerial at theend of 1999, severalmembers presentedproposals on tradefacilitation in the GeneralCouncil

BASICS OF TRADEFACILITATION

8


mittee on Trade in Goods (CTG) con-tinued its analytical and exploratory workin 2000 and 2001 on trade facilitation.Some delegations drew linkages betweennational experience and WTO principles.They showed that problems faced bytraders are practically identical in everycountry regardless of their stage of de-velopment. Likewise, trade facilitationmeasures applied by governments all overthe world were essentially based on thesame principles. Some delegates proposedto further elaborate GATT 1994 rules ontrade facilitation in order to address cus-toms and border-crossing problems ‘inan efficient and coherent manner’.

Other delegations expressed cautionagainst expanding the WTO legal frame-work so as to include trade facilitationrules. The Chairman of the CTG in De-cember 2000, in a progress report sub-mitted to the GC on the status of workon trade facilitation, raised several points.First, the report underlined the significanceof IT in raising the efficiency of customsprocedures. However, the application ofIT requires the simplification of officialrequirements and documents. Second, itshowed the need for government andindustry to work more closely and co-operatively on customs issues. Third, ithighlighted the fact that small and me-dium scale enterprises have much to gainfrom simplification of requirements andgreater transparency.The Doha Ministerial in November 2001was the next major milestone in theWTO's involvement in trade facilitation,which established that negotiations ontrade facilitation would take place afterthe Fifth Session of the Ministerial Con-ference in 2003 in Mexico. The DohaDeclaration2 , after several failed texts, fi-nally agreed on the following:

“Recognising the case for further expediting themovement, release and clearance of goods, in-cluding goods in transit, and the need for en-hanced technical assistance and capacity build-ing in this area, we agree that negotiations willtake place after the Fifth Session of the Min-isterial Conference on the basis of a decision tobe taken, by explicit consensus, at that sessionon modalities of negotiations. In the period un-

til the Fifth Session, the Council for Trade inGoods shall review and as appropriate, clarifyand improve relevant aspects of Articles V,VIII and X of the GATT 1994 and iden-tify the trade facilitation needs and priorities ofmembers, in particular developing and least de-veloped countries. We commit ourselves to en-suring adequate technical assistance and sup-port for capacity building in this area.”

The text legitimised the work being car-ried out by the CTG in the area of tradefacilitation and clearly specified the needto review, clarify and improve Articles V,VIII and X of the GATT 1994. It alsomandated to identify trade facilitationneeds of developing and least developedcountries, while making a commitmentto ensure adequate technical assistance andsupport for capacity building.

In 2003, WTO continued its work ontrade facilitation under the Doha man-date and on the three core agenda items:(i) GATT Articles V, VIII and X; (ii) tradefacilitation needs and priorities of mem-bers, especially of developing and leastdeveloped countries; and (iii) technicalassistance and capacity building. The finalCancun Ministerial statement noted that,while “considerable progress” was made,“more work needs to be done in somekey areas to enable us to proceed towardsthe conclusion of the negotiations infulfilment of the commitments we tookat Doha”. Ministers instructed their offi-cials to continue working on outstandingissues with a renewed sense of urgencyand purpose and taking fully into accountall the views they have expressed in theConference.

Following this, the so called 'July Pack-age' adopted by the GC on 1 August2004, calls for negotiations on trade fa-cilitation, while other Singapore Issues(competition, investment and transparencyin government procurement) have beendropped from the Doha mandate.

Annex D of the July Package, whichelaborates on the modalities for negotia-tions on trade facilitation, states that ne-gotiations “shall aim to clarify and im-prove relevant aspects of Articles V, VIIIand X of the GATT 1994 with a view to

The Doha Ministerial inNovember 2001 was the

next major milestone in theWTO's involvement in

trade facilitation

9

further expediting the movement, releaseand clearance of goods, including goodsin transit.”3 Besides, providing the coremodalities, trade facilitation text also con-tains relatively strong ‘development lan-guage’, which provides the leeway to thedeveloping countries not to implementtheir part of the commitments absenttechnical assistance.

2.4 Major elements of tradefacilitationTrade facilitation is often identified withthe points of engagement from the per-spectives of the importers and export-ers. These points of engagements are:

• collection of information and mar-ket intelligence;

• negotiating terms and conditionswith the exporter or importer(buyer–seller negotiations);

• processing of the documentationnecessary for undertaking the agreedcommercial activities;

• obtaining the certificates of health,safety, environment and other regu-latory bodies, rules of origin andstandards institutions;

• completing the required customs pro-cedures (when crossing the border);

• insurance;

• transporting the goods from thesellers’ to the buyers’ premises;

• meeting the buyers’ requirements; and

• paying for the goods and receivingpayments from abroad

It is useful to classify these points of en-gagement on the basis of functions. Threefunctional points for classification havebeen identified by the WTO4 : (i) export,import and customs procedures; (ii) physi-cal movement of goods and delivery ofservices; and (iii) financial requirements ofcross-border trade. The following sectionclarifies the issues and potential solutionspertaining to each of these areas.

2.4.1 Export, import and customsproceduresIn many developing countries, export and

import procedures and requirements arevery cumbersome. The documentationrequirements often lead to extensive dataentry requirements and high probabilityof data re-entry and duplicity of effort.UNCTAD estimates that an average cus-toms transaction involves 20–30 differ-ent parties, 40 documents, 200 data ele-ments (30 of which are repeated at least30 times) and the re-keying of 60–70percent of all data at least once. There-fore, simplification and greater transpar-ency in official documentation can offersteep reductions of transaction cost as-sociated with exports and imports.

What are the different ways that can re-duce transaction costs? Several methodshave already been identified. The mostimportant methods are: streamlining ofprocedures, concentration of controls inone authority, effective communicationssystems, and easier means for paymentof duties. These methods help reduce theburden on the customs authorities, banks,and traders, diminishing the chance forcorrupt practices. It has been identifiedthat a lot of administrative changes arerequired to facilitate work in this area.First, personnel working with documen-tation and regulations need re-trainingwith a focus on their efficiency and giv-ing access to and confidence in the useof new technology. Second, there is aneed to change the ethos of the govern-mental and business community. Althoughthis makes lot of sense, implementationcan be quite difficult given the vested in-terest of the people in these institutions.The Kyoto Convention can provide thebasis for discussion and negotiations.

With regard to export, import and cus-tom procedures, five major problems havebeen identified:

• Lack of transparency of methodsand procedures;

• Delays in border crossings;• High corruption at border crossing;• Packaging and labelling require-

ments; and• Differing national standards.

Transparency of information and lack oftransparency, predictability and consistency

In many developingcountries, an averagecustoms transactioninvolves 20–30 differentparties, 40 documents,200 data elements (30 ofwhich are repeated atleast 30 times) and there-keying of 60–70percent of all data atleast once


10


of regulations are cross-cutting issues thataffect all these specific problems, and theydeserve special attention.

Transparency of information is a majorproblem that many developing countriesface. They lack access to the Internet andother forms of communication technol-ogy. Developing countries lack basicphysical and human infrastructure foroptimum utilisation of IT. They also lackregulatory environment necessary for theuse of electronic media for trade activi-ties. The human resources requirementsin this area are known to be immense. Inparticular, developing countries do nothave the necessary critical mass of com-puter literate workforce with sufficientknowledge in using computers. Physicalaccess to computer hardware and soft-ware is limited because telecommunica-tions networks may not be functioningwell and the supply of electricity may notbe reliable. In order to improve the ca-pacity in this area and ensure broad-baseddevelopment, these problems will haveto be addressed upfront. This requiresfinancial, training and other types of as-sistance. Programmes like the AutomatedSystem for Customs Data (ASYCUDA)and the Advance Cargo Information Sys-tem (ACIS), established by UNCTAD insome countries, could help in this area.

The regulatory regimes in developingcountries are often marred by lack oftransparency, predictability and consis-tency. In theory, publication of all thelegal provisions and changes in govern-ment gazettes is a statutory requirement.This may not necessarily be the casewhen it comes to implementation wherecertain rules and regulations may evenbe applied before they are actually pub-lished. The uniform and consistent ap-plication of customs laws, regulations,guidelines and procedures towards allthose, who engage in imports and ex-ports related activities, is a requirementaccepted in theory but often violated inpractice. This is partly because the com-plexity of laws and regulations leavesroom for the officials to use their dis-cretionary powers to interpret laws, pro-cedures and documentation require-

ments. Penalisation of officers in advert-ent or inadvertent mistakes is rare andoften small-scale businesses or individu-als suffer the most, as they lack politicalsupport or do not have the monetarymuscle to handle such cases. The politi-cal commitment to make progressivereform is not forthcoming as there is littleincentive to change because politiciansthemselves derive benefits from the ex-isting system where there is ample op-portunity for corruption. Some suggestthat the application of the Arusha Dec-laration on Customs Integrity is one ofthe first things that developing countriesshould do in order to arrest some ofthe fundamental misalignments in the sys-tem. The 1993 WCO initiative also calledfor progressive reform in this area ratherthan an attempt to overhaul the system.

2.4.2 Physical movement ofconsignments (transport and transit)There is a complex set of problems as-sociated with the physical movement ofconsignments across borders. They rangefrom information, rules and regulations,technical requirements and ways andmeans of dealing with hazardous mate-rials. In an unfacilitated environment, find-ing information on border crossing re-quirements may not be all that straight-forward. Border-crossing also involvesthe movement of vessels in and out ofports, technical requirements for roadtransport vehicles, legislation concerningthe movement of crews and passengers,fiscal charges, restrictions, visa require-ments for drivers, and rules regarding thecarriage of hazardous goods. These is-sues are much more relevant for land-locked countries that depend entirely onland routes and seaports owned by othercountries.

The solution to this problem often lies inthe implementation of uniform interna-tional rules. While some issues fall withinthe ambit of the General Agreement onTrade in Services (GATS), the possibilityof sorting out these problems within theWTO is limited as many issues such asport regulations and reporting require-ments, air transport, or harmonisation oftechnical and fiscal measures placed on

The regulatory regimes indeveloping countries are

often marred by lack oftransparency, predictability

and consistency

11

vehicles or of existing rules for the car-riage of hazardous goods are outside itsjurisdiction.

2.4.3 Financial requirements relatedto cross-border movement of goodsThe commercial practices of banks andother financial institutions affect the cross-border movement of goods, and ineffi-ciencies of financial institutions could be-come a major hindrance for trade. There-fore, the creation of more efficient pay-ment and credit arrangements, for ex-ample, through an internationally agreedmethod for ensuring the legal validity andsecurity of electronically exchanged pay-ment messages from or to non-banks(such as the so-called BOLERO system,parallel to the SWIFT system amongbanks), would pave the way for facilitat-ing trade. Similarly, restrictive governmentpolicies such as the prescription of spe-cific payment methods and very high ges-tation periods between the time of de-livery and receipt of payments can havedeleterious effect.

The solutions can vary from a simple leg-islative act to major reforms includingprivatisation of financial institutions to thatof creation of industry-financial sectorconglomerates such as that existed in Ja-pan or in South Korea. Financialliberalisation is multifaceted, which requiressimultaneous reforms in several areas toproduce the best outcome. Theliberalisation of exchange control and re-laxation of stringent requirements on for-malities on payments, insurance and otherfinancial requirements are essential forsmooth functioning of the financial sys-tem. The establishment of a well function-ing, secure payment system and thestrengthening of insurance mechanism re-lated to exports and imports are requiredfor efficiency. These reforms, if correctlyimplemented, would enhance the availabil-ity of credits and lower cost of funds. Ininstances where such reductions are notforthcoming, there can be other rigiditiesthat need to be identified. Cost effectivepayment systems can benefit small devel-oping countries more than developedcountries. The WTO could identify tech-nical assistance requirements in this area.

2.5 Potential benefits andconsequencesTrade facilitation entails a number of ben-efits to all regardless of the stage of de-velopment. Countries with very hightransaction costs are likely to be the big-gest beneficiary of trade facilitation. Thebenefits of trade facilitation are likely tobe far greater than any further reductionof tariffs, particularly in the current envi-ronment where tariff rates are very low.Trade facilitation can substantially increasecompetitiveness for a country’s trade re-gime.

These benefits of trade facilitation stemfrom a number of interrelated causes:

• Reduced compliance costs (produc-ing and transmitting required docu-ments);

• Reduced service charges (banking,insurance, cargo handling, transport,etc) and lower time-costs (process-ing time, procedural time);

• Reduction of hassles in dealing witha complex and time-consumingtrade process;

• Reduced personal opportunity cost(time lost in waiting at customs, tak-ing documents from one agency toanother, etc);

• Reduced costs owing to predictabil-ity and low or no corruption; and

• Increased business opportunitiesowing to an efficient trading envi-ronment.

There is general empirical support to thehypothesis that trade facilitation reducestransaction costs. For example, a recentstudy carried out by the OECD finds thattransaction costs contribute to 2 percentto 15 percent of trade transaction value,and trade facilitation measures could re-sult in saving of between 2 percent and 3percent of total trade value. The poten-tial for such savings will vary from coun-try to country, depending on the existingcosts and levels of inefficiency. Electronicdocumentation is estimated to yield costsavings of some 1.5 percent to 15 per-cent of the landed cost of an imported

Countries with very hightransaction costs are likelyto be the biggestbeneficiary of tradefacilitation


12


item in APEC. Applying a simple aver-age of a 3 percent reduction in landedcosts to intra-APEC merchandise trade,it has been estimated that the gross sav-ings from electronic documentation alonecould be US$ 60 billion (APEC 2001b).As the report argues "trade facilitation andelectronic business is not only about costsavings but equally, and perhaps more im-portantly, is the business developmentaspect of trade facilitation techniques. In-creasing revenues through electronic busi-ness and through the use of the Internet

and associated standards like ebXML willbring new business opportunities and rev-enue streams that are linked to modernbusiness and transport solutions." APECBusiness Advisory Council (1999)emphasised that three kinds of trade fa-cilitation measures, namely customs facili-tation, standards and regulatory con-formance, and business mobility, wereimportant for APEC as a whole. How-ever, this report does not distinguishamong APEC members in terms of theirlevels of trade facilitation and their im-

Broadly, there are three approaches to measuring ben-efits of trade facilitation: (i) direct estimation of ben-efits by evaluating reduction of transaction costs orpotential benefits; (ii) CGE model; and (iii) gravitymodel.

Wilson, Mann and Otsuki (2003) derived indicatorsof trade facilitation that measure four different cat-egories of trade facilitation efforts: port efficiency,customs environment, regulatory environment ande-business usage. These four categories reflect thekey areas of trade facilitation. Each category is rep-resented by relevant indicators as given below:

Port efficiency:• Port Efficiency Index• Port facilities and inland waterways• Air transportCustoms environment:• Irregular payments• Low import fees• Hidden import barriers• Bribery and corruption• Corruption perception index

Regulatory environment:• Transparency and stability of environmental

regulations• Stringency of regulatory standards• Compliance with international environmental

agreements• Enforcement of environmental regulation

E-business:• Percentage of companies that use the internet

for e-commerce

It is concluded that these indicators “helppolicymakers judge where their economy standsrelative to their peers in regard to each of thesemeasures…this multiple indicator approach anddecomposing the impact of the various indica-tors on trade may enable more targeted decisionmaking by policymakers” (Wilson, Mann andOtsuki 2003: 19). Combined with the simulationapproach to estimating the impact of trade facili-tation such as the gravity model, these measuresprovide valuable input to considering alternativepilot projects and capacity building projects on apriority basis.

CGE models have been popular as a technique forquantifying the benefits of improved trade facilita-tion. These models use reductions in the costs orimprovements in the productivity of the internationaltransportation sector to represent an improvementin trade facilitation. Since the transportation sector isalready included in the CGE model, the effect ofimproved trade facilitation comes from “shocking”the sector by an appropriate amount.

The gravity model of international trade flows is acommon approach to modelling bilateral trade flows,which explain bilateral trade flows by 34 tradingpartners’ gross national product (GNP), geographi-cal distance between countries population, gross do-mestic product (GDP) per capita (to account forintra-industry trade effects that may be associatedwith countries of similar incomes but varied tastes),regional trading arrangements (RTAs), and language/ethnic similarities. Recent theoretical and empiricalworks supporting this modelling approach includeEvenett and Keller (1998), Feenstra, Markusen andRose (1998), and Frankel, Stein and Wei (1997).

Measuring the effectiveness of trade facilitation

Trade facilitation andelectronic business is not

only about cost savings butequally is the businessdevelopment aspect of

trade facilitation techniques

BOX: 2.2

13

pact on intra-regional trade (OECD2001).Countrywide models, based on Comput-able General Equilibrium (CGE) mod-els, have yielded almost the same results.UNCTAD (2001) using a CGE model,has estimated that welfare gains to Asiancountries from trade facilitation amountto US$ 3.6 billion. This has resulted froma 1 percent increase in the productivityof wholesale and retail trade services. Inaddition, it estimates that an additionalUS$ 3.3 billion will be resulted from a 1percent improvement in the productivityof maritime and air transport services.APEC (1999) also used a CGE modelto quantify the impact of trade facilita-tion on trade and found that the impactof trade facilitation on trade differs bymembers of the group: “1 percent ofimport prices … for the industrial coun-tries and the newly industrialising coun-tries of Korea, Chinese Taipei andSingapore, and 2 percent for the otherdeveloping countries.” The report esti-mates that trade facilitation efforts inAPEC merchandise exports would in-crease by 3.3 percent. The completion ofthe Uruguay Round (UR) commitmentsis estimated to increase APEC’s merchan-dise trade by 7.9 percent. In another CGEmodel, harmonisation of standards andautomating customs procedures betweenJapan and Singapore have been found toincrease their trade flows bilaterally as wellas with the rest of the world (Hertel,Walmsley and Itakura 2001).

