Monday, August 17, 2015

Trade Facilitation in ASEAN: Putting Text Into Action

After trade agreements are signed by leaders and regulations are published by government ministries, what is left is the prosaic task of putting the agreements into practice.  This is the realm of trade facilitation, where the text is put into action by governments. 

At its core, trade facilitation consists of a change in mindset for national customs authorities.  Historically, the customs authorities were the last line of defense representing the fundamental expression of national sovereignty at the nation’s borders.  This is why the traditional symbol of the customs authority is a gate.  Furthermore, the import duties collected by customs were a major source of revenue for the national treasury.  All of this meant that the customs authorities historically focused on protecting national borders and collecting duties, both reactive, defensive measures.

Trade facilitation, on the other hand, attempts to recast the thinking of customs authorities from a reactive mindset to a proactive mindset, at least in terms in import duties and other aspects of trade.  This modern customs administration approach views expediting trade as a greater priority.  Importers and exporters are to be assisted in legitimate trade, not frustrated by defensive measures to protect national borders. 

Yet despite decades of multilateral and regional trade agreements, there remains a significant gap between the promise of the agreements and their actual implementation on the ground.  Hence more recent trade agreements have explicitly incorporated the concept of trade facilitation in their texts.   The basic commitments of trade facilitation contained in these agreements consist of (1) compliance with agreements, (2) transparency, (3) simplification, (4) harmonization and (5) technical assistance. 

The effectiveness of the ASEAN Economic Community (AEC) will correspond to how ready ASEAN members in trade facilitation.  The ASEAN Trade in Goods Agreement (ATIGA), as well as some of ASEAN’s free trade agreements (FTAs) with its regional trading partners such as Japan, contain trade facilitation term, as do Singapore’s bilateral FTAs.  Finally, the current Trans Pacific Partnership and Regional Comprehensive Economic Partnership negotiations both envision strong trade facilitation commitments as part of their final texts.

The readiness of ASEAN members to take on trade facilitation commitments can be viewed through the WTO Trade Facilitation Agreement (TFA), which was concluded at the Bali Ministerial Conference in December 2013.  The TFA will enter into force once two thirds of the WTO members have completed their domestic ratification process.  To date twelve members – Niger, Nicaragua, Trinidad and Tobago, the Republic of Korea, Hong Kong China, Singapore, the United States, Mauritius, Malaysia, Japan, Australia and Botswana – have notified the WTO that they have done so. 

The TFA has three sections. Section I contains provisions for expediting the movement, release and clearance of goods.  It clarifies and improves Articles V, VIII and X of the GATT 1994.  Section II contains special and differential treatment provisions for developing and least-developed countries aimed at helping them implement the provisions of the agreement.  To invoke the special and differential treatment provisions, countries must submit notifications to the WTO indicating which TFA obligations they are willing to accept immediately upon the TFA’s entering into force, and which obligations which will require additional time to implement.  Section III  establishes a permanent committee on trade facilitation at the WTO and requires members to establish national committees on trade facilitation.

Although it will be quite some time for the TFA to take effect, by analyzing the notifications which had been submitted so far to the WTO, we can see to what extent ASEAN governments feel comfortable with the obligations imposed by the TFA.  A recent ESCAP study has done just that for the region and gives us an indication of which aspects of the TFA will be more likely to be implemented by Asian countries immediately and which will require more time. ASEAN’s notifications are summarized graphically as follows:


Implementation of TFA (12) Articles
Full
Partial
Brunei
5
3
Cambodia
0
0
Indonesia
0
3
Laos
0
0
Malaysia
Fully Ratified
Myanmar
0
0
Philippines
7
4
Singapore
Fully Ratified
Thailand
4
8
Vietnam
2
7

The general commitments of the TFA fall within two classifications, transparency  and fees/formalities. 

Articles 1-5 of the TFA deal with general obligations of transparency.  Under these TFA articles, WTO members agree to publish information and make it generally available, as well as provide the public with the opportunity to comment on measures and submit information before such measures take effect, and allow other members to enter into consultations on the measures.  WTO members also agree to issue advance rulings on customs issues and other cross-border issues before shipments are made, so that exporters and importers have greater certainty in doing business.  Finally, WTO members agree to allow for appeals and review of customs decisions.  Based on the ESCAP analysis, 56% of notifications indicated general readiness to implement these TFA obligations.

Articles 6-12 deal with fees and formalities involved in the customs clearance process.  WTO members are obligated to follow disciplines on fees and penalties. They also must adhere to general principles on the release and clearance of goods. Customs authorities of WTO members under the TFA must cooperate on border measures. Finally, the TFA establishes rules for dealing with goods under customs control, e.g., inward and outward processing of inputs, as well as freedom for goods in transit.  Based on the ESCAP analysis, 51% of notifications indicated general readiness to implement these TFA obligations.

The ESCAP paper conducted a more detailed analysis of the notifications and found that Asian countries were more willing to commit to the TFA’s obligations on procedures for review of appeal (Article 4), and movement of goods under customs control (Article 9), as well as freedom of transit (Article 11).  However, Asian countries were less willing to commit to TFA obligations to cross-border exchanges of information and confidentiality.   Hence there are lower rates of notifications for food safety (Article 5.1), average release times (Article 7.6), authorized operators (e.g., trusted traders) (Article 7.7), single windows (Article 10.4) and customs cooperation on information (Articles 12.2, 12.5 and 12.6). 

ASEAN countries will have quite some time before the TFA takes effect. They will need that time.  ASEAN governments need more capacity building and resource development (in both human resources and information management) if they are to implement all aspects of the TFA. Moreover, they need to change the mindset of customs officials from a defensive posture to a positive, business-friendly approach.  In this way, the promise of trade agreements can be transformed into reality.