Trade Facilitation and Aid for Trade: Unlocking the Landlocked

2. At the same time, while the scope of the agreement, as it looks currently, is wide and impressive, it would only resolve part of the problem. Policies, regulations and customs practices that help speed the passage of goods to and from ports and inland frontiers can and should be improved. That is what the TF commitments should achieve. But only attention to much broader inadequacies – notably human and port/transport infrastructure – will truly lower trading costs and improve competitiveness of goods flowing from landlocked countries and, indeed, their neighbours, the transit countries. That is where Aid for Trade (AFT) enters the frame.

3. This note takes a practical look at what is on the table now in and around the Doha negotiations. It notes the proposed commitments that may make the biggest difference for landlocked countries and the architecture and support that may be available to turn them into enforceable commitments. It considers technical assistance (TA) and capacity building (CB) in terms of an inner circle of TF-related support and an outer circle of infrastructure-related support based on AFT. It looks for order and coherence in what is currently a confused set of possible arrangements for ensuring WTO members receive and benefit from support in both the inner and outer circles.

4. The likely architecture of the TF agreement is conceptually unique in the WTO. For landlocked developing countries (LLDCs) it is special in that its value will depend as much on the commitments made by transit WTO members as it will on the commitments made and implemented by the LLDCs themselves. Equally, the value of AFT infrastructure projects undertaken within LLDCs may either be magnified through similar projects pursued within neighbouring transit countries or invalidated by their absence.

5. The needs of LLDCs in the area of trade facilitation have been well documented and recognised at a senior level, notably through the “Almaty Programme of Action” (2003) [note 2] and the “Ulaanbaatar Declaration” [note 3] by LLDC Trade Ministers in August 2007. Many of those needs are already reflected in the TF texts on the table in Geneva.

6. On 10 March 2008, the WTO secretariat released a further revision of its compilation of elements for an agreement: “WTO Negotiations on Trade Facilitation – Compilation of Members’ Textual Proposals” [note 4]. With this document, it is possible for the first time for members to assess the potential benefits from a TF Agreement in the WTO. The following paragraphs seek to condense and simplify the 56 pages of legal drafting with respect to the particular interests of LLDCs. All the texts in the new compilation were drawn from proposals submitted – and often revised following consultations with the broader membership – by individual WTO members and groups.

II. Transit Disciplines

7. Non-discriminatory, duty-free, freedom of transit via the most convenient routes is fundamental to the GATT (Article V) and of intense interest both to landlocked countries and many firms engaging in international trade. The texts focused on transit conditions were largely tabled by a group of landlocked countries [note 5].

8. The definition of “traffic in transit”; reflects modern trading and transport practices – including multimodal, container traffic and the air transit of goods (but not air services). There is controversy over the application of TF transit provisions to pipelines (oil and gas, etc.). This is included in the current text and is especially important in the context of pipeline development between central Asia, Russia and Europe. Clearly, the right to follow the most convenient route through a transit territory could not apply to fixed infrastructure.

9. The text provides national treatment and MFN treatment for goods in transit; it also provides that the importing WTO member treat goods arriving from a transit country no less favourably than would have been the case for direct delivery from the country of origin.

10. The publication of all fees and charges related to transit would be required, as well as their periodic review. In any event, the fees and charges should be “reasonable” and “commensurate with the administrative expenses entailed”.

11. To a large extent the disciplines on transit formalities and documentation requirements reflect the broader (GATT Article X-related) proposals, including those on publication, periodic review and simplification. Additionally, they call for special border crossing facilities and formalities adjusted for transit; more limited inspections of goods based on particular risk management techniques and non-application of quality controls and technical standards. Only where there is a risk of contamination might members insist on more systematic inspections. The administrative burden should be reduced on transit goods and allow for pre-arrival processing, a single window system and an authorised trader arrangement.   

12. The imposition of cash guarantees to secure revenue in case of inland diversion of goods in transit would be banned. However, where a bonded transit system operates the member concerned may require “reasonable” guarantees that must be released promptly and in full after the transit terminates. Guarantees should be abandoned when a member is satisfied that transit obligations will be fulfilled – presumably based on the previous performance of a trader or transport firm.