In a gravity model, e-commerce has beenfound to promote bilateral trade amongnations (Freund and Weinhold 2000 ascited in Wilson et al. 2003). The imple-mentation of the trade facilitation net-work in Singapore that allows traders tomake an electronic declaration of importsand exports direct from their own com-puter is estimated to have increased ap-proximately 1 percent of Singapore’sGDP and 0.4 percent of total externaltrade. An electronic data exchange in Chileis estimated to have resulted in businesssavings of over US$ 1 million per month,for a system cost of US$ 5 million. Manyothers have used gravity model specifi-

cations to study the impact of such fac-tors as communication costs, facilitationof standards, food safety standards onthe impact of intra-regional or bilateraltrade. Many of these studies find posi-tive association between these specificaspects of trade facilitation and actualtrade in a number of countries. Someargue that by lowering local transactioncosts, developing countries can offset costdisadvantages elsewhere such as transportcosts. Shipping costs contribute to agreater loss to developing countries.5

The old modes of productions and de-livery are no longer applicable in manyinstances. This has necessitated develop-ing countries to pay careful attention totrade facilitation. The current global busi-ness environment is characterised by fourmain elements:

• Rapid change of consumerbehaviour;

• Increased role of multinationalcompanies (MNCs) in exportsfrom developing countries;

• Change in the system of produc-tion and delivery; and

• Formation of bilateral and regionalagreements in trade and investment.

Consumers, particularly the rich, are nolonger constrained by geography and lo-cation. This has made the marketing ofgoods and services much more competi-tive than what it used to be a couple ofyears ago. We observe that markets forgoods and services are horizontally inte-grated as far as the rich people from allthe countries are concerned. The richfrom both developed and developingcountries consume the same kinds ofgoods and services, and their markets arealmost the same. This has made it neces-sary for goods and services exporters tobe able to meet the changing require-ments of the various market segments inorder to be competitive in the globalmarket place. This challenge can be metonly through strengthening the capacityof our exporters.

The role played by MNCs in developingcountries has increased manifold within

The old modes ofproductions and deliveryare no longer applicable inmany instancesnecessitating developingcountries to pay carefulattention to tradefacilitation


14


the last few years with globalisation. In-formation and communications technolo-gies (ICTs) are advancing at a rapid ratemaking communication costs cheaper. In-novative methods of communication areintroduced to the market almost everyyear. In response to technological ad-vances, production and processing tech-nologies also change rapidly together withthe change of management techniques.This has resulted in intensified global com-petition. The entry of former commu-nist block countries such as China, Viet-nam and East Europe into the worldtrading system and the trade liberalisationpolicies implemented by countries suchas India, which hitherto followed import-substitution policies, have exemplified al-ready severe competition. Since much ofthe technological advances are madewithin multinational firms located in ad-vanced countries, and the technologytransfer is taking place at a very slowspeed, export companies from develop-ing countries are in a disadvantaged posi-tion vis-à-vis MNCs. Under increasedcompetition, disadvantages in technologyand better management techniques ofMNCs, companies from developingcountries find it almost impossible topenetrate markets for goods and servicesdominated by major players. As a result,MNCs have started to play increasinglycritical roles in exports from developingcountries whether it is production ofgoods and services, consumer research,design technology, sourcing materials,transporting, marketing, or wholesale andretail trade. All these changes requirespeedier changes within national econo-mies and the development of faster de-livery mechanisms.

Systems of production and delivery havealso changed and developing countriescannot operate in isolation from the restof the world. The “slicing up” produc-tion processes and locating each slice in alocation where the best conditions existis the current global trend. The old typeof production processes where all theparts of any given product are producedin one country, or in one location, nolonger applies. Firms make use of the new

production processes and communicationtechnology to slice up international pro-duction processes and produce only thecomponents that a given country is mostefficient in production. In this apparatus,the reliability of supply and their efficiencydetermine whether developing countriesattract foreign direct investment (FDI).One way of achieving such efficiency isto implement an effective trade facilita-tion programme.

The bilateral trade and investment agree-ments and regional trading blocks playincreasingly important roles in the presentinternational environment and countriesform such organisations through tradeand investment agreements with a viewto promoting trade as against global in-tegration under multilateral negotiationsor unilateral liberalisation. The countriesthat championed free trade under multi-lateral trading arrangements such as theUnited States (US) also formed regionaltrading blocks in the 1990s and are stillinterested in forming bilateral and regionaltrading blocks with other major tradingnations such as Singapore and Australia.In response to these changes and the in-ability to negotiate trade agreements un-der RTAs such as SAARC and the failureof the multilateral negotiations under theWTO to sort out differences over trad-ing arrangements, many countries inSouth Asia are attempting to enter intobilateral trading arrangements. These bi-lateral agreements can fulfil their objec-tives only if goods can be freely trans-ported and services are delivered effi-ciently within the region. Trade facilita-tion programmes can be beneficial fordeveloping and least developed countries,which have signed preferential access ar-rangements with other countries and re-gions.

The competitiveness of a country can besubstantially improved through trade fa-cilitation. This is particularly importantunder the present global trading environ-ment for speedy delivery of goods andservices without violating legal, adminis-trative and customs regulations imposedby countries. The increased use of mod-ern inventory techniques such as just-in-

Systems of production anddelivery have changed anddeveloping countries cannot

operate in isolation fromthe rest of the world

15

time production and delivery methodswould require much higher levels of ef-ficiency and speedy actions at all levels ofexport activities, particularly at customs,airports and ports. The development ofsuch a system is not an easy task; it re-quires the involvement and dedication ofall the stakeholders, both from the pri-vate and the public sectors. Governmentofficials will have to recognise the needto deliver goods faster while the export-ers will have to understand the need tofulfil regulatory and statutory require-ments. Trade facilitation can minimisethese requirements so that systems can bemade speedier and transparent. Similarly,there is a need to change the attitudes ofall stakeholders towards information shar-ing, acceptance of digital signatures andcertificates. Since the world no longeroperates on the premise of producing allthe components at one place and that thedelay in producing and delivering even asingle small component can jeopardisethe whole operation, corporations as wellas the government should take collectiveresponsibility for the entire supply chainwithin the country as against the respon-sibility towards only the component oneproduces.

E-commerce contributes to a large shareof global trade at present. Developingcountries also have great potential forusing e-commerce for their advantage.However, attempts to show that e-com-merce can be a way out at this stage ofdevelopment for developing countries toreap benefits of globalisation are too far-fetched. There are many other structuralbottlenecks – dilapidated and congestedroad networks, poor port facilities, poorquality of energy, poor communicationsystems – that need to be removed be-fore e-commerce can provide furtherimprovement. Therefore, trade facilitationprogrammes need to be properly se-quenced so that full benefits of moresophisticated instruments can be imple-mented once the basic instruments areproperly implemented. The developmentof well-integrated trade facilitation pack-age is, therefore, needed.

An efficient trading environment condu-

cive for faster delivery and production ismore likely to attract greater flows ofFDI, particularly when it is combinedwith regional free trade and investmentarrangements. Trade facilitation can in-crease the participation of small and me-dium enterprises (SMEs) in internationaltrade, which otherwise may not have theresources to deal with complex tradeprocedures and processors including test-ing requirements. SMEs, by definition,export smaller quantities or do not ex-port on a regular basis. The cost of suchoperations may be too high for them toengage in foreign trade activities.

Trade facilitation can add substantial ben-efits to consumers due to lower pricesresulting from the removal of trade bar-riers. It is not only the consumers but alsoa whole lot of other industries that canalso benefit from trade facilitation be-cause many modern industries, particu-larly in developing countries, depend onimported raw materials.

The work undertaken by the GATT andother global institutions during the pasthalf-century has resulted in so much oftariff reductions that the present averagetariff rates are often below 10 percent.The actual transportation costs have alsocome down due to containerisation andother modern transport techniques in-cluding electronic data interchange. Be-cause these costs are already low, tradefacilitation is an area where there is greaterpotential for achieving cost reductions andefficiency improvements. In countrieswhere operational costs are higher, firmsare likely to pay lower wages and seekways and means for paying lower do-mestic taxes to maintain the same levelsof returns to capital being paid in othercountries. In such circumstances, tradefacilitation can make an impact on the lev-els of FDI flows by streamlining com-plex trade procedures and removing ‘redtape’ so that overall costs are maintainedat a low level.

Effective trade facilitation measures of-ten succeed in attracting FDI into a coun-try than granting investor incentives. More-over, effective trade facilitation measuresreduce transaction costs and make the

Effective trade facilitationmeasures often succeed inattracting FDI into acountry than grantinginvestor incentives


16


Issues for comments• What are the major problems related to export, import and custom procedures faced by the South

Asian countries?

• What role can trade facilitation play in the growth of the large number of SMEs that operate in theSouth Asian countries?

• What impact can e-commerce have on the trade facilitation initiatives of the South Asian govern-ments?

• Do the benefits from implementing trade facilitation measures justify the costs involved?

• How could the South Asian countries utilise the trade facilitation text of the "July Package" (AnnexD) to their advantage?

goods sector more competitive. SMEsare more important to developing coun-try economies than in developed ones andcan benefit from trade facilitation mea-sures, as obstacles to transactions mayconstitute a larger share of their costs thanfor large companies. Facilitated proce-dures in developing countries would ben-efit importers and exporters alike. Theymay help increase possibilities for intra-developing country trade as well as in-crease the attractiveness for FDI.

Obviously, implementing trade facilitationprogrammes are not without challenges.Many countries find it difficult to sort out

where to begin with the process of tradefacilitation as there is no ready system ofmeasurement. One of the first prioritiesin the area of trade facilitation would beto devise a system of measurement andcarry out estimates across countries. Glo-bal competitiveness ranking may offersome solace but these estimates are lim-ited to advanced countries with the excep-tion of a few small developing countries.As for developing countries, the effort hadalways been on measuring and rankingpoverty rather than a system like the re-moval of bottlenecks to trade that wouldcontribute so much to poverty reduction.

One of the first prioritiesin the area of trade

facilitation would be todevise a system of

measurement and carryout estimates across

countries

17

3.1 Pillars of internationalarchitectureJapan, in one of the communications sub-mitted to the WTO (2003b) (WTO/Council for Trade in Goods/GCW/465), has categorised trade facilitationprogrammes into three pillars: the actionprogramme; capacity building; and rulesetting.

The action programme can have variousforms such as unilateral or regional tradefacilitation. Universal trade facilitation ac-tivities are carried out by national gov-ernments on their own to minimise trans-action costs, while regional bodies suchas APEC and the EU undertake tradefacilitation among their members in or-der to increase economic integration.These arrangements do not have bindingobligations on the part of the participants,who can withdraw at any time. The sec-ond important pillar is capacity building,which often includes technical assistanceto improve their trade procedures andexpand their capacity to engage in inter-national trade. As the Japanese documentpoints out, “the efficiency of capacitybuilding might, however, be low if thereis no motivation or any benchmark”. Thethird pillar is rule setting, which aims atproviding the legal framework at themultilateral level. The rules and proceduresagreed upon at the multilateral level be-come binding constraints on WTO mem-bers. While the first two pillars, viz. theaction programmes and capacity build-ing, had been used during the last 3-4decades under the ambit of United Na-tions Organisation (UNO), the third pil-lar of trade facilitation took the centrestage only after trade facilitation becamean agenda item of the WTO. There is

synergy among these three pillars such thateach supports the other in an importantway. Actions in any one pillar provideimpetus for other pillars, and in the pro-cess each gets strengthened. For example,capacity building is important for under-standing and analysing trade facilitation,while it positively impacts unilateral orbilateral trade facilitation programmes.Rule setting, on the other hand, can helpto implement trade facilitation measuresat a faster pace.

3.2 Capacity building and tradefacilitation at the national levelThe UN philosophy on trade facilitationis that trade facilitation helps and im-proves a country’s capacity to engage ininternational trade. Since internationaltrade positively affects economic growthand human development, there is a rea-son for the UN to engage in trade facili-tation. The UN Charter provides a readyreference to trade facilitation, which statesthat “trade is essentially seen as a tool ofpeace and economic development for theeradication of poverty and enhancementof freedom, equality and dignity of man-kind.” Since the focus is not on the de-velopment of international trade for itsown sake but rather on the developmentof international trade in the context ofits potential to promote economic growthand development, and hence the allevia-tion of poverty, (UNESCE 2002: 6) ithas a legitimate reason to engage in tradefacilitation. The case for technical assis-tance to developing countries has to doprimarily with strengthening the capacityof officials to participate in WTO nego-tiations and to implement commitments.However, technical assistance in customsreform and modernisation involves pro-

International architecture oftrade facilitation

Chapter 3

Technical assistance incustoms reform andmodernisation involvesprovision of physicalinfrastructure andinstitutional know-howand thus requires largecommitments of time andmoney

18


vision of physical infrastructure and in-stitutional know-how and thus requireslarge commitments of time and money.The earlier impasse on trade facilitationseems to stem from the discrepancy ofexpectations from the part of developedcountries and lack of commitments com-mensurate with the expectations in termsof resources.

The UN has undertaken substantial workon trade facilitation. One of the finestexamples of UN involvement is thepreparation of the Compendium ofTrade Facilitation Recommendations,which summarises 40 years of trade fa-cilitation work under the UN and otherinternational agencies. This has identifiedover 30 trade facilitation recommenda-tions. Another example is the establish-ment of the UNCEFACT. The premiseof the CEFACT is the observed interde-pendence between trade facilitation andelectronic business in the current globalbusiness environment, and the realisationthat developing countries may even fallout further without some action to facili-tate electronic commerce.

3.3 Trade facilitation at theregional levelAlmost all the regional financial institu-tions [(for e.g., Asian Development Bank(ADB), Asia Europe Meeting (ASEM),Inter-American Development Bank(IDB)], regional associations [(for e.g.,ASEAN, MERCOSUR, Group ofSeven or G-7, SAARC)] and UN regionalorganisations [(for e.g., UNECE, APEC,United Nations Economic and SocialCommission for Asia and the Pacific(ESCAP)] have some level of engagementrelated to trade facilitation.

Within the Asia-Pacific region,UNESCAP plays a major role to facili-tate trade. Its engagement has particularlybeen in the area of technical assistance toregional associations like ASEAN, greaterMekong sub-region and SAARC tobuilding awareness; promotion and cre-ation of trade facilitation institutions; de-velopment of effective trade financinginstruments and institutions; capacitybuilding for establishing e-commerce

including work on legal and regulatoryissues on trade facilitation; and transportfacilitation activities focused on transittransport and landlocked countries. In caseof South Asia, UNESCAP has made anattempt to bring some countries to co-operate on alignment of trade documentsbased on the widely accepted UnitedNations Layout Key (UNLK).

Initiatives by UNESCAP in transport fa-cilitation include: harmonisation of legalregimes relating to land transport; facili-tation of faster turn-around time in portthrough simplification of documents andother measures; assisting governmentswith development of freight forwardingand multimodal transport, including theestablishment and strengthening of na-tional freight forwarders associations; andcapacity building in freights forwarding,multimodal transport and logistics, includ-ing the training of trainers.

UNESCAP has indicated that its futurework programme would focus mainly ontransit and transport facilitation within theregion to identify procedural, institutionaland regulatory bottlenecks on specifictrade and transport corridors and to as-sess and monitor the status and progressof trade and transport facilitation.

3.4 Global rule settingThe debate on trade facilitation is centredstill on the question of the applicabilityand desirability of global rule making fordeveloping countries. Many countries aswell as international organisations such asthe WCO have indicated that many de-veloping countries have not acceded tothe Kyoto Convention not because ofdifficulties related to physical infrastruc-ture problems but because of legislativeprocesses and the lack of technical andlinguistic expertise.

Several international organisations areworking with a particular interest in glo-bal rule making. The premier institutionsin this category are the WCO, the WTO,United Nations Commission on Interna-tional Trade Law (UNCITRAL), Inter-national Civil Aviation Organisation(ICAO), International MaritimeOrganisation (IMO), and OECD.

The UN has undertakensubstantial work on trade

facilitation such as thepreparation of the

Compendium of TradeFacilitation

Recommendations, whichsummarises 40 years oftrade facilitation work

under the UN and otherinternational agencies

19

A number of international agreementsand conventions are in force at present.The UN Compendium summarises theseagreements (UNCEFACT 2001), whichcategorises these measures under nine cat-egories: general provisions to facilitatetrade; official procedures and controls;transport and transport equipment; move-ment of persons; management of dan-gerous goods and harmful substances;payment procedures; use of ICT; com-mercial practices and the use of interna-tional standards; and legal aspects fortrade facilitation. The jurisdiction of theseconventions is vested with a number ofinstitutions such as the WTO, IMO,ICAO, etc.

