SITPRO Simplifying International Trade

Policy Development Speeches
PowerPoint Slides The WCO in the 21st Century - Inventing our Future: The Role of Facilitation
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Introduction

Trade facilitation and Customs modernisation are on the international economic agenda as never before. Although the WCO has since its creation included facilitation on its agenda, it has been the current World Trade Organisation Doha negotiations that have heightened global political awareness of the important contribution that improved border procedures for international movements of goods can make to wealth creation and poverty reduction, by reducing red tape and increasing the flow of goods. The World Customs Organisation has benefited from this, in that this has helped promote its conventions and frameworks that aim to encourage Customs administrations around the world to adapt to the needs of the 21st Century. In other words, there is mutual interest between the WCO and WTO.

Alongside this, the role of Customs has been and is changing. Traditionally, Customs has been the “gatekeeper” to keep undesirable things out and collecting revenue on things they let in. Many countries’ Customs authorities are Revenue Authorities, putting the collection of revenue as their highest priority. As we have seen in our capacity building work alongside the WCO, the role of Customs is now more complex, and the priorities are different. Increasingly, and rightly, the priority is now on “trade management” – how to manage the border, and how to do so in co‑operation or partnership with business. Increasingly, trusted trader programmes and post-clearance audits are enabling many activities to move away from the border. Get these right, the argument goes, and revenue will flow automatically from higher compliance and faster clearance.

At the same time, driven by the security debate, Customs is now performing its gatekeeper role in relation to wider threats – terrorism, economic crime, health and social protection, even immigration. In the US, Canada and now the UK, the roles of Customs and immigration have been brought together within a single border agency, driven by the political desire to strengthen border protection (although in the UK this does not include the border agencies responsible for agriculture). These all pose challenges to future border management, although the principle of border agency co-ordination is facilitating, particularly if this helps the introduction of single window systems. As we have seen in countries such as Zambia that are looking at one-stop border control, this is not straight forward as agencies see the threat of loss of power at the border. There are also philosophical differences; for example, immigration management is based on 100% controls, unlike Customs which traditionally has used risk management.

What this means is that a global expertise in Customs matters or even border management is needed, to work in partnership with organisations charged with other mandates. In the context of the Doha round, this needs to translate into a close co-operation between the WCO and WTO to work closely together on trade facilitation. The planets are therefore lined up for the WTO and WCO to co-operate to achieve their respective aims. The WCO has nothing to fear from this. The WCO has clear and relevant specialist expertise. Most Geneva trade negotiators do not claim to have the hands-on experience that participants in the WCO do.

The homework questions

Against this background, the WCO has asked us to consider the following questions in this session:

There is an implicit assumption in them that seeks to justify the WCO in the 21st Century. I will argue that there is a clear role for the organisation.

The answer to the first question depends to an extent on what happens with the WTO Doha round . Conventional wisdom argues that multilateral agreements in a trade policy context benefit from the greater number of trade-offs that may be available, and negotiating efficiency in not having to re-invent wheels as can happen in bilateral agreements. Multilateralism in trade negotiations has also been seen as the way that the interests of most developing countries can be best protected. Of course, the last two trade rounds also show how slow and difficult multilateral agreements can be.

By contrast, it has been said that bilateral trade negotiations tend to strengthen the negotiating hand of the larger and more powerful countries, both developed and developing. On the whole, bilateral negotiations can proceed more quickly, and their scope can be focused on areas of mutual interest.

If the Doha round is concluded successfully, it will confirm that multilateralism can succeed. If it fails, it is surely inevitable that countries will look for alternatives to multilateralism.

In the context of trade facilitation, a multilateral approach is clearly preferable, since the benefits of customs modernisation would normally be applied universally. It is not immediately clear how or even why it would be desirable to achieve preferential trade facilitation through bilateral trade negotiations. Two possibilities include bilateral agreements between customs authorities to co-operate across borders and share information; or mutual recognition agreements relating to AEO status.

There is more logic in an intra-regional approach, as a starting point to something more multilateral. When we were asked to help the WCO with their capacity building programme, initially in East Africa, we found that many business objectives were common to all the countries in the EAC – fast track, authorised traders, transparency and predictability, a desire for business/customs consultation and partnerships. While the Columbus diagnostics were conducted on an individual country basis, implementation efficiencies were considered greater if conducted on a regional basis.

Security

The arguments about bilateralism versus multilateralism also manifest themselves in the security debate. The central objective – enhanced border protection – is the same, yet countries have approached the issue differently. Over the last few years traders have witnessed an avalanche of new security motivated controls and initiatives. These measures add to what is already a complex regulatory environment. All in all, this creates “security spaghetti” and contradictions, and work against facilitating trade. While, for example, AEO schemes are being introduced with much fanfare, unilateral initiatives such as 100% scanning challenge the benefits from doing so. If traders are given a badge of trust they need to be trusted, otherwise what is the point?

While much of the attention has been on the US, “security spaghetti” affects traders in other countries. A recent study commissioned by SITPRO into the security requirements affecting UK traders lists 37 security themed procedures and controls in international trade operations, involving 9 Government policy responsibility centres and 15 executive agencies (including the US CBP operating port export controls).

The fact that technological advances allow border agencies to ask for increasing amounts of data does not mean that they should. Continually increasing data requirements moves the goal posts and adds costs to business in terms of systems changes, training etc. Many businesses that work with SITPRO ask what agencies will do with all the extra data collected. I suggest that the answer may be that they won’t necessarily do anything with it, and may be merely benchmarking traders according to their ability to supply the data requested. And why do agencies need so much different data? More doesn’t mean better. Surely it would be more facilitating if border agencies had a common, multilaterally-based vision. The WCO has a role to deliver that.