III. Transit-related Disciplines

13. It will not necessarily be the case that transit countries will provide measures affecting fees, charges, formalities and publication that are substantially different for transit and normal trade flows. Indeed, outside the GATT Article V-related texts, many other elements included in the compilation document are likely to be crucial to LLDCs. The willingness of transit neighbours to take on some or all of these commitments will largely determine the ultimate impact of the TF agreement on the LLDCs.

14. The most practical impact is likely to come from commitments related to customs clearance practices. These include:

• Pre-arrival processing that require members to put in place procedures for the acceptance and consideration of import documentation prior to the arrival of a shipment. If the documentation proves satisfactory, then the goods would be cleared immediately on arrival. Related provisions call for submission of a single document covering all goods in a shipment. Proposals covering pre-arrival processing leave members free to screen or examine shipments where necessary and use risk management techniques in identifying those shipments to be inspected.
• The concept of “expedited shipment providers” and “authorised traders” is intended to put trusted importers at an advantage in terms of the burden of administrative requirements, port inspection and release. While authorised traders are envisaged in the transit section of the compilation, it is doubtful that transit-specific arrangements would be put in place; either the system will exist for all imports, or none. Proponents of the system suggest reliability criteria for identifying authorised traders which should not be designed to discriminate in an arbitrary or unjustified manner. All companies – including small and medium-sized enterprises - would have the right to apply for such status.
• Recognition of the need for border authorities to focus on high-risk goods. One proposal provides for the use of risk management techniques to identify which shipments should be inspected while taking account of the record of “compliant traders” and making available expedited procedures as appropriate.
• Using “post-clearance audits” as another approach to the adoption of risk management and compliant/authorised traders. Such audits – both regular and targeted – would review all trade-related information maintained by enterprises subject to risk management. The outcome would be fed back to customs officers who would presumably adjust clearance treatment accordingly. A more obviously useful proposal for LLDCs is the possibility of separating the release of goods at ports and frontiers from clearance procedures. One text would open the way for goods to be released even if clearance has not been completed on arrival. However, such release would require some form of guarantee from the importer, perhaps a deposit.

15. Adoption by neighbouring transit states of commitments on the Publication and Administration of Trade Regulations will also affect the benefits accruing to LLDCs of a TF agreement. Clearly prior publication and consultation; adequate and timely publication through national websites and efficient and accessible national enquiry points can all play a constructive part in easing the precariousness of transit performance.

16. Generally applicable commitments covering fees and formalities could impact LLDCs positively also. The simplification of documentation and the use of international standards; limits on supporting documentation and the operation of “single window” facilities, including single windows devoted to transit shipments, should ease passage.

IV. Boosting Cooperation between States and within States

17. If neighbouring transit states, as well as the LLDCs themselves, are to be persuaded to take on high-ambition levels of TF commitments then regional cooperation – as always for the landlocked countries – will be critical. The promotion and monitoring of bilateral and regional transit agreements and arrangements, consistent with all other TF commitments, is encouraged in the texts now on the table. The adoption of common simplified documents or electronic messaging, aligned with international standards, should be part of such agreements, which might also deal with road and other transport issues in addition to customs procedures. The enforcement of unilateral rules affecting traffic in transit would be prohibited.

18. More generally, improved cooperation among the domestic authorities of each concerned WTO Member to facilitate transit traffic through its territory would be required. So too would cooperation be expected among neighbouring members with transit relationships, including the coordination of operations at border crossings, even where no regional or bilateral transit agreement exists. One further text envisages opportunities for traders themselves to comment on fees, documentation and formalities affecting the efficiency of their transit operations.

V. Tying Commitments to Technical Assistance and Capacity-Building Support – the Inner Circle

19. The basic architecture of the TF agreement is still somewhat uncertain although the level of understanding on the essential elements is high. One feature is the tailor-made approach to taking commitments. Each individual WTO member may adopt a quite different menu of obligations and seek equally different TA/CB support and donor funding to implement them. This would be a challenge for LLDCs for which, clearly, the maximum degree of commonality in commitments taken by transit neighbours is the ideal. It is not immediately obvious that the necessary regional and bilateral coordination will be forthcoming at the stage of adopting commitments.

20. The broad outline of special and differential treatment that provides for developing countries taking TF commitments and securing the necessary TA/CB support to implement them is the following.