The 1998 WTO Symposium on TradeFacilitation identified a long list of issuesthat, in essence, called for the implemen-tation of various procedural measuresrelated to transport, procedures, customs,trade documents, integrity, and the use ofICTs. Well over half of these issues relateto existing trade facilitation instruments,such as the Kyoto Convention, theMontreal Protocol IV, the IMO Conven-tion on the Facilitation of InternationalTraffic (FAL), the United Nations Lay-out Key for Trade Documents, UnitedNations Directories for Electronic DataInterchange for Administration, Com-merce and Transport (EDIFACT), theArusha Declaration on Customs Integ-rity, the G7 Data initiative andUNCEFACT Recommendation.

Members at varying levels of economicdevelopment have accepted binding ob-ligations under these conventions. Severalgovernments, including those in less de-veloped countries, have either acceded tothe Kyoto Convention or are consider-ing how to progress through the acces-sion process by implementing national leg-islative and political processes. The WCOreports that many other members haveindicated that their internal ratification pro-cesses are being implemented. Under theKyoto Convention, governments com-mit themselves to the implementation ofinternational standards for the bordermanagement of trade and to themodernisation of customs procedures.The composition of accession countriesthus far reveals that the level of develop-ment is not an impediment to the imple-mentation of trade facilitation activities.

3.5 Trade facilitation under theWTOThe agreements that constituted the WTOalready have a number of provisions re-lated to trade facilitation.6

3.5.1 Existing binding rules andproposalsSpecific elements connected with the sim-plification and harmonisation of tradeprocedures are already contained in theWTO legal framework, e.g., in Articles V,VII, VIII, X of the GATT 1994 as wellas in other WTO agreements (See Box 3.1).

• The GATT 1994: tariff concessions negotiatedduring the UR, as well as the whole of thelegal decisions taken by the contracting partiessince the inception of the GATT in 1947;

• Articles V (freedom of transit);

• Article VII (valuation for customs purposes);

• Article VIII (fees and formalities connectedwith importation and exportation);

• Article IX (marks of origin); and

• Article X (publication and administration oftrade regulations).

Other WTO agreements directly related to tradefacilitation:

• Agreement on Customs Valuation;

• Agreement on Import Licensing Procedures;

• Agreement on Preshipment Inspection;

• Agreement on Rules of Origin;

• Agreement on Technical Barriers to Trade(TBT); and

• Agreement on the Application of Sanitary andPhytosanitary (SPS) Measures.

WTO agreements dealing with trade facilitation

Specific elements connectedwith the simplification andharmonisation of tradeprocedures are alreadycontained in the WTOlegal framework, e.g., inArticles V, VII, VIII,X of the GATT 1994

BOX: 3.1

INTERNATIONAL ARCHITECTUREOF TRADE FACILITATION

20


The GATS, with its annexed schedules,provides for liberalisation in a number ofservice industries, which are vital for thefacilitation of trade, e.g. transport, financ-ing, telecommunications. In addition, theAgreement on Trade Related Aspects ofIntellectual Property Rights (TRIPS) con-tains a section on border measures, whichallows members to take specific measuresto prevent the inflow of counterfeit andpirated goods.The rule-setting attempts at the WTO ontrade facilitation are centred on the revi-sion of GATT 1994 Articles, namelyArticle V (freedom of transit), ArticleVIII (fees and formalities connected withimportation and exportation), and Ar-ticle X (publication and administrationof trade regulations). These are knownas ‘track one’ proposals. The rule mak-ing process calls for members to nego-tiate additional commitments on prin-ciples such as transparency, due process,simplification, efficiency and non-dis-crimination. Track two proposals con-centrate on two areas. The first set ofproposals provides for the developmentand implementation of a comprehen-sive technical assistance programme inparallel to negotiations. The second setcalls for cooperation and coordinationfor such assistance amongst donors andrecipients and includes needs assessmentas well as long-term monitoring andfollow-up.

3.5.2 Core agenda of the WTOThe core WTO agenda is concentratedon the following areas:• Article V, Article VIII and Article X

of the GATT 1994;• Trade facilitation needs and priori-

ties of members, particularly devel-oping and least developed countries;and

• Technical assistance and capacitybuilding.

3.5.2.1 Article V: Freedom of transitArticle V of the GATT 1994 sets out thebasic requirements that countries shouldfulfil in order to ensure that a country canhave the freedom of transit through the

most convenient route. It calls on mem-bers not to discriminate on the basis of:flag of vessel, place of origin, departure,entry, exit or destination, and ownershipof goods or means of transport; and notto impose any unnecessary delays or re-strictions on transit. It also calls on mem-bers to impose reasonable fees andcharges that would be non-discriminatoryand limited to the cost of service pro-vided.

During 2002, a number of WTO mem-bers put forward proposals for the re-view, clarification and improvement ofGATT Articles V, VIII and X underCTG’s programme of work on tradefacilitation.7 The proposals relate to sim-plification of procedures for transit, ex-ceptions to the principle of non-discrimi-nation for sensitive items, RTAs and useof international standards. These propos-als are summarised under each categoryas follows.

Simplification of procedures for transit facilita-tion: Proposals call for the simplificationof documentary requirements and pro-cedures for transit; preparation of spe-cific guidelines on how unnecessary pro-cedures can be reduced; simpler and lessonerous requirements and procedures fortransit compared to importation; and amechanism that would institutionalisecooperation among members, harmonisetransit policies between them and ensuresharing of information among customauthorities.

Exceptions to the principle of non-discrimina-tion for sensitive items and goods requiring trans-shipment: Proposals call for (i) the publica-tion of ‘sensitive items’ that may be sub-ject to special provisions where excep-tion to the rule of non-discriminationapplies; and (ii) the implementation ofmore sophisticated risk management tech-niques in cases where there is a possibilityof illegal release of transit goods (as inthe case of landlocked countries). It callson members to have additional inspec-tion of goods in transit that require trans-shipment (in relation to those that do notrequire trans-shipment) to prevent thesmuggling of goods in transit into thetransit country.

The rule-setting attemptsat the WTO on trade

facilitation are centred onthe revision of GATT1994 Articles, namely

Article V, Article VIII ,and Article X

21

Regional transit arrangements: TheEU has pointed out that the existing Ar-ticle V requires members to operate na-tional transit schemes but does notrecognise the issue of transit at a regionallevel. Therefore, the EU proposed to es-tablish regional transit regimes under Ar-ticle V on similar lines of the TIR Con-vention, the European Convention onCommon Transit, the ASEAN Frame-work Agreement on the Facilitation ofGoods in Transit and UN instruments re-lating to transit. Thus, members couldconsider the establishment of regionaltransit regimes within the framework ofArticle V.

Use of international standards for providing tran-sit facilities: The EU and Canada have sug-gested the use of international standardsfor providing transit facilities. They pointedout that members could consider the pos-sibility of accession to various instrumentsrelating to transit such as the CustomsConvention on the International Trans-port of Goods under cover of TIRCarnets (TIR Convention), Geneva, 14November 1975; the Customs Conven-tion on the ATA Carnet for the Tempo-rary Admission of Goods (ATA Con-

vention), Brussels, 6 December 1961 andthe Convention on Temporary Admis-sion (signed at Istanbul in 26 June 1990).The WCO, in its submission (WTO/G/C/W/426), has recommended the use ofpractices mentioned in the revised KyotoConvention (RKC) to facilitate transittrade. The principles of the customs tran-sit procedures of the RKC provide for asafe, secure and standard transit proce-dure. The WCO encourages its membersto accede to international conventionsrelating to transit such as the TIR Con-vention and instruments provided by theWCO on customs transit that facilitatetransit procedures for temporary admis-sion of goods. According to the WCO,if members are not in a position to ac-cede to these conventions, they should takeinto account customs transit, standardsand recommended practices mentionedin the RKC while drawing up multilat-eral/bilateral agreements.

3.5.2.2 Article VIII: Fees and formali-ties connected with importation andexportationArticle VIII deals with administrative as-pects of trade and it provides an illustra-

TIR carnet (TIR convention)The TIR Carnet is a road transport document, whichallows containerised and in some cases bulk cargoto move through simplified and harmonised ad-ministrative formalities under some basic require-ments: (i) goods should travel in secure vehicles orcontainers; (ii) duties and taxes ‘at risk’ during thejourney should be covered by an internationally validguarantee; (iii) goods should be accompanied by aninternationally accepted carnet taken into use in thecountry of departure serving as a control docu-ment in the countries of departure, transit, and des-tination; and (iv) customs control measures taken inthe country of departure should be accepted by thecountries of transit and destination.

The TIR Carnet simplifies transit considerably. TheTIR Carnets are issued by the International RoadTransport Union (IRTU) of Geneva to associationsin participating countries who act as guarantors for

the duties and taxes ‘at risk’ during the journey. Eachassociation issues TIR Carnets to approved nationalcarriers provided they meet the requirements set bythe IRTU – for instance, every road vehicle as re-gards to its construction, equipment and customs seal-ing device has to conform to the specifications laidout in the Convention. The association also notifiesthe IRTU with names of approved TIR carriers andprovides a TIR plate, which is placed on eachauthorised vehicle. Because the TIR Carnet providescustoms with a means to collect charges not paid bythe consignee, TIR Carnet cargo is subject to fewerdelays.

ATA carnetThe ATA Carnet is designed to facilitate the importa-tion, irrespective of the means of transport, of goods,which are granted temporary duty-free admission (in-cluding transit, importation for home use and tem-porary admission).

Source: Taneja. 2004.

Article VIII of theGATT deals withadministrative aspects oftrade and provides anillustrative list of the typesof fees and charges,formalities andrequirements relating toconsular transactions,statistical services, analysisand inspection, andlicensing

BOX: 3.2


22


tive list of the types of fees and charges,formalities and requirements relating toconsular transactions, statistical services,analysis and inspection, and licensing,which are imposed by government au-thorities beyond customs. The Article re-quires contracting parties to impose feesand charges in relation to import and ex-port in a manner that it is limited to thecost of service provided; recognise theneed for reducing the number and diver-sity of fees and charges and the incidenceand complexity of import and exportformalities; review its operations, uponrequest by others; and not to impose sub-stantial penalties for minor breaches ofcustoms regulations or procedural re-quirements.

Developed members have made the fol-lowing key proposals8 with respect to Ar-ticle VIII:

Levy of fees and charges: Charging fees onthe basis of ad valorem is found to beincompatible with the text or with theobjective of the GATT (Panel ReportUS-Customer User Fee) and that the EUhas interpreted Article VIII:I (a) to implythat fees and charges levied must refer tothe approximate cost of service rendered.

Injecting the GATT principles: The EuropeanCommission (EC), Hong Kong andKorea have pointed out that in ArticleVIII, members simply ‘recognise’ butundertake no explicit obligations withrespect to the need to reduce the numberand diversity of the fees and charges andthe need to minimise the incidence andcomplexity of import and exportformalities. Therefore, they call onmembers to impose the GATT principlesof non-discrimination, transparency andpredictability in the design, application andeffect of export and import proceduresand formalities, which according to themshould make Article VIII moreoperational.They also called for reviewing import andexport requirements, including documen-tation, and ensure that the GATT prin-ciple of ‘least trade restrictiveness’ is ad-hered to. The EC has suggested that mem-bers should specify such requirements and

review the principle of ‘necessity/leasttrade restricetiveneess’, which essentiallymeans that members should not main-tain measures if the circumstance or theobjective giving rise to its adoption nolonger exists.

Provisions to reduce documentation requirements:The EC made suggestions to reducedocumentation requirements, whichincluded the use of a single administrativedata set for export and import; and theintroduction of a single one-timepresentation to one agency and theadoption of a uniform domestic customscode. The EC and Korea have suggestedthat countries should use risk assessmentmethods based on international standardsand practices. This calls for classifyingtraders on the basis of risk assessmentand grants these authorised traders simplifiedprocess of customs clearance or otherpremium procedures for their import andexport activities. The EC, Hong Kong,Japan and Korea suggested theautomation of customs and other agencyprocedures for simplifying export andimport.

Standard processing time: The proposals ofthe EC with regard to this include theestablishment of standard time forprocessing documentation and notifyingwithin a reasonable time framework, andmaking attempt to progressively reducethe standard processing time.

Use of international standards: The EC,Hong Kong, and Japan proposed mem-bers to use the agreed international stan-dards and instruments for simplifyingand reducing documentation and datarequirements and streamlining importand export procedures. In the latter case,they have added a qualifier to suggestthat international standards should beused for import and export proceduresonly if they are effective or appropriatemeans to fulfil the legitimate objectivessought. Hong Kong proposed mem-bers to “adopt formalities and docu-mentation requirements with referenceto international standards, or followguidelines, and recommendations in theirimport and export formalities and re-

The EC, Hong Kong andKorea have called on

members to impose theGATT principles of non-

discrimination,transparency and

predictability in the design,application and effect of

export and importprocedures and formalities

23

Relevance of RKC to Article VIIIOne of the criticisms of the involvement of theWTO on global rule making is that there are otherspecialised international organisations or conventionsto deal with many of the issues related to tradefacilitation. On the issue of customs, the relevanceof the RKC should be carefully appraised. It is im-portant to mention at the outset that the RKC orother WCO instruments do not specifically definethat fees and charges should approximately coverthe cost of service rendered because no single stan-dard could be agreed upon by the parties to theConvention (Taneja 2004).The requirements of GATT Article VIII:I (c) areaddressed through principles laid out in the Gen-eral Annex. The Kyoto Convention has laid out stan-dards for simplification of procedures for bordercrossings, goods declaration and supporting docu-ments, release of goods, authorised persons, andcoordination of customs inspections with othercompetent authorities. It recognises the importanceof the use of risk management techniques by set-ting out the standards for the application of riskmanagement and the use of IT. It sets out the stan-dards for the application of ICT in customs, andspecifies that IT should be used where it is costeffective and efficient for the customs and trade. Inaddition, it specifies that members should use rel-evant internationally accepted standards; and itshould also contain the legal provisions relating tosecurity.

Other notable WCO initiatives include the devel-opment of the WCO Customs Data model, whichestablishes a standard, international harmonised data

BOX: 3.3

set that would meet governments’ requirements forinternational trade. This model would also be used todevelop the concept of a ‘Single Window’.

Relevance of TBT/SPS to Article VIIIA parallel can be established between the proposalsmade by members to improve Article VIII. A casualreading of the proposals and the text of the TBTAgreement and the SPS Agreement would reveal thatmost of the proposals have emanated from theseagreements. For example, the TBT Agreement con-tains the principles that have been proposed to beincluded in Article VIII, namely non-discrimination,least trade restrictiveness, review of procedures andthe use of international standards as a basis for tech-nical regulations. Articles 2.1, 2.2, 2.3, and 2.4 of theTBT Agreement contain the same principles.Similarly, the SPS Agreement contains much of therequirements for standards. For example, Article 3.1of SPS requires members to base their SPS measureson international standards. The only difference is thatthe SPS Agreement uses the word ‘shall’ in place ofless strong language in the GATT Articles. The SPSAgreement also allows countries to maintain a higherlevel of SPS protection than an internationally agreedstandard if there is scientific justification or when acountry determines that a higher level of protectionwould be appropriate. In other words, the differencebetween GATT Article VIII and these two agreementslies in the fact that TBT and SPS agreements requirehigher level of obligation than Article VIII of theGATT. In fact, the EC and Hong Kong have sug-gested that it is important to consider the applicabilityof these agreements to import and export documen-tation requirements.

quirements where they exist and as ap-propriate.” Japan called for the adop-tion of internationally accepted standardsand instruments, if any, as a basis forsetting and implementing trade proce-dures for simplifying them.

2.5.2.3 Article X: Publication andadministration of trade regulationsArticle X calls for the publication of alllaws, regulations, judicial decisions andadministrative rulings relevant to import-ing and exporting in a manner so as toenable governments and traders to be-come acquainted with them. These regu-lations include the classification or valua-

tion of products, rates of duty, taxes orother charges; and requirements, restric-tions or prohibitions on imports or ex-ports; on transfer of payments related toimports or exports and on sale, distribu-tion, transportation, insurance, warehous-ing, inspection, exhibition, processing,mixing and others related to imports orexports. In addition, the Article calls forthe publication of trade agreements andother measures that impose a new ormore burdensome requirement, restric-tion, or prohibition on imports, or on thetransfer of payments before the enforce-ment is required. On 'appeal procedures',members need to maintain or institute


24


judicial, arbitral or administrative tribu-nals or procedures for review and cor-rection of administrative action relatingto customs matters.