I turn to AEO schemes. For business, there must be obvious benefits to justify going through the authorisation process. Initiatives such as 100% scanning do not help when weighing up the benefits. Having become an AEO, a company should reasonably expect that its AEO status should be valid in every other country that has an AEO or authorised trader scheme. This – mutual recognition – is especially important for larger companies operating in many countries, as we have heard.

Mutual recognition negotiations opened last year between the US and the EU, and are due to conclude in 2009. Ostensibly this shows a willingness to entertain mutual recognition, and this is to be applauded, but the two schemes – AEO and C‑TPAT – have different points of departure. Meanwhile, the US has just concluded a mutual recognition agreement with New Zealand, and is developing one with Canada. Both align with C‑TPAT. What this does is reinforce C‑TPAT as a standard, and makes any different approach more difficult for the proponents of that standard. And what happens when MRA negotiations are opened with other countries? If every customs authority designs its own AEO scheme in a way that is similar but different in material respects from others, transferable recognition will not be granted.

Bilateral mutual recognition will only get countries and business so far, and it is a path that will inevitably make multilateral mutual recognition more difficult. There is no real reason in practice why AEO schemes should be different. The central objective – border protection – is the same, so what makes one approach better than the others? What makes more sense is for every country that wants an AEO scheme to get together with all the others and design a scheme that works for all – and then stick to it. The only difference then would be the degree of trust that Customs authorities have in each other to make the assessments for authorisation.

We have to get back, and quickly, to a global standard for mutual recognition to work widely. This is what the SAFE Framework has attempted. But this does not mean that SAFE should a highest common factor, a framework in which every conceivable requirement is found. Some balance is needed to ensure that border security is achieved with reasonable and proportionate requirements on business. And it needs to be consistent. While implementation needs to respect capacity to do so, the standard needs to avoid allowing national loopholes that work against the spirit of the common vision. The challenge for the WCO is to ensure that this happens.

Paperless trading

The last question in our homework concerns international information standards. This was a point also referred to by the Minister in the opening session.

Trade facilitation helps to reduce trade transaction costs and improve business competitiveness. The OECD has estimated that just a 1% reduction in global trade transaction costs could contribute over $40 billion to the world economy. While governments can help businesses by reducing red tape at the border, they and companies can help each other and themselves by adopting paperless trading systems that allow the seamless exchange of electronic data with all parties in the international supply chain through one-time data entry, and this helps to reduce or eliminate discrepancies.

In 2006 SITPRO conducted research into the cost of maintaining paper-based supply chains, focusing on the perishable foods sector because of the greater risk of spoilage costs that could result from missing or delayed documentation. The findings of that research revealed that in that sector alone:

Supply chain efficiency is vital to the competitiveness of all businesses trading internationally. In this room nearly two years ago Fedex said that they employed people to save just one second out of their supply chains, stressing the importance of this for a just-in-time service provider. For grocery multiples, saving 0.5% of consignment costs is substantial.

Why does business appear to accept these costs without question? First, the cost of administration seems to be taken as an unchallengeable given. Second, no one party in the supply chain sees or manages the whole movement, so they are unaware of the cumulative impacts. Third, many companies have their own internal company systems (often based on global commercial standards) for managing data electronically, but have not paid attention to the benefits of developing integrated paperless trading processes with their suppliers and through the supply chain.

A key to the success of integrated paperless trading is open international standards for data exchanges. For a number of years SITPRO has been participating in the development of the UNeDocs open standard in UN/CEFACT. After years of development, it is hoped that UNeDocs will be adopted as an international business standard later this year.

UNeDocs is essentially a comprehensive international trade data model. It starts from the assumption that the data used for customs declarations is also the data used for banks, insurance and transport, and its aim is to allow a trader to input once all the data needed for every party involved in the supply chain. Open international data standards will also help countries to develop international trade single windows on a common basis, an objective referred to in the SAFE Framework, and lead to a seamless flow of interoperable information data across borders.

It follows that a central requirement to the success of such an open international standard is a single international data model. The straight-forward technical solution is to merge the work done in UN/CEFACT with the WCO data model. And so was launched last year a project known as the Cross-Border Reference Data Model. While technical work has commenced, at the political level there remain concerns about intellectual property rights. Yet the benefits to business and governments that should flow from a fully operational open international standard are held up by the lack of a decision on this. Technically, it is encouraging that there is a shared vision to ensure that UNeDocs and the WCO Data model are consistent with each other. Going forward, it is vital that the WCO and UN/CEFACT find a compromise to allow the CBRDM project to progress quickly to adoption. SITPRO would like to see a positive resolution achieved at this year’s WCO Council.

Conclusions

  1. Customs’ role in the 21st Century will broaden from revenue collection to become a principal gatekeeper for secure borders.
  2. The WCO’s role in the 21st Century is to balance border control with trade facilitation:
    • WCO is best placed to understand “Customs” – but it needs to work in partnership with other international organisations – eg WTO – and with business.
  3. Security measures must be based on a common multilateral understanding of what is required to secure borders, otherwise the benefits traders ought to expect from AEO status will be frustrated:
    • SAFE Framework provides an answer, provided Governments work within it and stick to it.
  4. Seamless information exchange must be built on open international standards that facilitate data exchange at B2G and B2B levels:
    • co-operation between the WCO and UN/CEFACT on the CBRDM project is vital.

Notes from a speech given by Malcolm McKinnon at the WCO Global Forum - 28 March 2008

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