21. As part of the single undertaking, transition provisions will become applicable after signature by members of the complete Doha package. In the event of Doha failing, there will likely be members pressing for the TF agreement to be implemented, perhaps provisionally, nonetheless.

22. Capacity/needs assessment is the first transition stage and is already taking place for some members which have sought it. These assessments are intended to identify existing local capacity and gaps therein and, from that, the TA/CB requirements necessary to take on those WTO TF commitments the Member considers appropriate. The time necessary to meet those commitments would also be part of the assessments, which will require TA backing from both international organisations and bilateral donors.

23. On the basis of the assessments, members would notify the WTO of their intentions with respect to taking on TF obligations. Three types of notification might be envisaged:

• Commitments that can be taken on immediately or the practical aspects of which are already in place and operating.
• Commitments that can be implemented over a specified period.
• Commitments that need both additional time and TA/CB support.

24. The notifications might be the subject of some multilateral “dialogue”. Recent discussions suggest that the notifications would likely become scheduled commitments for the members concerned, bearing in mind that they would often be dependent on the delivery of TA/CB support.

25. Certain obligations would be applicable for all members from the date on which the agreement/Doha Single Undertaking enters into force. Developed countries would take on all obligations. Commitments covered by self-assessment notifications would only be applicable as scheduled. Other aspects of the TF disciplines may enter into force progressively.

26. Clearly, the reformulation of needs-assessment notifications into full-scale capacity-building plans with donor acceptance is fundamental to the process. Such plans would be the basis for dialogue between individual members, donors and international agencies. Once settled, however, plans, donors and timeframes would be notified to an oversight body and would be available to the membership.

27. A review mechanism will consider whether or not the agreed support has been delivered and the necessary capacity acquired by the time the relevant implementation period has ended. What happens if that is not the case is still controversial. Where implementation goes ahead successfully, there appears to be no opposition to making obligations enforceable under the DSU. There might, however, need to be small procedural adjustments; for instance, extended consultation periods and an additional emphasis on mediation.

28. The inner circle of TA/CB support necessary for developing countries to implement all TF obligations is not expected to be large. The biggest expenses – in terms of set up costs – are likely to be the adoption of electronic single-window facilities, risk management techniques and post-audit arrangements [note 6]. However, these facilities also reap the most significant long term savings, far outweighing initial and ongoing costs. Nevertheless, LLDCs and transit countries will need to keep in mind that ongoing costs – for instance in ensuring national websites are constantly updated – will need to be factored into requests for support.

29. Experience in Uganda (an LLDC), Morocco, Chile and Latvia [note 7] shows that the essential expenditure is not large by the standards of international aid programmes. No average total cost for implementing all the envisaged obligations in the WTO agreement appears to exist but it seems unlikely to exceed USD10 millions per Member. Indeed, it will normally be far less; sometimes below USD1 million. It should be kept in mind that many countries already have some investment in the processes, technology and manpower development envisaged in the current texts. Furthermore, large donor nations and multilateral agencies are already targeting trade facilitation projects extensively.

30. One recent official report [note 8] suggested that in the period 2002-2005 technical assistance and capacity building support for trade facilitation projects ran at an average of some USD263 million a year.

VI. Human and physical infrastructure aid – the outer circle

31. The outer circle of infrastructure-related support naturally represents a far greater financial commitment than that necessary to implement any of the foreseeable TF agreement obligations. At the same time, much of the WTO TF effort will be invalidated without the streamlining of port and internal transport systems and extensive manpower investment. Some assessments suggest a “political cost” that needs to be considered where corruption has marked transit, customs and port activity in the past. In many countries there will be sensitive issues around the formal earnings of customs officers.

32. The infrastructure needs of LLDCs are magnified by the number of transit countries on which they are dependent. These countries may have the most competent and efficient frontier arrangements in the world coupled with the best road and rail networks. Yet, if their transit neighbours make no similar investment, then a landlocked economy remains just that.

33. The Almaty Programme of action expresses the essential remit for both landlocked and transit countries in terms of infrastructure development:

• A greater share of public investment supported by donor financial assistance;
• Development of all modes of transport in order to secure competition among them;
• Filling “missing links” in regional and sub-regional transport networks;
• Encouragement of private sector participation in transit transport infrastructure development; and
• Private-public partnership platforms along trade and transport corridors.