The key issues in the proposals are as fol-lows:

Advance rulings: Canada, the EC, Japan andKorea proposed to include binding ad-vance rulings, enabling traders to get ad-vance information on tariff classificationand applicable duties.Use of electronic media: The EC, Canada andKorea recommended the use of elec-tronic media for import and export ac-tivities on non-binding basis.Enquiry points: The EC and Korea pro-posed the establishment of enquirypoints/trade desks for providing traderelated information. South Korea pro-posed the establishment of a ‘single na-tional focal point’ by members to re-spond to the inquiries related to infor-mation directly related to the customsprocedures, importation and exportation.Consultative mechanism: The EC, Canada andSouth Korea proposed that all stakehold-ers/interested parties (i.e., governmentand private sector bodies, including im-porters/exporters, carriers, chambers ofcommerce, etc.) should have an oppor-tunity to comment on prospective rules

and procedures through a consultativemechanism before they are implemented.Such a mechanism allows the regulatoryparty to have inputs on how a regulationis formed to reduce the costs to the regu-lated party while increasing the efficiencyof implementation.Appeal: Canada and the EC proposed toinclude provisions to an appeal by a sepa-rate judicial or administrative body toensure fairness to cases where the initialappeal is not satisfactory.

3.5.3 North-South division on tradefacilitationWhile there is a broad agreement on thebenefits of trade facilitation, rule settingon trade facilitation under the ambit ofthe WTO is contentious and its membersare divided between North and South,not only on the need to implement tradefacilitation measure but also on the suit-ability of the binding obligations underthe WTO. Within the WTO, the advo-cates of formal trade facilitation rules areknown as the Friends of Trade Facilita-tion or the “Colorado Group”.9 Theysupport additional commitments andrules on trade facilitation on the basis thata rules-based system in this area can beof great benefit to global trade (WTO2003c). Their main arguments are basedon the following arguments.

First, as they argue, without binding com-mitments, the implementation of tradefacilitation measures will not take placeand will be relegated to the back burner;strengthened rules and monitoring mecha-nisms would guarantee transparency andpredictability of the trading system. Sec-ond, strengthened rules on trade facilita-tion would provide “political impetus toguide national efforts to simply andmodernise trade procedures and carry outdomestic reforms that otherwise mightnot take place.” Third, the implementa-tion of rules under the WTO would befaster than under the Kyoto Convention,which has been slow. They use the KyotoConvention as a good example to illus-trate the failure of voluntary accessioneven when commitments are binding onceacceded. Fourth, trade facilitation coversseveral aspects of border management

Relevance of RKC to Article XAs before, it is important to compare the provisions under theRKC to GATT Article X. The WCO, in its submission to theWTO, pointed out that Chapter 9 of the General Annex to theKyoto Convention, which relates to information, decisions andrulings supplied by the customs, contains all the requirements ofArticle X and the proposals made by members, including bind-ing rulings. The guidelines to Chapter 9 provide: detailed infor-mation to set up procedure for publication of information; in-formation on provision of information through electronic me-dia (where possible); and provisions for a consultative mecha-nism between traders and customs, binding advance rulings andenquiry points. The only missing element is the Single NationalFocal Point of Enquiry, which was proposed by Korea. In addi-tion, the WCO points out, Chapter 10 of the General Annex setsout the principles for appeals in customs matters, which is a trans-parent and multistage appeal process with the availability of anindependent judicial review as a final avenue of appeal.

The EC and Korea haveproposed the establishment

of enquiry points/tradedesks for providing trade

related information

BOX: 3.4

25

and involves many agencies associatedwith border controls, such as those re-sponsible for customs, transport, health,quarantine, veterinary, agriculture, finance,defence and justice. To be fully beneficial,trade facilitation measures should applyto the maximum extent possible acrossthe entire border management process.The WTO is the only internationalorganisation with a sufficiently broadmandate to cover all aspects of bordermanagement bearing on internationaltrade. As such, they argue that national,bilateral and regional initiatives can leadto fragmented or piecemeal trade facili-tation efforts, which cannot deliver thecomprehensive reforms necessary to en-sure all members benefit from trade fa-cilitation.

The ‘Friends of Trade Facilitation’ are notwithout divergent ideas, however. Forexample, the US stressed in its submis-sion that the needs of members at lowerlevels of development will be givenproper consideration for special and dif-ferential treatment (S&DT) and to ensureadequate technical assistance and supportfor capacity building. Japan, as elaboratedearlier, suggested a three-pillar approach,tying together an action programme (set-ting non-binding and long-term objectivesfor trade facilitation), capacity buildingactivities and rule setting. The EC is flex-ible in its approach to the implementa-tion part where it has recognised the needfor capacity building measures and theneed to recognise the non-prescriptivenature of rules as a commitment to a pro-cess of modernisation of trade facilita-tion procedures. It, nevertheless, noted theimportance of binding rules in the WTOon a sequential manner. Australia main-tains that appropriate technical assistanceand capacity building measures are neededto address the issue of S&DT for devel-oping countries. Australia also believes thatan impartial dispute settlement mecha-nism would be necessary to provide se-curity for developing as well as developedcountries.

A group of developing countries knownas the ‘Like Minded Group’ (Group 73)believes that trade facilitation is something

desirable but did not want to commit toa new set of legal obligations. As per them,technical cooperation efforts should beintensified to help developing countriesto increase trade, and technical assistanceto trade facilitation should not be contin-gent upon the reform process. Somemembers of Group 73 indicated theirpreference for trade facilitation at the na-tional, bilateral or regional level. Many ofthem strongly believe that additional andbinding requirements may exceed the ca-pacity of developing countries to imple-ment them, which is a view shared evenby the WCO. Some have indicated theirfear of encountering dispute settlementcases over trade facilitation. The experi-ence of these countries on the disputesettlement mechanism under the WTO isnot anything pleasant. As many point out,the main problem is the weak capacityfor implementation, not lack of commit-ment. It is not a secret that the commit-ments made by countries with regard tocapacity building and actual funding sofar have not been encouraging. A progressin this area hinges on an agreement onwhat and how to negotiate trade facilita-tion rules. One positive development isthat the inclusion of the issue in the DohaMinisterial Declaration has brought thesubject into sharper political focus, andthis has resulted in some developing coun-tries to implement trade facilitation mea-sures.

3.6 Challenges for the multilateralsystemImplementation of trade facilitation iscomplex and initial costs can be substan-tial. Introduction of trade facilitationmeasures requires the deployment, or re-deployment of scarce financial, physicaland human resources, and their costs area significant burden for many develop-ing countries. In particular, governmentsmay be reluctant to implement somemeasures, for example, customs reforms,because of fear of losing revenue at theinitial stages.

A main challenge for the WTO is how todeal with the issue of technical assistanceand capacity building for developingcountries in order to further their inte-

Introduction of tradefacilitation measuresrequires the deployment, orredeployment of scarcefinancial, physical andhuman resources, and theircosts are a significantburden for many developingcountries


26


gration into the multilateral trading sys-tem. Trade facilitation often requires dif-ficult changes in procedures and practices.At what level trade facilitationprogrammes should be implemented isan open question. Facilitated proceduresmay lead to staff reductions or deploy-ment and hence opposition from the of-ficials previously did serve in administer-ing cumbersome administrative proce-dures. In addition, facilitated proceduresrequire fewer staff, and as a result, theynormally require more equipment, espe-cially in the form of modern IT, and thusstaff with higher education and new skills.Modern IT equipment also requires largeinitial investment for setting-up. Oftenmaintenance costs can also be substan-tially high for developing countries. Thegovernments may feel that these short-term costs are a waste. Convincing thegovernments in developing countriesabout the need to facilitate trade in theshort run with huge initial costs can bequite difficult because there are many otherpriorities.

The inadequacy of technical assistance isparticularly serious in new areas like tech-nical standards and intellectual propertyrights (IPRs). Developing countries donot have the capacity to meet the com-mitments they have already made. It re-mains to be seen how much technicalassistance would be given to the area oftrade facilitation.

3.7 Future prospects for the mul-tilateral systemThe already high pressure to implementtrade facilitation measures is likely to risefurther, mainly because that is going tobe one of the key areas where competi-tiveness will be determined in the yearsto come. Since tariff and to a greater ex-tent, at least among the developed coun-tries, non-tariff barriers (NTBs) are be-coming less, any additional gain couldcome from reducing inefficiencies in thearea of customs procedures, administra-tive regulations and further enhancingcustoms efficiency. As businesses willpressurise their governments to bringtrade related transaction costs down, thereis likely to be a very high pressure on the

world community to implement tradefacilitation programmes.

A successful outcome in trade facilitationtalks will depend on several factors. First,it depends on whether the two groupsof members – developed and develop-ing countries – with quite different posi-tions can narrow their differences. Sec-ond, discussions in specific areas such as“the movement, release and clearance ofgoods, including goods in transit” maybe useful for a start up but both groupswill have to quickly move from mundanematters to more serious issues, where dif-ferences of opinion may become quitesignificant. Third, the future of negotia-tions depends on the extent of coopera-tion with other organisations such as theWCO, UNCTAD, the World Bank andAPEC that have been working on the is-sue of trade facilitation. If some consen-sus can be reached in the areas wheredeveloping countries are working at themoment, perhaps there could be possi-bility to find common ground. Somedeveloping countries have expressed con-cerns about coordination between exist-ing programmes and the possible futurework of the WTO. They argue that thenew work of the WTO should not cutacross the existing works of otherorganisations. Discussions on donor co-ordination will be particularly importantas talks proceed.

APEC has much bigger prospects to playa leading role in trade facilitation, bothwithin the organisation as well as at theglobal stage. APEC, with a vast experi-ence in this area, could play a positive rolein facilitating dialogue among membersand building up consensus on key issues.It could help negotiations in a numberof ways. As one of the most experiencedregional organisations in the area of tradefacilitation, it could share its experiencein resolving differences between devel-oped and developing countries. APEC’sexperience could be particularly useful forother developing countries to understandhow they have dealt with trade facilita-tion with countries having vastly differ-ent levels of economic development.Perhaps, this is reflected in the APEC’s

Convincing thegovernments in developing

countries about the need tofacilitate trade in the shortrun with huge initial costs

can be quite difficult

27

definition of trade facilitation, which isbroad enough to accommodate the con-cerns of smaller, not so developed mem-bers. This definition seems to have helpedthem in evaluating work across differentfacilitation measures; prioritising develop-ment assistance among members throughits committee structures; quantifying theconsequences; and considering differentapproaches to improving, modalities fornegotiation and implementation.

APEC is poised to be more active in co-ordinating with the WTO on designingand refining the principles and codes ofthe multilateral trade facilitation, partlybecause of its advantages in influencinga large part of global trade and the num-

ber of members in it. Their experienceis likely to produce ready material forthe WTO as well to handle very sensi-tive issues that have emerged within theWTO. It is also likely to work closelywith other organisations such as theWorld Bank, the EU, MERCOSUR, orNAFTA. APEC is likely to launch aprogramme aimed at facilitating mari-time and air transport system. It is go-ing to be a major thrust area given thelong coastlines and heavy air traffic ofthe APEC. South Asia, also with a vastcoastline and air traffic, could benefitfrom a joint programme with APECalthough maritime and air traffic relatedtrade facilitation issues are not explicitlyincluded in APEC yet.

Issues for comments• Do the developing countries’ proposals on trade facilitation adequately address the concerns of

South Asian countries?

• Why the successes of the efforts made by various international organisation on trade facilitation havebeen limited?

• What are the core elements of Article V, Article VIII and Article X of the GATT 1994 that are ofrelevance to South Asia?

• What are the lessons to be learned by the multilateral trading system from the various regional modelsof trade facilitation?

South Asia could benefitfrom a joint programmewith APEC althoughmaritime and air trafficrelated trade facilitationissues are not explicitlyincluded in APEC yet


29

4.1 National experienceThis section summarises the trade facili-tation work that has been carried out inthe South Asian region. The discussion isorganised along GATT Articles V, VIIIand X.

4.1.1 Bangladesh10

4.1.1.1 Article V: Freedom of transit

The issue of transit facilities is importantfor Bangladesh due to its trade relationswith India. However, Bangladesh has notgiven the green light on the issue so far.There is quite a similarity in the Indianposition on giving transit facilities to Nepaland the Bangladeshi position on givingtransit facilities to India.

4.1.1.2 Article VIII: Fees and formali-ties connected with importation andexportation

According to a survey, in Bangladesh, ittakes on an average 12 days to clear acargo load but can take up to 30 days forimported goods to be released throughcustoms at the ports (WTO 2000). Suchdelays lead to congestion of ports, paral-ysing an important part of the economy’sinfrastructure. The clearance procedure ischaracterised by excessive checking andpaperwork, undue and complicated pro-cedural steps, partial computerisation, andlimited opening hours (WTO 2000). Oneexample of the complexity of the cus-toms procedure is that the manual cus-toms entry form requires upto 40 signa-tures before a consignment is released(World Bank 1999). According to onesurvey, the hidden costs paid by import-ers per consignment range from Tk 4,700to Tk 86,800 (WTO 2000). Customs de-lays have often been cited by businesses

as an impediment to conducting businessin Bangladesh, as the delays add to theircosts and therefore impair their competi-tiveness.

The import and export procedures inBangladesh are quite cumbersome by anystandard. There are a large number oftrade policies and procedures that havemade international trade quite complex.As a result, transaction costs of trade havebecome quite high. Like in other SouthAsian countries, various exemptions andconditions have made policies opaque.This has resulted in official discretion andrampant corruption. The final outcomehas been a thriving illegal and informalinternational trade between India andBangladesh. Several schemes have beenintroduced to simplify the formalities as-sociated with exports and imports. Thekey programmes are:

• Introduction of a self-assessmentand the rapid clearance procedure(in the first instance to the publicsector);

• Simplification of the tariff structure;• Customs modernisation with the

objective of increasing efficiency ofcustoms clearance; and

• Simplification of documentationprocedures.

The programme to simplify documen-tation procedures has made some head-way. During 1997-2002, traders were ex-pected to offer a simplified export pro-cedure by allowing export without letterof credit (L/C), but on the basis of apurchase contract, agreement, and pur-chase order or advance payment. Ex-porters have to submit only the EXPform and the shipping bill. To qualify for

Trade facilitation in South AsiaChapter 4

Several schemes have beenintroduced in Bangladeshto simplify the formalitiesassociated with exportsand imports

30


such status, exporters must export theirgoods for a minimum period of one yearon the basis of the contract, purchaseorder or advance payment, and on thebasis of L/C.

Levy of fees and charges: Three types of bor-der charges are being levied –an infrastructure development surcharge(IDS), a letter of credit authorisation(LCA) and import permit (IP) fee. Allof them are charged at the rate of 2.5percent. In addition, advance income tax,value added tax (VAT) and in some in-stances, supplementary duties are appli-cable. The IDS is calculated on an ad valo-rem basis (2.5 percent of c.i.f value), whichis applicable to over 98 percent of thetotal tariff lines. Certain exemptions ap-ply for all these charges, where in certaincases the levies and charges are exemptedtotally. According to the authorities, ex-ports are at present not subject to anytaxes, charges or levies. However, theExport Policy Order 1997-2002 stipu-lates: "tax at source will be deducted atthe rate of 0.25 percent".

VAT is normally levied at a rate of 15percent on imports and domestically pro-duced goods alike (unless they are ex-empted). In the case of imports, it is lev-ied on the c.i.f. value plus import duty,and in some cases, supplementary duty.Although VAT is trade neutral, in the caseof textiles, domestically produced sub-stitutes are exempted from VAT. Instead,an excise tax of 2.5 percent is applicablefor domestic textiles. In addition, goodssuch as liquor, tobacco products, petro-leum products, make-up materials, per-fume, ceramic tiles, air-conditioners, re-frigerators, televisions, and motor vehicleshave a supplementary levy ranging from5 percent to 270 percent.

Injecting GATT principles: Since Bangladeshhas shown high willingness to promoteTBT and SPS agreements, extendingGATT principles to formalities of tradeshould not be a problem.

Provisions to reduce documentation requirements:No progress reported.

Standard processing times: No progress re-ported.

Use of international standards: No progressreported.

4.1.1.3 Article X: Publication and ad-ministration of trade regulations

Advance rulings: No progress reported.

Use of electronic media: Computerisation ofcustoms has been going on for some timewith the introduction of the SPEED sys-tem for customs assessment andASYCUDA for customs document pro-cessing. There is a plan to introduce riskmanagement system on customs inspec-tion with the objective of inspecting only10 percent of the total consignments

Enquiry points: No known enquiry points.

Consultative mechanism: Import Trade Con-trol Committee (ITCC) works as the ad-judication body in case of a dispute be-tween an importer and customs officials.The committee consists of local repre-sentatives of the Cisco CertifiedInternetwork Expert (CCIE), chamberof commerce and industry, and the Cus-toms Authority, and takes a decisionwithin 15 days of receiving the importer’srequest. If the importer is not satisfiedwith that decision, an appeal can be filedwith the central ITCC, comprising theCCIE, the National Board of Revenue(NBR), the concerned sponsoring agency,and the Federation of Bangladesh Cham-ber of Commerce and Industry (FBCCI).

Appeal: No record of an appeal process.

