WTO Goods Council discusses “trade facilitation”

The WTO recently held its first substantive talks on the trade-facilitation mandate arising from the Doha Ministerial Declaration. Tracing the roots of this subject to past proposals by the major industrialized countries aimed at effectively disarming the customs administrations of the developing world, Chakravarthi Raghavan cautions that WTO rules in this field would mainly “facilitate” the flow of Northern exports at the expense of developing countries’ economic interests.

GENEVA: The WTO Council for Trade in Goods (CTG), which at a two-day meeting in the week of 20 May held its first substantive discussions on the trade-facilitation mandate arising from the Doha Ministerial Declaration, looked into the “transparency provisions” in Article X of the General Agreement on Tariffs and Trade (GATT) and five papers on this from the EC, Japan, Korea, Canada and the US.

The EC, Japan and other major entities are trying to use the new “Singapore issues” (i.e., investment, competition, government procurement and trade facilitation) to achieve what they could not in the Tokyo Round of the old GATT negotiations and in the Uruguay Round, by getting new rules written, and obligations placed on developing countries, that would meet the same objectives.

The trade-facilitation mandate, and efforts to launch negotiations on this issue at the WTO, is one such.

Same proposals

The subject itself has an interesting history. The ideas and proposals on trade facilitation now being pushed by the Quad countries (i.e., the US, EC, Japan and Canada) owe their origins to the customs valuation negotiations of the Tokyo Round and its customs code accord, and the subsequent agreement on the same issue in the Uruguay Round. Most of the proposals now surfacing are no more than the proposals that the major trading entities had sought to include in the Tokyo Round code on customs valuation and the Uruguay Round agreement on customs valuation (both purporting to be on the implementation of Article VII of GATT).

At Marrakesh itself, and later in the Singapore mandate on a study programme for new issues, the same ideas that the industrialized countries were unable to get through in the Tokyo and Uruguay Rounds were sought to be brought forward under the rubric of “trade facilitation.”

Beguiled by the terminology used in the EC proposal, not only the other majors but a number of developing countries too jumped on this bandwagon of facilitating trade and exports, believing that this would prove to be of benefit to them in enabling clearance of goods and improving trade in their export markets (mostly the US, EC and other industrialized countries, and some of the large developing countries).

Some of the demands of the US and EC in the Tokyo Round in the customs code negotiations, and their efforts to push ‘rules’ to virtually disarm customs administrations of developing countries and force them to accept as “transaction value” the invoices of transnational corporations (TNCs) and their agents, were rejected by a coalition of developing countries. The attempt of the then GATT leadership to allow both the code preferred by the OECD group and an alternative formulated by developing countries to be put on the table for signature (in violation of all norms of international treaty-making) was challenged, and ultimately the compromise code was evolved in which the customs authorities of developing countries got a certain autonomy in demanding proof of the transaction value claimed. Simultaneously, some of them also engaged the services of agencies that undertook “preshipment inspection” and advised the importing countries of the export prices cited for other transactions, thus helping to prevent transfer pricing in international trade.

In the Uruguay Round, the US and the EC both sought to attack these, through their proposals on the customs administration (implementation of Article VII) and on preshipment inspection to prevent these agencies from undertaking their own inquiries and looking at the transaction values cited and the comparable prices and values. In the negotiations, the negotiators of developing countries, save a few, who had no “institutional memory” negotiated the agreements in these two areas, where by and large the corporations were able to get some leeway and the ability of importing countries to challenge was curbed.

That the ability of customs administrations to challenge the invoices and the transaction values cited gave rise to corruption was used as an argument to hit the ability of importing developing-country governments to deal with transfer pricing, was dismissed in the new theories of neoliberalism and open economies.

However, even then the major trading entities, joined by several of the newly industrializing economies (some of which and their corporations have been adjudged by the anti-corruption NGO Transparency International as responsible for promoting corruption in developing countries), could not get their way.

The same proposals, in different forms and worded differently, have thus been surfacing under the rubric “trade facilitation”, and are now being presented as beneficial to small and medium enterprises.

The work now mandated on this issue by the Doha Ministerial Declaration (in paragraph 27), adopted at the WTO’s 4^th Ministerial Conference last year, is as follows: “Recognizing the case for further expediting the movement, release and clearance of goods, including goods in transit, and the need for enhanced technical assistance and capacity building in this area, we agree that negotiations will take place after the Fifth Session of the Ministerial Conference [now set for September 2003 in Cancun, Mexico] on the basis of a decision to be taken, by explicit consensus, at that Session on modalities of negotiations. In the period until the Fifth Session, the Council for Trade in Goods shall review and as appropriate, clarify and improve relevant aspects of Articles V [freedom of transit], VIII [fees and formalities connected with importation and exportation] and X [publication and administration of trade regulations] of the GATT 1994 and clarify the trade facilitation needs and priorities of Members, in particular developing and least developed countries. We commit ourselves to ensuring adequate technical assistance and support for capacity building in this area.”

Need for update?

In their proposals in separate papers, the EC, Japan, Korea and Canada spoke of the importance of “transparency and predictability” in world trade and called for amendments to Article X of GATT. Their major argument for this is grounded on the basis that this article was drafted in 1947 and needs “updating.”

Brazil, India and a few others challenged this view, and said that the proposals failed to show what were the deficiencies in Article X (which relates to trade regulations of general application) that were sought to be remedied.