34. Detailed and specific actions are set out in the Programme for rail, road, air and inland waterways transport, pipelines and communications links in remote areas. It calls for concerted efforts by the UN system, including the World Bank and regional development banks, the WTO, the World Customs Organization and other institutions. It also stresses bilateral, regional and sub-regional cooperation.

35. On the face of it, large amounts of AFT financing are available and, indeed, are already been spent in these wider trade facilitation infrastructure sectors. The 2007 Aid for Trade Global Review [note 9] estimates that an average of USD6 billion a year was allocated to transport and storage infrastructure in the period 2002-2005 with annual spending increasing quickly year on year. These are commitments, however; actual disbursements on completed projects are not given. The report itself admits that its estimates are shaky.

36. In the same review, average commitments for projects in least-developed countries in the “economic infrastructure” category (which includes energy infrastructure as well as transport and storage) amounted to USD3 billion a year. Some USD2.7 billion was allocated in other low-income countries. It is worth noting that allocations for regional or multi-country economic infrastructure projects ran at an average of just USD671 million.

37. A large player within the AFT universe is the World Bank. The Bank’s estimate [note 10] for 75 approved and projected projects with a trade facilitation component, for the years 2004-2006, was almost USD2 billion.

VII. Bringing it all together – or not

38. There is currently no intention to put in place a centralised process for allocating and coordinating projects within either the inner or outer circles of trade facilitation-related support. It is for the individual members to decide priorities either through the TF needs assessment process or in the context of wider infrastructure development financed through AFT. They must then interface with bilateral donors and/or the multilateral and regional aid agencies. Bilateral donors show no inclination to hand over their prerogatives to decide precisely when, how and how much public funds they will devote to specific trade facilitation projects. To a large extent, that is the situation for the major multilateral and regional funding agencies also.

39. This is problematic for the LLDCs. It is evident that their aspirations to make significant gains through a TF agreement depends precisely on a degree of coordination and commonality in the manner in which they and their neighbouring transit partners approach trade facilitation issues and opportunities.

40. The opportunities clearly exist. The potential for LLDCs reaping maximised benefits from them is still very much in question.

Acronyms

Note 1: Of the 43 countries that are considered landlocked – 31 of them are landlocked developing countries (LLDCs), of which 16 are least-developed countries (LDCs). (return to text)

Note 2: http://www.un.org/special-rep/ohrlls/lldc/Almaty_PoA.pdf. (return to text)

Note 3: http://www.unohrlls.org/UserFiles/File/Maria/Ulaanbaatar%20Declaration%2028-29%20August%202007.pdf. (return to text)

Note 4: TN/TF/W/43/Rev.14, WTO Negotiations on Trade Facilitation - Compilation of members' Textual Proposals, 12 March 2008. (return to text)

Note 5: TN/TF/W/133/Rev.1 and Corr.1 and Add.1. Communication from the Former Yugoslav Republic of Macedonia, the Republic of Moldova, Rwanda, Switzerland and Swaziland, 7 February 2008. (return to text)

Note 6: “Cost and benefits of implementing trade facilitation measures under negotiations at the WTO”.  Yann Duval. Asia-Pacific Research and Training Network on Trade. UNESCAP January 2006. http://www.unescap.org/tid/artnet/pub/wp306.pdf. (return to text)

Note 7: “The costs of implementing trade facilitation measures: Interim Report.” Evdokia Moisé. OECD Trade Policy Working Paper No.8. November 2004. http://fiordiliji.sourceoecd.org/vl=14610814/cl=33/nw=1/rpsv/cgi-bin/wppdf?file=5lgmtm7sbx9x.pdf. (return to text)

Note 8: Joint OECD/WTO Trade Capacity Building Database, March 2007. (return to text)

Note 9: “Aid for Trade at a Glance”. 1st Global Review. 2007. (return to text)

Note 10: See ”Implementing a WTO Agreement on Trade Facilitation. What Makes Sense”. J. Michael Finger and John S. Wilson. World Bank Policy Research Working Paper 3971, August 2006. (return to text)