4.1.2 India11

4.1.2.1 Article V: Freedom of transitIndia requires transit facilities fromBangladesh for transporting goods to itsnorth-eastern region while Nepal, beinga landlocked country, requires transit fa-cilities from India for trading with the restof the world. It is important to note thatgoods to the north-eastern region aretransported along the circuitous routearound Bangladesh. Movement of cargothrough Bangladesh is likely to reduce thedistance significantly, but cost advantagewill not be forthcoming without substan-tial improvements in customs clearanceat border crossing points to and fromBangladesh. India has so far preferred to

In Bangladesh, VAT isnormally levied at a rate of15 percent on imports anddomestically produced goods

alike unless they areexempted

31

envisage effective implementation of rig-orous conditions laid out by IRU Con-vention on vehicle specifications etc.,which are essential to implement the Con-vention. At this stage, India could agreeto international standards on transit ar-rangement on a ‘best endeavour basis’.

4.1.2.2 Article VIII: fees and formali-ties connected with importation andexportationIndian export and import procedurescontinue to be quite cumbersome. In or-der to export, an exporter needs to ob-tain 258 signatures, make 118 copies ofthe required documents, and wait for longhours to complete all procedures and re-quirements. Some of them aresummarised below:

• Application for the 10-digit Im-porter-Exporter Code (IEC) Num-ber, issued by the Director Generalof Foreign Trade (DGFT);

• Registration requirement with thedepartments of income tax andsales tax;

• The bill of entry and bill of exportor shipping bill system to regulateimports and exports, as adminis-tered by the Customs and CentralExcise Department, and multiplecopies of the bill of entry and sup-porting documents are usually re-quired;

• Licence from the Licensing Author-ity to import items in the negativelist, restricted or canalised goods;

• Inspection certificate for import ofsecond hand capital goods; and

• Pre-shipment inspection certificatefor the export of about 1000 items.

Transaction costs related to imports arequite high. The use of licensed customsagents to handle customs clearance is agood example. Traders use these servicesas long as customs clearance is cumber-some and costly.

Even though there has been a reductionin the number of tariff lines since Indiabegan its economic reforms, there con-tinues to be a multiplicity of tariff rates

deal with transit issues at a bilateral level,and not much headway has been madeon this issue with Bangladesh. With Nepal,the issue of transit has always been a keyfeature of the bilateral protocols andagreements (Subramanian and Arnold2001). The Indo-Nepal Transit Treaty hasseveral provisions to facilitate transit trade:

Simplification of procedures: The revisedIndo-Nepal Treaty of Trade and Transitand Agreement for Cooperation to Con-trol Unauthorised Trade, signed in 1996,provides simplified procedures wherenew procedures have been agreed uponto provide clearance to Nepalesecontainerised traffic in transit to and fromNepal. Further simplification can be car-ried out as India is already adopting mea-sures under Article VIII to simplify pro-cedures for trade.

Exceptions to the principle of non-discrimina-tion for sensitive items and goods requiring trans-shipment: The issue is relevant in the con-text of transit facilities that have been pro-vided to Nepal, where there is a claimthat third country goods enter Indiathrough Nepal and goods are smuggledto Nepal from India by using transit fa-cilities. India does not publish the list ofsensitive items although a list is circulatedwithin the Indian customs. Additional in-spection of goods in transit couldminimise these activities, and therefore,India is likely to accept the provision foradditional inspection and publish the listof sensitive goods.

Regional transit arrangements: There is a pos-sibility for a sub-regional transit arrange-ment between India, Nepal andBangladesh. However, Bangladesh is re-luctant to provide transit facilities to In-dia as it fears that Indian goods mightenter Bangladesh.

Use of international standards: India,Bangladesh and Nepal have so far notacceded to the international transit con-ventions like the TIR Convention or theATA Convention. India uses the ATACarnet for a very limited purpose, mostlyfor duty free temporary admission ofimports. Under the current state of de-velopment in South Asia, it is difficult to

In order to export toIndia, an exporter needs toobtain 258 signatures,make 118 copies of therequired documents, andwait for long hours tocomplete all procedures andrequirements

TRADE FACILITATIONIN SOUTH ASIA

32


giving rise to ambiguous classification andvaluation. The existence of multiple ex-port promotion schemes, which requireadditional procedures, makes the processof imports and exports unnecessarilycomplicated. There is duplication of workbetween the Customs and the Ministryof Commerce, which needs to be ad-dressed.

Levy of fees and charges: Some fees andcharges seem to reflect the cost ofservice, while others are calculated on advalorem basis. For example, the cost ofobtaining an importer-exporter codenumber costs Rs. 1000. The amount offees payable in case of an application forobtaining an import license is based onthe c.i.f. value of goods at the rate of Rs.2 per thousand subject to a minimum ofRs. 200 and a maximum of Rs. 150,000(Taneja 2004; and Ministry of Commerce2002). This clearly violates GATT ArticleVIII.Injecting GATT principles: India is makingarrangements to operationalise the TBTand SPS agreements, and, therefore, theextension of such principles in the contextof GATT Article VIII will not bedifficult (Taneja 2004; and Mukhopadhya2002)

Provisions to reduce documentation requirements:At present, India does not have a singleadministrative data set for export andimport or a single agency that areauthorised to handle the documents. SinceFebruary 2003, India has embarked on aproject aimed at harmonising the customsclassification codes at the 8-digit level.

To date, the Indian Electronic Data In-terchange (EDI) council has implementedfor the application of bills of entry andthe shipping bills at New Delhi. The sys-tem is available for certain airports andseaports only.

The automation of customs through theuse of EDI and the use of risk assess-ment methods have been introduced tosimplify procedures and reduce time.EDI, which was initially introduced in1996, has now been introduced in 23 lo-cations, but only in 11 of them EDI dec-larations are more then 80 percent of the

total declarations (Taneja 2004). A largeproportion of declarations are still donemanually and only a part of the data, insome locations, has been computerised.The EDI system is in operation only atfew locations, leaving out other ports.

Standard processing times: Both the CentralBoard of Excise and Customs (CBEC)and the DGFT have laid out the intendedstandard processing times in their missionstatements, which are not bindingobligations on the part of agencies. Giventhe fact that India has several customsstations and the level of infrastructurevaries considerably between them, it isdifficult to establish uniform standardprocessing times for all customs stationsat this stage of development.

Use of international standards: The IndianCustoms is committed to the moderni-sation of customs on the basis of theRKC. The exact progress on each elementis not known.


All trade related three key institutions pub-lish information: the CBEC, the DGFTunder the Ministry of Commerce, and theReserve Bank of India (RBI). They in-clude relevant acts, tariffs, rules, regula-tions, forms, notifications and circularsrelating to customs, central excise and ser-vice tax. All regulations and rules comeinto effect through a notification, whichis published in the official Gazette of In-dia under tariff and non-tariff relatedmeasures. All requirements, restrictions orprohibitions on import and export areregulated through the Foreign Trade De-velopment and Regulation Act, 1992,which falls under the purview of DGFT.The RBI publishes all regulations relatedto payments. Decisions passed by the Tri-bunal, Supreme Court and High Courtare public documents and can be obtainedat a nominal fee.

Information is made available both inprint and through the electronic media.The private sector is playing an impor-tant role in making information moreaccessible to traders both through pub-lished material and through hosting of

India is makingarrangements to

operationalise the TBTand SPS agreements, and,therefore, the extension of

such principles in thecontext of GATT

Article VIII will not bedifficult

33

websites, which are popular among trad-ers as they disseminate information faster(Taneja 2004).

Advance rulings: The Authority for AdvanceRulings (AAR), established under the Fi-nance Act, 1999, the Customs Act, 1962and the Central Excise Act, 1944, per-forms the role of advance rulings requiredunder the GATT. The scheme of advanceruling became fully operational from Feb-ruary 2004. The ruling by the AAR canbe on classification, valuation and appli-cability of duty exemption in respect ofexport, import, production and manu-facture. However, the scope of the AARis quite limited as such a provision is notmade available to a solely Indian ownedcompany. Only foreign firms, which wantto invest in India through joint venturesor wholly owned subsidiaries or Indians,who are getting into joint ventures withforeign firms, can ask for advance ruling.

Use of electronic media: The CBEC, the DGFTand the RBI are using electronic media verywidely for dissemination of information.Electronic media is also being used byseveral private companies/individuals.

Enquiry point: There is no officiallydesignated inquiry point for traders.

Consultative mechanism: At present, there isno provision for consultation betweeninterested groups. There had been a pro-posal to establish a Standing Committeeon Procedures chaired by ChairmanCBEC and including trade and industryrepresentatives to fulfil this requirement.

Appeal: India has an elaborate appealprocedure established under the CustomsAct, 1962 and the Foreign TradeDevelopment and Regulation Act, 1992.Appeals on trade related matters couldbe made to any superior officer than theadjudicating officer, and the highest bodybeing the Customs Excise and GoldControl (Appellate) Tribunal (CEGAT),which is constituted of judicial andtechnical members.

4.1.3 The Maldives12

4.1.3.1 Article V: Freedom of transitArticle V has no application in case ofthe Maldives.


The tariff structure of the Maldives issimple and all tariffs lines are ad valorem,levied on the c.i.f value of imports. How-ever, extensive use of duty concessionslargely aimed at attracting foreign invest-ments has undermined transparency. Thecustoms has yet to fully implement WTOcommitments in this regard. The Maldivesacceded to the Harmonised Conventionin July 2000.

The Maldives has implemented an EDIsystem, enabling registered users to sub-mit import and export documents elec-tronically. This has worked well and re-duced the application processing timesconsiderably as well as improved dataanalysis. It is estimated that some 85 per-cent of declarations from importers aresubmitted electronically. The documen-tation procedure is simple and the re-quired number of documents is limitedto the original commercial invoice, the billof lading or airway bill, the packing list,and bank and insurance documents, whereL/C and insured shipments are involved.

The customs clearance procedure is alsostraightforward and the Maldives uses riskassessment method to release certain con-signment without inspection (all single-item consignment goods and direct-de-livery cargo, such as river sand and ce-ment), and only about 25 percent to 30percent of consignments of reliable par-ties, judged on past importing history, arephysically inspected.

The Maldives does not have pre-shipmentinspection requirements (WTO 2002).

Levy of fees and charges: The Maldives doesnot seem to have specific levies andcharges.

Injecting GATT principles: The Maldivesseems to have no difficulty in adhering tothe basic GATT principles such as trans-parency, predictability and non-discrimi-nation, as trade related laws and regula-tions are straightforward. It will be just amatter of making the necessary legisla-tive enactment to inject GATT principleson export and import procedures.

The Maldives uses riskassessment method torelease certain consignmentwithout inspection, and onlyabout 25 percent to 30percent of consignments ofreliable parties, judged onpast importing history, arephysically inspected


34


Provisions to reduce documentation requirements:The Maldives has been a member of theWCO since 1995. While it is not a memberof the ATA Carnet System, similarprocedures and privileges are, nonetheless,being followed. Simplification of customsprocedures and practices figuresprominently in actions taken by thegovernment. The Maldives is a party tothe SAARC Customs Action Plan aimedat harmonising the application andsimplification of customs procedures andpractices (WTO 2002)

Standard processing times: It is estimated thatit takes less than two hours on an averageto clear imports.

Use of international standards: Thegovernment is committed to adoptinternational standards but no informationis available on exact progress.

4.1.3.3 Article X: Publication andadministration of trade regulationsAdvance rulings: The Maldives does notseem to have a mechanism by which priorinformation on tariff classification andapplicable duties could be obtained.

Use of electronic media: The Maldives hascommenced computerising customs op-erations and ASYCUDA has been imple-mented with some modifications.

Enquiry points: The Maldives customsoperate in many cases as the only agencythat should be approached for mattersrelated to imports and exports.

Consultative mechanism: No known mechanism.Appeal: Importers may appeal valuationand classification disputes to the customs.Such appeals are heard by an internalcommittee, which also consists ofrepresentatives from the private sectorand other government agencies. If stilldissatisfied, the importer may appeal tothe courts.

4.1.4 Nepal13

4.1.4.1 Article V: Freedom of transitArticle V is quite relevant for Nepal andthe procedures described in case of In-dia are readily applicable to Nepal as well.The treaties of trade and transit between

Nepal and India govern the rules andregulations pertaining to transit.

4.1.4.2 Article VIII: Fees andformalities connected withimportation and exportationIn Nepal, importers and exporters haveto submit import and export declarationforms to the Department of Customsfor processing and approval. For goodsimported or exported by sea, they willrequire an additional Customs TransitDeclaration (CTD) for endorsement bythe Calcutta customs. For containerisedcargoes, Calcutta customs does not nor-mally inspect transit containers when theseals are intact. But they reserve the rightto carry out inspection of the goods. Li-censed customs brokers may prepare thedeclarations for the importers and ex-porters. The Department of Customsrequires certificates of origin for all pref-erential exports from Nepal. TheNepalese Chamber of Commerce (NCC)issues the certificates. But it has delegatedpowers to issue the certificates to its 17affiliated chambers. The chambers chargea fee of 0.12 percent on the value of theconsignment for each certificate.

The Trade Promotion Centre (TPC) sellsthe forms for Generalised System ofPreferences (GSP). After the exportershave completed the forms, the Depart-ment of Customs processes and ap-proves them together with customs ex-port declarations. However, for Nepalesehand-knotted woollen carpets, the Car-pet and Wool Development Board isauthorised to issue the GSP forms to theexporters at a fee of Nepalese Rs. 2 persquare metre.

Nepal has 8 customs tariff bands – 0, 5,10, 15, 25, 40, 80 and 130 percent – witha majority of tariff lines falling in the cus-toms duty range of 10 percent to 20 per-cent. The unweighted average customsduty rate for imports was approximately11 percent since 1996/97. For customsclearance in Nepal, it is estimated that 83types of documents have to be filled, with102 copies and 113 signatures. The hu-man resource requirement for complet-ing the customs procedure is estimated

The Maldives does notseem to have a mechanism

by which prior informationon tariff classification andapplicable duties could be

obtained

35

to be 22 days. For goods imported orexported by sea, an additional CTD forendorsement by the Calcutta customs isrequired (ESCAP 2000).

Levy of fees and charges: The Nepalesegovernment charges a large number offees and levies and other designatedbodies with respect to issuing licenses anddocuments related to imports andexports. Some of the key fees and leviesare as follows:

Individual associations decision• A fee of 0.12 percent of the value

of the consignment for issuing acertificate of origin. The certificateis issued by NCC with its 17 affili-ated chambers (ESCAP 2000);

• The visa cell charge of 0.12 percenton the value of each consignmentof readymade garments to the USand Canada. It is issued by GarmentAssociation of Nepal (GAN);

• A valuation certificate fee for handi-crafts, issued by the Handicraft As-sociation of Nepal, ranging fromRs. 20 to Rs. 4000 per consignmentas minimum charge and additional0.5 percent of the value for handi-crafts produced from domestic ani-mal bone, leather and horn up toRs. 700 for members and Rs. 1000for non-members.

• Local development fee of 1.5 per-cent of the value of imports, otherduties and charges in the range of2.5 percent to 11.5 percent on in-dustrial goods, and in the range of2.5 percent to 14.5 percent on agri-cultural goods. These non-tariffcharges are applied to the c.i.f. valueof imported goods. However, thesecharges are going to be eliminatedin a phase wise manner over a pe-riod of 10 years (WTO 2003e).

• Nepal has indicated in its WorkingParty Report that it would chargean import licence fee representingthe approximate cost of the servicesrendered, and that “this and anyother fees and charges for servicesrendered in accordance with WTO

Agreements, in particular with Ar-ticle VIII of the GATT 1994”. Thecurrent charge of 1 percent wouldtransformed into a flat rate.

Injecting GATT principles: Since Nepal hasagreed in its Working Party Report to fullyimplement TBT and SPS agreements by2007, the extension of the same principlesto GATT Article VIII will not be difficult.

Provisions to reduce documentation requirements:Nepal does not use a single administrativedocument or a single agency for importsand exports. Some work has been carriedout under the Nepal MultimodalTransport Project to simplifydocumentation requirements. Forexample, the government has attemptedto computerise and reducedocumentation requirements through theintroduction of ASYCUDA withtechnical assistance from UNCTAD.ASYCUDA has been implemented atTribhuban International Airport for aircargo and three custom entry/exit points,namely Birgunj, Biratnagar andBhairahawa, which cover upto 90 percentof import and export trade. Nepal is alsoworking on an IT-based ACIS withtechnical assistance from the World Bankand UNCTAD.

Nepal has indicated that it would enactlegal instruments codifying the substanceof the Agreement on Import LicensingProcedures. It has agreed in principle toamend the Export Import (Control) Act1957 (Amendment) and the Export Im-port (Control) Regulations 1978 (Amend-ments). Nepal also has agreed to elimi-nate quantitative restrictions on importsor other non-tariff measures such as li-censing, quotas, bans, permits, priorauthorisation requirements, licensing re-quirements, and other restrictions havingequivalent effect, that cannot be justifiedunder the provisions of the WTO Agree-ment, subject to safeguard measures al-lowed under balance of payment (BoP)reasons.

Standard processing times: No progress hasbeen made on the standard processingtime, and it is difficult to expect muchchange in the immediate future. With the

The Nepalese governmenthas attempted tocomputerise and reducedocumentation requirementsthrough the introduction ofASYCUDA withtechnical assistance fromUNCTAD


36


implementation of other WTOcommitments, Nepal is likely to be in abetter position to reduce documentationprocessing time.

Use of international standards: Nepal hascommitted in its Working Party Reportto comply with international standards ondocumentation procedures with atimetable extending to 2007.

4.1.4.3 Article X: Publication and ad-ministration of trade regulationsNepal publishes all trade related measuresand laws, regulations, and administrativerulings of general application pertainingto or affecting trade in goods, servicesor TRIPS, including multilateral agree-ments or treaties in which Nepal is a party,in the Nepal Gazette. The Supreme Courtof Nepal publishes judgements of theSupreme Court in the Nepal Law Jour-nal. Some of the transparency require-ments of Article X of the GATT 1994are contained in the Statute of Interpre-tation Act of 1953, His Majesty’s Gov-ernment (Allocation of Business) Regu-lation of 2000, and Nepal Gazette ofAugust of 1955. Nepal has made com-mitments at the WTO that it would takenecessary action to fulfil transparency re-quirements established in Article X of theGATT 1994, Article III of GATS andother WTO agreements.

Advance rulings: No known mechanism foradvance rulings.

Use of electronic media: Nepal intends toestablish or designate an official journalor website, published or updated on aregular basis and readily available to WTOmembers (WTO 2003e).

Enquiry points: Identification of theauthority responsible for notifications andpublications and other internalprocedures to ensure transparencyobligations are met on an ongoing basis(e.g., the Nepal Bureau of Standards andMetrology, NBSM in short, for thepublication or website where notices ofstandards, technical regulations andconformity assessment procedures).

Consultative mechanism: There is noconsultative mechanism at the moment.

Appeal: As for the refusal to issue licensesand other disputes, complaints can bemade to the Ministry of Industry,Commerce and Supplies, within 35 dayswith copies of the relevant documentsalong with the complaint for evidence.The Department of Commercecoordinates with the agencies concernedon such issues. The Nepalese legislationprovides the right to appeal to the affectedparty concerning decisions of theauthorities on matters related to TBT, SPS,import licensing, copyrights, trademarks,patent and design, as required by theWTO agreements on Import Licensing,Customs Valuation, TBT, SPS and TRIPS.

Article 18 of the Industrial Enterprise Act,1992 provides an appeal procedureagainst the decisions taken by Depart-ment of Industry to the Industrial Pro-motion Board. The importer has the rightto appeal to the Revenue Tribunal overthe decision of customs officials in re-spect to the determination of customsvalue under Section 37 of Custom Act,1962. The possibility of establishing anindependent Administrative Tribunal toreview the decision of the customs au-thority regarding customs valuation isunder consideration (WTO 2003e). Thedecisions of the Administrative Tribunalcould be appealed to the Revenue Tribu-nal, which should provide review andcorrection of administrative action relat-ing to customs matters.

4.1.5 Pakistan14

Pakistan has made efforts to simplify andenhance the transparency of the relativelycomplex trade related regulatory frame-work. The government has realised thatlong delays in clearance of goods ad-versely affects the country’s economicperformance in a number of ways suchas increased smuggling, stagnating ex-ports, increase in duty-drawback pay-ments, falling tax to GDP ratio, increasedcorruption, and heavy transaction costsfor business. The country has initiated anumber of internationally sponsoredprojects with the objective of facilitatingtrade, of which the most known projectsare: the World Bank sponsored Task

Nepal has madecommitments at the WTO

that it would takenecessary action to fulfil

transparency requirementsestablished in Article X ofthe GATT 1994, Article

III of GATS and otherWTO agreements

37

Force on Tax Administration (June 2000-April 2001) and the International Mon-etary Fund (IMF) Report on Tax Re-forms; ADB Project on Modernisationof Customs Administration (Carried outthrough Crown Agents); the World BankProject on Trade and Transport Facilita-tion (2001-2004); and Customs In-houseReforms.


Transit facilitation is not featured inPakistan’s trade facilitation effort as yet.


Import and export procedures in Paki-stan are quite cumbersome. There is along circuitous road to get a consignmentinto the country. All importers and ex-porters must register with the ExportPromotion Bureau (EPB) to obtain a reg-istration number before they can importor export. For import and export docu-mentation, they may engage a customshouse agent to prepare and submit thedocuments to the customs on their be-half. An importer has to go through thefollowing individuals to import anythingin that order:

For imports, customs house agents will firstregister the completed bill of entry with therelevant customs appraiser group in charge ofdifferent products. The appraiser will checkthe particulars in the bill of entry against thesupporting documents. He will also assign aninspector to examine the goods before sendingthe agent to the principal appraiser for coun-tersigning. The bill of entry will then be for-warded to the assistant collector of appraise-ment for endorsement. The particulars in thebill of entry are then keyed into the com-puter. The agent will pay the duties and allthe charges before arranging for the inspectionof the goods. After inspection, the bill of en-try which contains the inspection report willbe handed once again to the principal appraiserfor counter-signing before the agent can ar-range with the port trust to release the goods(WTO 2001).

Similar to imported goods, all goods tobe exported require customs inspection.

In addition to the bill of export, all ex-porters have to fill out forms necessaryfor the control of foreign currency repa-triation. Since 1996, the agents are allowedon-line filing of bills of entry and bills ofexport at the customs house at Karachiand the Lahore dry ports. Further devel-opments are taking place to re-engineerand computerise the import and exportprocedures.

The tariff structure of Pakistan is still rela-tively complex despite having been sim-plified considerably in the recent past. Ithas 26 different rates (49 in 2000/01), 13of which are ad valorem, 11 specific, and2 compound (WTO 2001). Although thescope has been reduced recently, the com-plexity of the tariff structure is exacer-bated by concessions, which always opensup room for misclassification of imports,and hence interpretations and corruption.

Registration requirements for importersand exports are still relatively complex.Some of the key features of simplifica-tion of formalities connected to importsand exports are: faster custom clearancefor specific items; introduction of an elec-tronic assessment system; and customsvaluation modification.Levy of fees and charges: Trade in certain sen-sitive items remained subject to specificor compound duties, state-trading activi-ties, export subsidies or freight costs. Rela-tively high ad valorem tariffs have been kepton motor vehicles and import of certainitems (for e.g. textiles) has been prohib-ited. Local content requirements havebeen operated for engineering and auto-motive (including tractors) goods. Cer-tain import restrictions are being removedprogressively. Virtually all imports comeunder a few withholding type taxes andcharges in addition to import duties. Thewithholding tax, in principle, is deduct-ible from income tax, which means thatit does not constitute an additional levyon imports as long as the income taxespayable are sufficient to offset the tax. Ifthe importer is in a non-taxpaying posi-tion (for e.g. because the importer is op-erating at a loss for income tax purposes,or enjoying a tax holiday), the levy be-comes an import surcharge.

In Nepal, some of the keyfeatures of simplification offormalities connected toimports and exports are:faster custom clearance forspecific items; introductionof an electronic assessmentsystem; and customsvaluation modification


38


Pakistan’s import policy is quite complex.Although Pakistan has no licensing re-quirement, imports of several productsneed prior approvals, recommendationsor clearance requirements from differentministries/departments in accordancewith safety and health requirements, whichentail licensing (WTO documents G/LIC/N/1/PAK/1 and G/LIC/N/2/PAK/1, 29 May 1996). Certain banneditems and imports by certain entities suchas foreign airlines, oil and gas companies,refineries and mining companies, foreignconstruction companies, and foreign con-tracting firms engaged in various projectsin Pakistan require import authorisationfrom the Ministry of Commerce. More-over, there are certain products that canbe imported only by the public sector orindustrial consumers. In addition, importof 19 product categories are subject tovarious conditions, such as receipt of cer-tificates by suppliers and payment forimports from the importer’s own foreigncurrency account. Certain chemicals andozone depleting substances are underquantitative restrictions, determined on adomestic needs basis or by the CentralBoard of Revenue in consultation withcompetent government agencies (WTO2001).

Injecting GATT principles: Since Pakistan iscommitted to simplifying documentationrequirements, extending GATT principlesmay not be difficult.

Provisions to reduce documentation requirements:Registration and documentation require-ments abound and remain unchanged andthe list of documents needed can be long:Import General Manifest, bill of entry,invoice, packing lists, copies of L/C, andinsurance certificates. In addition, import-ers need to register with the EPB. Muchof the items are under certain conditions,and these goods also require a recom-mendation/clearance or prior approvalfrom a competent government agency,or certificates from the exporting coun-try. For example, food colouring mate-rial requires a certificate from the respon-sible agency in the exporting country in-dicating that it is in use in the country oforigin at the time of shipment or regis-

tered in that country. In most cases, inorder to obtain duty concessions for im-port of machinery and raw materialsgranted to various industrial establish-ments, importers need to furnish an in-demnity bond/bank guarantee to the ex-tent of duty exempted. A certificate oforigin may be required for items subjectto special import (e.g. preferential treat-ment), depending on the origin.

There are many exemptions and addi-tional conditions. For example, only thegovernment can import certain goods,which are exempted from registrationrequirements. To further complicate mat-ters, only firms listed in public notices is-sued by the Ministry of Commerce mayapply for import authorisation. For goodssubject to conditions, opening L/C andcustoms clearance can be done only whenthe importer has the so-called ‘CategoryPass Book’ issued by the EPB.

From February 2000, an Electronic As-sessment System (EASY) has been intro-duced to speed up assessment and cus-toms clearance as well as to reduce con-tact between taxpayers and the tax col-lectors. During the first stage, EASY wasmade available to multinationals and lo-cal firms eligible for an ‘express-lane fa-cility’ (operated since 1998). EASY cov-ers: dutiable imports by public sector en-tities (i.e. federal/provincial governments,state-owned corporations, local bodies);all items subject to specific rates of cus-toms duty (excluding compound rates);and certain items subject to zero rates ofcustoms duty and sales tax. Again, thereare many exemptions that have been in-troduced to the system. For example,EASY does not apply to second-hand orre-conditioned items, scrap, and itemssubject to restrictions or bans or dutyexemptions. All exporters must be regis-tered with the EPB under similar termsas importers.

Export registration requirements include:pre-shipment registration of export con-tracts with the EPB in respect of cotton,rice, and urea; registration for purposesof monitoring (e.g., exports of severalitems to Afghanistan); pre-shipment con-tract registration with some associations

In Pakistan, food colouringmaterial requires acertificate from the

responsible agency in theexporting country

indicating that it is in usein the country of origin at

the time of shipment orregistered in that country

39

where goods have quota requirements orfor quality assurance purposes (e.g., tex-tiles with All-Pakistan Textile Association,the Rice Exporters Association of Paki-stan); certificate for the purposes of as-suring quality (engineering and electricalgoods); and no objection certification orspecial procedures (e.g., precious andsemi-precious stones and gold jewellery).

Standard processing times: No publicised stan-dard processing times.

Use of international standards: Pakistan hascommitted to implement internationalstandards on documents but exactprogress is not known.


All Pakistani laws, regulations and mostadministrative guidelines are published inEnglish in the publicly available officialgazette, The Gazette of Pakistan. At present,some are also available on official websites. Unified procedure orders have beenused as a vehicle for making regulatoryorders user-friendly and some StatutoryRegulatory Orders (SROs) have been re-duced substantially. Customs tariff ratesare announced annually through the Fi-nance Act and published in the officialgazette (Gazette of Pakistan ExtraordinaryPart II). In addition, at the start of eachfinancial year, the Central Board ofRevenue (CBR) publishes the customstariff along with notifications containingvarious duty exemptions, rules andchanges. The customs tariff and accom-panying regulations are also available atthe CBR online information.

Advance rulings: No known procedure onadvance rulings.Use of electronic media: Pakistan has estab-lished Internet web sites at an increasingnumber of public sector agencies, insti-tutes, and entities, in English.

4.1.6 Sri Lanka15

Sri Lanka has recognised the need to in-troduce measures to facilitate trade, andit has accepted some of the broad tradefacilitation principles. Major reforms ofSri Lankan customs towards trade facili-tation include: Sri Lanka Automated

Cargo Clearance Systems (SLACCS);Implementation of the WTO/GATTValuation Agreement; and Simplificationand Harmonisation of Customs Proce-dures.


Transit facilitation is not featured in SriLanka’s trade facilitation effort as yet.


Sri Lanka has one of the most liberal traderegimes in South Asia. Import tariff isSri Lanka’s main trade policy instrument.With the introduction of tradeliberalisation, the country moved from asystem that had many tariff lines to asimple structure with few tariff bands.Although the government attempted tointroduce a two-band tariff system at onepoint, it has deviated from this policy re-cently and the tariff structure is now sub-ject to an increasing number of changes.The current tariff structure consists of 6bands – 2 percent (1663 items), 5 per-cent (829 items), 20 percent (59 items),25 percent (1260 items), 75 percent (itemssuch as beer and tobacco), 100 percent(cigarettes) – while there are 31 items thatcarry an ad valorem or specific duty, which-ever is higher. There is intermittent useof exemptions and waivers that compli-cate the tariff structure. In addition, thereare specific duties on 46 items, includingabout 12 agricultural products, whichhave been introduced to protect domes-tic producers. However, they remain be-low Sri Lanka’s bound agricultural tariffrate of 50 percent at the WTO.

Levy of fees and charges: A total of 353 itemsat the 6-digit level of the HarmonisedTariff Schedule (HST) code remain un-der license control, mostly for health andnational security reasons. There is a 0.1percent fee on import licenses, which ison ad valorem basis. Sri Lanka currentlymaintains a number of charges on im-ports: a 10 percent import duty surcharge;1 percent ports and airports developmentlevy on imports; VAT of 15 percent; ex-cise fee on some products such as aer-ated water, liquor, wines, beer, motor

The Sri Lankangovernment has taken stepsto appoint a “workinggroup to improve existingimport and exportprocedures” with theinvolvement of both publicand private sector


40


vehicles and cigarettes; export develop-ment board fee on all imports where thecustoms duty is more than 45 percent;and port handling charges. In addition,VAT and excise duties are levied on im-ports and domestic producers.

Injecting GATT principles: No specific pro-gramme as yet. Extending GATT princi-ples in this regard will not be difficult.Provisions to reduce documentation requirements:The Sri Lankan government has takensteps to appoint a “working group toimprove existing import and export pro-cedures” with the involvement of boththe public and the private sector.Standardised customs declarations forimports and exports were introducedalong with the implementation of thecustoms computerisation project in Janu-ary 1994. New standard formats for valu-ation declaration form (introduced inJanuary 2003) enabled simplified proce-dure in valuation with the implementa-tion of the Customs Valuation Agree-ment.Since 1994, lodging entries with customsand assessing them are done by usingASYCUDA. The customs started usingASYCUDA++ from 1998. Accountingand data collection have become fullycomputerised with this process. As forother usage like risk management, selec-tivity module of ASYCUDA is beingtested at several divisions of the customssince March 2003. Automation ofBonded Warehouse Stock Control hasbeen initiated with the introduction of aprogramme developed by Sri LankanCustoms Automated Data ProcessingDivision using ASYCUDA++ calledthinneth (meaning three eyes). This has beenin operation for nearly two years now. Avaluation database for risk managementhas been established and it has madesteady progress during the last two years.

Standard processing times: The Sri Lankan cus-toms believes that the process of auto-mation will further reduce the processingtime substantially, eventually reaching theminimum possible level.

Use of international standards: Sri Lanka hascommitted to introduce international

standards on documentation.


Once the EDI project is fully imple-mented, clearance of goods at Sri Lankaports could become much faster and withminimum documentation requirements.Both importers and shipping agents couldsubmit their customs declarations elec-tronically through the EDI switch to thecustoms ASYCUDA system. The elec-tronic custom documents will, thereafter,be assessed by customs using an intelli-gent based risk management system.

The ASYCUDA system is being used forautomatic selectivity of low risk (green),medium risk (yellow) and high risk (red)declarations. Consignments with greencards will be released without calling fordocuments and cargo inspection; whileonly the documents will be inspected ofconsignments with yellow cards; and bothdocuments and cargo will be examinedof those with red cards. Advance clear-ance will be given to consignments withgreen and yellow cards, i.e., clearance willbe given prior to the arrival of the cargo.This would require reporting of the mani-fest by the shipping agents at least twodays prior to the arrival of the vessel. Thistype of customs clearance would resultin “zero time clearance” as far as the cus-toms clearance procedure is concerned.

Simplification and harmonisation of customs pro-cedures: Sri Lanka has attempted to sim-plify the existing customs procedures andformalities with a view to enhancing theefficiency of the customs. The major ele-ments of this customs modernisationprogramme include: (i) introduction ofan automated cargo clearance system; (ii)new import clearance procedure underEDI environment; and (iii) simplificationand harmonisation of custom proce-dures.

The Ministry of Commerce and Con-sumer Affairs has carried out a study oncargo clearance system at Sri Lankanports, and consequently a decision hasbeen taken to implement an EDI project.This has already been granted to a ser-vice provider, eService Lanka Limited,

The Sri Lankan customsbelieves that the process of

automation will furtherreduce the processing time

substantially, eventuallyreaching the minimum

possible level

41

and the project, known as SLACCS, hasbeen implemented.

Sri Lanka is a contracting party to the In-ternational Convention on the Simplifi-cation and Harmonisation of CustomsProcedures (Kyoto Convention) sinceMarch 1985. Having realised the impor-tance of acceding to the RKC, Sri Lankasigned the Convention in June 1999 sub-ject to ratification. The Sri Lankan cus-toms or the Central Bank of Sri Lankapublishes regulatory and administrativechanges related to international trade. In-formation is made available both onprinted and electronic media. Publicationof regulatory changes in printed mediathrough government gazettes is a statu-tory requirement for regulatory changesto become effective.

Advance rulings: Advance rulings on classi-fication can be obtained from the SriLankan customs submitting relevant par-ticulars, including samples where needed.These advance rulings are valid for a pe-riod of six months and the period is ex-tendable on request. A standard formatis used for this purpose.

Use of electronic media: Sri Lankan customsmaintains a website giving informationon tariff changes, license requirements andany other significant changes to the cus-toms ordinance and regulations. The cus-toms is in the process of expanding andimproving this on the basis of the guide-lines prepared by the WCO on this sub-ject. The Central Bank of Sri Lanka pub-lishes these changes in its annual report.

Sri Lankan customs launched a campaignto build awareness on electronic com-merce and the usage of electronic mediafor facilitating trade. A series of semi-nars were held starting in 1998, coveringEDI and e-commerce. The NationalEDI/EC Committee publishes e-info; aquarterly magazine/newsletter on EDI/EC related issues, which is circulated inSri Lanka and to all the AFACT Secre-tariats.

Enquiry points: Sri Lanka still does not havea single window for inquiries on importsand exports; several agencies are involvedin any import and export transaction. For

example, the Department of Inland Rev-enue issues the PIN number required forpaying taxes and levies, while the Control-ler of Exports and Imports deals withissuing the required licenses imports andexports.

Consultative mechanism: A permanent TariffAdvisory Council was set up in 2002 toexamine and correct anomalies and dis-tortions in the tariff structure, and to ad-dress representations, made by importersand industrialists. With respect to e-com-merce and EDI, Sri Lanka has been ableto evolve an effective consultative mecha-nism involving both the government andthe private sector. The National EDI/ECCommittee comprises representativesfrom CINTEC, the Sri Lankan ExportDevelopment Board (EDB), the Sri LankaPorts’ Authority, Sri Lanka Customs, SriLanka Telecom, Sri Lanka Airlines, SriLanka Freight Forwarders Association, theCeylon Association of Ships’ Agents, theSri Lanka Standards Institution (SLSI), thelegal profession and the banking sector.

Technical committee: In addition, representa-tion to the technical committees may bemade from Nomenclature Committee(NC) with regard to classification disputesand to the newly set up Customs Valua-tion Committee with regard to valuationdisputes. Further, two technical commit-tees have been established to address is-sues of enforcement and facilitation ar-eas, namely Customs Enforcement Com-mittee and Customs Facilitation Commit-tee.

Appeal procedures: The technical committeesassist the Director General of Customs inhandling appeals under respective areas.

4.2 Intra and inter-regional tradefacilitation in South AsiaTrade facilitation is a major feature ofSAARC economic cooperation.

4.2.1 Custom cooperationAs a practical measure to facilitate the pro-cess of economic integration, SAARCestablished a Group on Customs Coop-eration (GCC) in 1996 (SAARC 2002).During the third meeting of the SAARCGCC held in Jaipur, India on 24–26 Au-

SAARC members hadagreed to: harmonise tarifflines along theinternationally acceptedHS with the objective offacilitating greaterintegration within theregion; simplifyingprocedures for intra-regional exports;upgrading infra-structuralfacilities; and providingtraining facilities


42


gust 1998, it was recommended, amongothers, that there is a need to adopt a com-mon format for customs forms relatingto import and export declarations.SAARC members also agreed to:harmonise tariff lines along the interna-tionally accepted Harmonised System(HS) with the objective of facilitatinggreater integration within the region; sim-plifying procedures for intra-regional ex-ports; upgrading infra-structural facilities;and providing training facilities (See An-nex on Customs Action Plan).

4.2.2 Trade facilitation under RTAsThe first trading agreement underSAARC, the South Asia Preferential Trad-ing Arrangement (SAPTA) did not con-tain any measures to facilitate trade. How-ever, the South Asian Free Trade Agree-ment (SAFTA), signed in Islamabad inJanuary 2004, has made some provisionfor trade facilitation under Article 8 (Ad-ditional Measures), which is a novel fea-ture compared to the predecessorSAPTA. If implemented, these provisionswould indeed make South Asian eco-nomic integration much faster.

4.2.3 Transport facilitationThere is a long history in South Asia oninitiatives related to transport and transitfacilitation. A Technical Committee onTransport was established in 1983 underthe then Integrated Programme of Ac-tion (IPA). Its mandate covered threemajor segments: land (roadways and rail-ways); sea (inland waterways and ship-ping); and air transport. New areas ofcooperation were added later includingtransport safety, rural transport, environ-mental aspects and energy conservation.

For transport facilitation, SAARC has alsoundertaken activities such as seminars andworkshops, exchange of data and infor-mation, preparation of status papers andcompilation of database and directoriesof consultancy centres. The 11th Sessionof the SAARC Council of Ministers (Co-lombo, 8-9 July 1992) recognised theneed to improve transport infrastructureand facilities in the region. Subsequently,the Committee on Economic Coopera-tion commissioned a study on then exist-

ing transport infrastructure and transit fa-cilities, including procedural and documen-tal issues in the region.

4.2.4 Standards, quality control andmeasurementsThe SAARC commerce ministers estab-lished the Standing Group on Standards,Quality Control and Measurements in May1998. The first meeting was held in NewDelhi in June 1999 to identify the poten-tial for harmonisation of national stan-dards and key elements of the regionalaction plan on standards, quality controland measurements. The second meetingwas held in New Delhi in February 2002and considered a collaborative arrange-ment with the German National Meteo-rology Institute (PBT) on implementing aprogramme on standards, quality controland measurements. These agreements arelaudable but there has not been an initia-tive to implement them. Unfortunately,these agreements are not binding on anycountry, and therefore, there is no pres-sure to implement them at the nationallevel.

4.2.5 Harmonisation of nationalstandardsHarmonisation is defined as the fusion ofhigher and lower standards into a singlecomposite standard, which leads to con-formity in laws, simplification of techni-cal regulation and integration of standards.The basic principle of harmonisation isthat the products manufactured in onecountry should be equally acceptablethroughout the region. Out of the sevenSouth Asian countries, four have reason-ably developed national standardisationprogramme with India leading the way.Four are members of the InternationalOrganisation for Standardisation (ISO).While Bangladesh maintains a correspond-ing status, two countries (Bhutan and theMaldives) are not the members of the ISO(SCCI 2001).

The contribution of the harmonisation ofnational standards to economic integrationin South Asia can be substantially higherthan many other trade facilitation measures.Standards define the characteristics of aproduct, process or service, which, in turn,

For transport facilitation,SAARC has undertakenactivities such as seminarsand workshops, exchangeof data and information,

preparation of statuspapers and compilation of

database and directoriesof consultancy centres

43

determine the quality feature in the prod-uct or process and make the user’s lifeeasier. In relation to measurements,standardisation calls for equal units ofmeasurement for various componentsand defines technical specifications forrepeated use.

Standardisation is also a means of com-munication between buyers and sellers.This is even more important in the con-text of international trade with other re-gions, because standards give the signalof quality and the need to bargain be-comes less with products and services thathave received international standards. Stan-dards also promote transparency and faircompetition. They provide better infor-mation to customers, and protect the in-terests of the consumers. With commonstandards across countries, it becomeseasier to trade goods because consumersreadily accept the goods exported byother countries. This is not just true forcountries within a particular region likeSouth Asia but also globally.

Standardisation schemes lay the founda-tion for the improvement of domestic

skills and quality, while they help produc-ers to avoid wastage particularly in termsof minimised consignment rejections asstandards ensure compatibility of indus-trial practices. Different standards ofgoods as well as health, safety and envi-ronmental standards work as a trade bar-rier in many instances. Common stan-dards are a key component to achievinga single market of which SAFTA is a step-ping stone.

The private sector can play a positive rolein facilitating implementation andharmonisation of standards through ac-tive participation in the technical commit-tees set up by the Bureau of Standardsand Harmonisation, facilitating the estab-lishment of regional accreditation body(for inspection, testing and certification,auditing, etc.), creating awareness on thebenefits of uniform standards, and bring-ing the governments together for prepar-ing the common position at the WTO.

Other than national programmes,harmonisation of standards at the regionallevel is quite significant. Ghauri (SCCI2001) identifies 11 steps to reach regional

Contracting states agree to consider, in addition tothe measures set out in Article 7, the adoption oftrade facilitation and other measures to support andcomplement SAFTA for mutual benefit. These mayinclude, among others:

a) Harmonisation of standards, reciprocal recog-nition of tests and accreditation of testing labo-ratories of contracting states and certificationof products;

b) Simplification and harmonisation of customsclearance procedure;

c) Harmonisation of national customs classifica-tion based on HS coding system;

d) Customs cooperation to resolve dispute at cus-toms entry points;

e) Simplification and harmonisation of import li-censing and registration procedures;

f) Simplification of banking procedures for im-port financing;

g) Transit facilities for efficient intra-SAARC trade,especially for the landlocked contracting states;

h) Removal of barriers to intra-SAARC invest-ments;

i) Macroeconomic consultations;

j) Rules for fair competition and the promotionof venture capital;

k) Development of communication systems andtransport infrastructure;

l) Making exceptions to their foreign exchangerestrictions, if any, relating to payments forproducts under the SAFTA scheme, as well asrepatriation of such payments without preju-dice to their rights under Article XVIII of theGATT and the relevant provisions of Articlesof Treaty of the International Monetary Fund;and

m) Simplification of procedures for business visas.

SAFTA Article 8 (additional measures)

Source: SAARC. 2002.; www.saarc-sec.org

SAARC could berelatively straightforwardas many of the countrieshave similarities such asclimatic conditions,consumption, culture,technological advancements,human resources, andinfrastructure for testingand inspection

BOX: 4.1


44


harmonisation of standards. An objec-tive evaluation would reveal that SAARChas not reached even the third step ofthese 11 steps, where it would be neces-sary to harmonise not only product stan-dards, but also methods of test, sam-pling techniques, packaging requirements,etc. Achieving regional standards withinSAARC could be relatively straightfor-ward as many of the countries have simi-larities such as climatic conditions, con-sumption, culture, technological advance-ments, human resources, and infrastruc-ture for testing and inspection.

Several elements can be identified fordeveloping a common standard. Oneof the first requirements would be thedevelopment of ‘benchmarks.’ Therole of international standardisationbodies in creating international bench-marks as well as in harmonising stan-dards cannot be undermined. TheISO, which comprises national stan-dards bodies of nearly 120 countries,aimed at promoting the use of inter-national standards and facilitating trade.International Electro-technical Com-mission (IEC) and International Tele-communications Union (ITU) compileand recommend standards for infor-mation related to industries. The Coun-cil of Economic Priorities Accredita-tion Agency on social accountabilitystandard SA8000-1997 is another in-stitution that promotes social account-ability. Codex Alimentarius Commis-sion (CAC) of the United NationsFood and Agriculture Organisation(FAO) and World Health Organisation(WHO) developed the Hazard Analy-sis Critical Control Point (HACCP) in1993.

Achieving these standards is no easytask. In the words of Quasim Ibrahim(SCCI 2001): “those of us involved inexport business are in a fire-fightingsituation to achieve these standards.”This is particularly true for SMEs,which lack information on standards.In addition, consultancy services on

standards are quite expensive, and inmany instances, SMEs cannot bearthese expenses on their own. Parallel tothe harmonisation of standards, thereis a need to develop mutually accept-able conformity assessment activitiesthat normally include pre-shipment in-spection, import inspections, testing ofproducts, product certification andmanagement systems certification.

4.3 Sub-regional trade and transitfacilitationSub-regional cooperation for trade andtransit facilitation figures prominently inSouth Asia. The project on Alignmentof Trade Documents and Proceduresof India, Nepal and Pakistan is an im-portant sub-regional initiative, supportedby ESCAP. The purpose of the projectis to understand the trade documenta-tion procedures of India, Nepal and Pa-kistan; identify the trade and customsdocuments in use and the data elementscontained in these documents; simplify,standardise and harmonise trade proce-dures in the SAFTA context; and rec-ommend, where applicable, alignmentof trade and customs documents of thethree countries in accordance with theUN Layout Key for Trade Documents.

The project team studied close to 100documents in the three countries andaligned 55 of them that are relevant tointernational trade (ESCAP 2000). Theteam also combined 29 of them into 11documents to simplify trade procedures.Some of the documents aligned and im-proved are the bill of entry, bill of ex-port, shipping bill, CTD, phytosanitarycertificate, inspection certificate, valuationcertificate, registration certificate, com-mercial invoice and packing list.UNCTAD and ESCAP have, throughtheir studies of documentation proce-dures, attributed 10 percent of total costsin developing countries to costs of docu-mentation and procedures in internationaltrade. This cost makes trade less com-petitive in the global markets.

Sub-regionalcooperation for trade

and transit facilitationfigures prominently in

South Asia

45

Issues for comments

• Which country in South Asia can serve as a model for helping other countries implement their tradefacilitation measures? What are the key lessons to be learned?

• Given the fact that almost all the countries in South Asia are charging ad valorem fee on imports inviolation of GATT Article VIII, what should be their strategy in the future?

• What are the possible ways and means to operationalise Article 8 (additional measures) of SAFTA?

• How should landlocked countries in the region shape their negotiating positions so as to ensure thattheir concerns about border delays and higher transit costs for their goods are addressed?


47

5.1 Is trade facilitation a priorityissue in South Asia?Trade facilitation is only one among manyof the crucial economic, political and so-cial issues facing South Asia. Although al-most all the governments in the regionhave pronounced trade facilitation to bea key to facilitate trade, the political willto implement such measures seems to belacking. The benefits of trade facilitationare not well documented in the contextof South Asia and the pressure to imple-ment such measures is not forthcomingfrom the business community. This ispartly because the business community isso acquainted with the system that theydo not see the need to change. The timecost of the delays in customs or process-ing documents may not be a major prob-lem for the business community as theycan employ even several personnel to carryout the tasks required for getting the doc-umentation requirements completed andconsignments cleared. The cost of hiringan agent or a few people is not so high atall given the low wage rates in South Asia.The existence of customs clearance agentsis taken in this context as an essential ele-ment in the process, which by virtue ofworking with the customs officials, knowhow to expedite the process of customsclearance and documents needed to com-plete trade transactions. Officials in insti-tutions such as the customs and minis-tries of trade have become accustomedto the existing inefficient systems so muchand there is entrenched interest to main-tain the status quo for personal gain. Anymove to reform customs and other in-stitutions is, therefore, viewed with sus-picion and invites opposition. The gov-ernments seem to be reluctant to engagein implementing a proper reform pro-

Issues, priorities anddevelopment strategies

Chapter 5

gramme of these institutions. Unless thereis external pressure to minimise thesetransactions costs, it is doubtful whetherSouth Asia will implement credible mea-sures to facilitate trade. Given a myriadof problems that would receive imme-diate attention of the political leadership,trade facilitation agenda can be easily post-poned without much impact on the per-formance of the government.

5.2 Cost of implementing tradefacilitation measuresTrade facilitation aims at reducing transac-tion costs of trade regardless of their ori-gin. However, this requires substantialupfront investment and higher operationalexpenses for government and businesses.The magnitude of the implementationcosts varies according to the level of re-forms needed, the existing infrastructure,the number of sites that need to be ser-viced, human resources available within thecountry and the kind of facilitation mea-sures being attempted to implement. Ifsimple economic logic is applied to thisquestion, one needs to evaluate the ben-efits of implementing a trade facilitationprogramme against the combined totalcost. There is no evidence to suggest thatsuch evaluations have been carried out indeveloping countries before suchprogrammes were implemented. For ex-ample, many developing countries includ-ing those in South Asia have implementedautomated customs systems. Such auto-mated systems are often inefficient in thecontext of developing countries wherefundamental infrastructure such as a goodtelecommunication system and reliable sup-ply of electricity are missing. In many in-stances, the improved systems cost more,not less. These costs are often passed on

The magnitude of theimplementation costs oftrade facilitation measuresvaries according to the levelof reforms needed, theexisting infrastructure, thenumber of sites that needto be serviced, humanresources available withinthe country and the kindof facilitation measuresbeing attempted toimplement

48


to traders, adding to their already highcosts. If the other inefficiencies are not re-moved, traders will be paying for new ‘im-proved’ services more.

5.3 Trade facilitation at theappropriate levelSome developing countries may still notbe comfortable with the idea of bindingglobal rules on trade facilitation under theWTO. Some countries such as India, Pa-kistan and Sri Lanka have already imple-mented some provisions that have beenproposed while many of the other pro-visions are under consideration for adop-tion. Where commitments have alreadybeen made under more obligatory agree-ments such as TBT and SPS, only legisla-tive enactment is needed.

There was little merit, if at all, in adamantlyrefusing to engage in negotiations on tradefacilitation at the first place. It seems thatdeveloping countries were convinced ofthe need for improved trade facilitationbut they have always had two major con-cerns. First, given the lack of resources,they would not be able to honour theircommitments in the absence of bindingcommitments from the developed coun-tries or development partners formoblising technical assistance. Second,should they fail to honour their commit-ment, there would be a strong possibilityof them being dragged to dispute settle-ment body of the WTO. Paragraph 6 ofthe Trade Facilitation Text of July Pack-age helps allay both the fears. It states:

Support and assistance should also be pro-vided to help developing and least-developedcountries implement the commitments result-ing from the negotiations, in accordance withtheir nature and scope. In this context, it isrecognized that negotiations could lead to cer-tain commitments whose implementation wouldrequire support for infrastructure developmenton the part of some Members. In these lim-ited cases, developed-country Members willmake every effort to ensure support and assis-tance directly related to the nature and scopeof the commitments in order to allow imple-mentation. It is understood, however, that incases where required support and assistancefor such infrastructure is not forthcoming, and

where a developing or least-developed Membercontinues to lack the necessary capacity, imple-mentation will not be required. While everyeffort will be made to ensure the necessary sup-port and assistance, it is understood that thecommitments by developed countries to providesuch support are not open-ended.

There are other measures that can be ne-gotiated at the regional level. South Asiahas not been able to negotiate transit ar-rangements within the SAARC processdue to political differences and potentialpolitical fall out of hard decisions. Forexample, India prefers to negotiate tran-sit arrangements with Nepal andBangladesh on a bilateral basis. Oneshould ask the question whether this is themost appropriate level to negotiate tran-sit issues. There are many other transit ar-rangements that are working efficientlyamong other countries that could pro-vide good lessons for South Asia.

5.4 Technical assistance anddomestic research capabilityTechnical assistance requested by SouthAsian countries as well as other develop-ing countries from the WTO or otherinternational institutions seems to lack clearunderstanding of their needs whether suchassistance would be practical to imple-ment under the current context and theobjectives of developed countries inimplementing certain trade facilitationmeasures. The need for trade facilitationin developing countries is contingent onthe level of development, the complex-ity of the existing rules, regulations andprocedures and the extent of integrationthat the country wishes to achieve and theextent of reforms that a country canimplement given the political and eco-nomic climate.

These issues have arisen because manycountries lack sufficient technical exper-tise within their borders. In such cases,there is legitimacy to use external consult-ants. However, there are many instanceswhere ‘external consultants’ are used evenwhen the country itself has expertisewithin its own borders because technicalassistance programmes themselves haveconditions attached in terms of the need

Some developing countriesmay still not be

comfortable with the ideaof binding global rules on

trade facilitation under theWTO

49

to hire experts from the donor agency orthe country. Such provisions not only ne-gate the possibility of developing exper-tise within developing countries but alsofoster dependency. Therefore, technicalassistance should be geared towards thedevelopment of domestic level researchand development capability rather thanproviding direct technical assistance, whichis true for many areas in the developingworld. One of the major reasons for thefailure of many development projectsincluding trade facilitation is the attemptto transplant foreign technology withoutany consideration to the needs of thesesocieties. Developing countries should,therefore, ask not so much technical as-sistance per se but assistance to build theirin-house research and development ca-pability, at least in the initial stages. Oncethe research and development capabilityis in place, they can determine what areasneed to be supported by external con-sultants and external technical assistants.

The challenges of implementing any pro-posed multilateral rules in this area in thefuture would also need to be met by tech-nical assistance and capacity building inan integrated manner, taking into accountthe S&DT to be accorded to developingcountries.

5.5 Stages of developmentA new realisation has emerged on theimplications of the stages of develop-ment on economic polices, includingtrade. Choosing the appropriate level oftrade facilitation to suit the stage of de-velopment is critical for its success. Ar-riving at this decision often requires in-formation relating, for example, to thenature of legislative process and the ex-tent of transaction costs, etc. Once suchan assessment is made, the country is in abetter position to choose the most ap-propriate level of technical assistance. Insome cases, what may be needed is bet-ter management of national borders,whereas in another it may just be sometraining of officials with respect to thesystem of trade rules and regulations. Inmost cases, increasing the number of pro-fessionals in customs is a necessity.

The basis for the call for S&DT is thestage of development and the capacityto implement the reforms required forimplementing trade facilitation. With suchdifferences across countries within SouthAsia, cross-border trade facilitation toharmonise vastly different legal and ad-ministrative systems becomes even moredifficult. Institutional and micro-economicreforms needed to make trade facilita-tion work are vastly different in differentcountries. Before attempting to imple-ment advanced facilitation measures suchas global risk management strategies, thesereforms must be undertaken. The launch-ing of trade facilitation most appropri-ate to the level of development is, there-fore, important.

5.6 New international economicorderThe extent of competitiveness of a coun-try no longer depends on whether a coun-try can export goods and services, butrather on the speed and efficiency at whichgoods are exported and services are de-livered. As noted above, present day glo-bal consumers have many choices and arenot restricted by geographical barriers.Various management techniques such asjust-in-time delivery, the use of theInternet and customer orientation of pro-duction and delivery have evolved withthe change and availability of new tech-nology. In such an environment, delaysand inefficiencies within the country or atthe borders make goods and servicesfrom that country highly uncompetitive.This is a challenge particularly for devel-oping countries, landlocked countries andthose that are located far away from themajor global markets, which find it ex-tremely difficult to improve their com-petitiveness.

5.7 Emerging consensusDeveloping countries opposed the inclu-sion of trade facilitation under the WTOnegotiations because this would lead tobinding obligations where developingcountries may not have the capacity toimplement some of the changes neededin areas of legislative enactments, fulfill-ing infrastructure requirements and so

The extent ofcompetitiveness of a countryno longer depends onwhether a country canexport goods and services,but rather on the speed andefficiency at which goods areexported and services aredelivered

ISSUES, PRIORITIES ANDDEVELOPMENT STRATEGIES

50


forth. Whether we like it or not, the issueof trade facilitation has been included fornegotiation as a part of Doha Develop-ment Agenda. Many developing coun-tries, including those in South Asia, agreethat trade facilitation is something desir-able for economic integration and devel-opment. Moreover, India, Pakistan andSri Lanka, in particular, have already imple-mented a large number of trade facilita-tion measures that have been proposedby the developed countries. Capacitybuilding to implement the remaining ob-ligations together with the political will

and confidence that these measures canbe implemented within a reasonable timein South Asia is what is lacking. Perhaps afew studies with a cost-benefit analysis ofimplementing trade facilitation measures,conducted by developing country experts,government officials or at the level ofSAARC, could shed light on the needsof developing countries and help devisea plan of action. Such studies could alsotake the mystery out of trade facilitationpuzzle so that South Asia will be readyfor the negotiations on trade facilitationwith much confidence.

Issues for comments

• What are the political economy implications of implementing trade facilitation measures in SouthAsia?

• What are the technical assistance requirements of the South Asian countries in relation to implement-ing trade facilitation measures?

• Given the history of non-implementation of S&DT provisions in the WTO, what are the chances ofthe S&DT provisions within the Annex D (Trade Facilitation Text) of the July Package being imple-mented?

• What are the common agenda the South Asian countries should agree to before forming theirnegotiating positions during the WTO negotiation on trade facilitation?

Capacity building toimplement the obligationstogether with the political

will and confidence islacking in South Asia

51

Annex: 1Customs Action Plan on Cooperation, Uniformity and Harmony forCustoms Administrations of SAARC Member Countries

PreambleThe Customs Administrations of theGovernment of the People’s Republic ofBangladesh, the Kingdom of Bhutan, theRepublic of India, the Republic ofMaldives, the Kingdom of Nepal, theIslamic Republic of Pakistan and theDemocratic Socialist Republic of SriLanka hereinafter referred to as “Mem-ber Administrations”.

Motivated by the common desire to es-tablish and promote regional preferentialtrading arrangements for strengtheningintra-regional economic cooperation andthe development of national economies;

Noting that divergence in Customs pro-cedures of the member administrationscan hamper free flow of goods and otherexchanges;

Recognising that simplification,harmonisation and uniform applicationof Customs procedures by the memberadministrations can effectively contributeto the development of trade and otherexchanges in the Region;

Recognising the need for cooperationin matters related to the proper applica-

tion and enforcement of their Customslaws, and thereby helping in the smoothflow of bona fide goods and passengers;Recalling the directions given at the Sev-enth CEC Meeting held at New Delhi,India in October 1996 that a “Group onCustoms Cooperation” be established;Have agreed to:• maximise harmonisation, simplifica-

tion and uniform application ofCustoms procedures relating to fa-cilitation of movement of goodsand passengers;

• ensure proper application of theirCustoms Laws through maximummutual cooperation and assistance,in particular, in the sphere of com-bating commercial frauds, and traf-ficking in illicit drugs; and

• improve the working methods andhuman resources of the memberadministrations through efficient useof training resources and training ofCustoms Personnel.

And to these ends, have approved the“Customs Action Plan” as follows (SeeAnnex 2).

52


SAARC Customs Action PlanThe key elements of the Customs ActionPlan are:

I. Uniform Application, Harmonisa-tion and Simplification of CustomsProcedures and PracticesUniform application, harmonisation andsimplification of Customs proceduresand practices not only raises the efficiencyand effectiveness of the Administrations,lends transparency to the Customs prac-tices, facilitates freer movement of goodsand passengers and reduces delays andcosts associated with repetitive declara-tions, examinations and differing inter-pretations by the Customs authorities ofthe concerned Administrations. The fol-lowing activities are identified for beingpursued to achieve this objective:

(a) Progressive implementation of theprovisions of the International Conven-tion on the Simplification and Harmon-isation of Customs Procedures (KYO-TO Convention), taking cognisance ofthe review being undertaken by the WorldCustoms Organisation.

(b) Developing a co-ordinated approachto the development of key Customs pro-cedures and practices with a view toharmonising them across the member-ship, in particular relating to:

i. use of standard forms for Customsdeclarations relating to import, ex-port, transit and other importantformalities;

ii. introduction of simplified proce-dures for Customs clearance ortransit movement of exempted

goods, perishable goods and othergoods requiring such clearance ormovement;

iii. arrangements for undertaking ofCustoms formalities at juxtaposedCustoms offices in areas connectedby land routes or in any other ap-propriate manner.

(c) Exchange information and, whereverrequested, assist in the implementation ofsimplified procedures including auto-mated Customs clearance procedures andelectronic data interchange.

II. Effective Implementation of theWTO Agreement on ValuationWith the advent of WTO, it has becomeincumbent on the Contracting Parties toadopt the valuation provisions enshrinedin the WTO Agreement on Customs Valu-ation. The next few years will, therefore,be the preparatory phase for some of themember administrations. The memberadministrations, who have already imple-mented the provisions, may act as advis-ers in the interim by providing assistancein the formulation of legislation, practicesand administrative arrangements.

Accordingly, the following programmesand activities would be initiated: (a) Ex-changing information on the implemen-tation of the WTO Valuation Agreementcovering subjects such as legislation de-velopment, problems encountered, suc-cesses achieved, areas where assistanceoffered or required.

(b) Wherever requested and to the extentpossible, assist in the implementation ofthe WTO Valuation Agreement.

Annex: 2

53

III. Uniform Application, Updatingand Promotion of the HarmonisedSystemAs a key international goods classificationsystem, the application of the HS mustbe uniform and it must be updated atregular intervals to reflect changes in tech-nology and trade patterns and to accom-modate other needs of the users. Thefollowing activities would be pursued toachieve this objective:

(a) Encouraging the concerned memberadministrations to accede to the Interna-tional Convention on Harmonised Com-modity Description and Coding Systemand/or the amendments made from timeto time.

(b) Exchanging information on the pro-motion of a good classification work in-frastructure.

(c) Exchanging information on com-modities whose classification is ambigu-ous or contentious in the Administrationsof the Region.

IV. Enhancement of the Effective-ness of the Customs Administra-tions in their Compliance Responsi-bilitiesIn order to ensure minimum obstacles tothe free flow of legitimate cargo andpassengers while appropriately protect-ing the economic and community inter-est of the individual countries, it is neces-sary that timely information about theoffenders be freely exchanged by themember administrations. In line with thisapproach, the following programmes andactivities would be pursued:

(a) Promotion of bilateral or multilateralagreements on Customs cooperationamongst member administrations formutual administrative assistance for theprevention, investigation and repressionof Customs offences.

V. Human Resource DevelopmentThe key to the success of any administra-tion lies in the effective marshalling of thehuman resources available. Building rightattitudes and raising the knowledge andskills of the work force are, therefore,necessary concomitants of re-engineeringthe working of Customs administrations.

To achieve these objectives, the followingsteps would be desirable:

(a) Conduct a census of available resourcesamong member administrations, whichmay include:

i. identifying national training institu-tions under some member adminis-trations to impart such training.

ii. identifying training instructors resourcepersons from among member ad-ministrations to undertake such train-ing/orientation programmes.

(b) Enhancing training awareness, by theeffective utilisation of manpower re-sources and funds, to hold seminars/courses on subjects of interest and moreparticularly those indicated under the re-spective key activities.

The member administrations have furtheragreed to:

(a) Meet at least twice a year at the expert-level to give effect to the Customs ActionPlan and to suggest if any further areasneed to be incorporated in the Plan;

(b) Meet at least once every two years atthe Heads of Customs level to review theprogress made in the implementation ofthe Plan and to modify the Plan in anydesirable manner. In order to give effectto the Customs Action Plan, the memberadministrations will voluntarily share over-all co-ordination of the key elements andreport the progress made at the meetingsof the experts or Heads of Customs, asthe case may be.

ANNEX: 2

54


Key Elements of Regional Action Plan on Standards, QualityControl and Measurement

Recognising the need for the SAARCmember countries to intensify coopera-tion with one another so that the com-plex issues involved may be addressedurgently, it was agreed that efforts bemade to forge a Regional Action Plan.The principle elements of this Plan wouldbe as under:

Identification of products where intra-SAARC trade is being affected due tovariation in national standards so thatHarmonisation may take place depend-ing upon the process of development ofthe individual national standards, whichcould be (i) based on international stan-dards and (ii) based on its own R&D

After the Harmonisation of specificproduct standards, the process of devel-oping regional standards would be initi-ated.

Areas to be identified where consultationswould enable the Region to take a col-lective position at internationalstandardisation fora to especially projectand protect the Region’s requirements.

Access to certification scheme relating toproduct, systems and services of onecountry by other countries, including ex-change of information on statutory rulesand regulations having bearing on certi-fication.

With a view to increasing intra-SAARCtrade through exchange of informationin regulatory systems, it was agreed thatAgricultural & Food Product, BuildingMaterial & Household Electrical Appli-

ances would be covered in the first in-stance.

Promotion of mutual acceptability of thecertification process of member coun-tries in relation to safety requirements ofproducts.

Development of a process of accredi-tation systems in individual membercountries based on international guide-lines so as to facilitate mutual recognitionat a later stage.

Sharing the facility of accreditation bod-ies to avoid duplication of efforts by in-dividual member countries so as to fa-cilitate getting international approval fromorganisations such as International Ac-creditation Forum (IAF).

Identification of testing and calibrationfacilities in the region and access to thesefacilities.

Promote mutual acceptability of labora-tory accreditation process.

Each country to inform other SAARCcountries about various trainingprogrammes (annual calendar) throughSAARC Secretariat.

List of experts in a given field to be ex-changed among SAARC countries.

Exchange of experts for conducting andparticipating in training programmes.

It was agreed that India would act as thecoordinator for the next three years tomonitor and facilitate the Regional Ac-tion Plan.

Annex: 3

55

Endnotes

1 A summary of proposals can befound in WTO. 2002.

2 The text is available atwww.wto.org/english/thewto_e/min01_e/min01_e.htm

3 See for details WTO. 2004a.4 See for details WTO. 1999a.5 It is important to note that devel-

oping countries have no controlover shipping costs as cartelisedmultinational shipping lines deter-mine them.

6 See for details WTO. 2003c.7 The WTO has summarised the

proposals in the paper G/C/W/434, available at www.wto.org

8 These proposals are contained inproposals made by Canada (G/C/W/397), Colombia (G/C/W/425), European Communities (G/C/W/394), Hong Kong, China(G/C/W/398), Japan (G/C/W/401) and Korea (G/C/W/403),

available at www.wto.org9 The ‘Colorado Group’ consists

of Australia, Canada, Chile,Colombia, Costa Rica, the EU,Hong Kong (China); Hungary,Japan, Korea, Morocco, NewZealand, Norway, Paraguay,Singapore, Switzerland, and theUS.

10 Most of the information is fromWTO. 2000.

11 This section heavily draws fromTaneja. 2004.

12 Information is from WTO. 2002.13 Information sources are: WTO.

2003d. and Ojha. 2003.14 Information for this section

comes from WTO documents(WT/TPR/S/95) and (WT/TPR/G/95), available at www.wto.org

15 Information on Sri Lanka comesfrom several sources includingWTO. 2004b.

56


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