India also raised the issue that the patterns of trade of developing countries were very different from those of the major developed countries, which largely constituted intra-firm trade of TNCs, and thus rules and concepts of the industrialized world evolved in this could not be applied to all.

The argument about updating the 1947 GATT provision ignores the various major reviews and revisions of GATT 1947 that have taken place over time - in 1955, in the Tokyo Round and in the Uruguay Round - all of which were incorporated and put in place as GATT 1994 and the annexed agreements of the WTO. None of the majors have been able to provide cogent arguments as to what has happened between 1994 and now to warrant review and redrafting or changes.

The papers from the EC, Japan, Korea and Canada have called for widening the scope of information to be published in relation to trade regulations.

The EC and Korea wanted each WTO member to have an inquiry point in national customs administrations to respond to queries from trading entities and exporters.

All the four wanted establishment of a prior consultation mechanism with affected parties before finalization of customs regulations, and instituting the right of appeal against customs decisions.

It is not very clear why these issues, which really deal with specific measures and regulations, not “laws, regulations, judicial decisions and administrative rulings of general application” (Article X.1 of GATT 1994), and at best could fall under the administration of customs in the Agreement on Implementation of Article VII, are sought to be tackled under “trade facilitation.”

Since Singapore, in none of the meetings have these questions been clearly addressed and answered - nor even, for that matter, seriously raised by many developing countries, which have taken the title (trade facilitation) to mean facilitating their trade and exports, and hence a good thing.

The EC said its proposal was not “rocket science” but tried and tested transparency measures from the WTO Agreements on Technical Barriers to Trade and on Sanitary  and Phytosanitary Measures. That these very “tried and tested” measures - and their non-transparent administration by major trading entities like the EC itself - have given rise to implementation issues does not seem to figure in the EC’s “non-rocket science” proposals.

The EC also claimed that the main beneficiary of greater transparency would be the small and medium enterprises (presumably of the EC, and not those of the developing world).

Japan said improving Article X is a “win-win” situation (a catchword used, without any reference to some esoteric trade theories evolved in liberal welfare economics for particular conditions, to avoid answering difficult issues) for developing and developed countries. In Japan’s view the trade-facilitation rules proposed also limit the subjectivity of customs officials in administering regulations.

Korea said a single national focal point to respond to all customs inquiries would help all traders.

Canada said lack of, or difficulty in obtaining, customs information can result in higher costs for importers and higher prices for consumers.

In its paper, the US provided an overview of its transparency mechanisms (e.g., Federal Register).

References in the papers to technical assistance for capacity building appeared to deal with how developing countries could be provided “technical advice” on erecting similar rules and regulations - but without any cost estimations as to what it would cost a developing country, strapped under various budget-cutting exercises (forced by IMF and World Bank programmes), to set up and administer these to promote the interests of foreign suppliers.

In comments, Brazil said that trade facilitation could also include refraining from abusive recourse to trade instruments to protect domestic industry, or completing the WTO harmonization work programme on rules of origin (where progress has been blocked by the US, EC and other major entities). The best way to facilitate trade of developing countries, Brazil said, is to eliminate trade barriers to imports of their products. Brazil also said that the EC paper had not shown the particular  inadequacy or problem with Article X that would require amending that provision.

Uruguay, Pakistan, India, Indonesia, Malaysia and Cuba all stressed that the Doha mandate did not call for negotiations until after a decision is made in Cancun next year.

India said its customs situation is different from that of developed countries. With 200 ports, India  faced problems of smuggling and heightened security needs. While high tariffs in developing countries could account for smuggling - and developing countries are often advised to reduce tariffs to deal with the problem - the fact remained that for many developing countries tariffs were also an issue of raising revenues. And unlike in the EC and other industrialized countries, where imports and exports are mostly intra-firm trade, in developing countries like India the situation was quite different, and the concepts, rules and formulae of the industrialized world had no application.

Malaysia said that no amount of rule-making can build customs infrastructure in developing countries.

China said it supported the principle of transparency, and underlined the need for technical assistance in this area for developing countries, a grouping in which it is included. The Czech Republic, Chile, New Zealand, Poland, Lithuania and Hong Kong China supported improving Article X.

Other matters

On other matters discussed at the CTG, the Chairman of the CTG, Ambassador M. Supperamaniam of Malaysia, said that the exchange of views at the first informal meeting on implementation-related issues concerning the Agreement on Textiles and Clothing (ATC), held on 13 May, was constructive and that he hoped to move into greater detail on proposals at the next informal meeting set for 28 May. On major review of the second integration stage of the ATC, the Chairman said that consultations would continue regarding a draft report.

The CTG agreed to forward to the Committee on Regional Trade Agreements (RTAs) the RTA between Chile and Costa Rica.

The issue of the review of  implementation of commitments by China under paragraph 18 of its accession protocol was raised by the US, which argued that there was a need to set a  timetable to allow sufficient time for submission by China of information, and for written questions and answers before the November meeting of the CTG.

The US, the EC and others have been raising this issue at various rules bodies in an effort to get China to agree to obligations that the majors, which did the bulk of the accession negotiations with China, failed to put in.

The US  said that aside from receiving reports from subsidiary bodies, the CTG would also have to look at implementation of commitments on non-tariff measures, export licensing, state trading, government procurement and preferential trading arrangements.

China reiterated its position expressed in various WTO committees, namely, that it could not assume obligations in addition to what is provided for under paragraph 18 and would reject all attempts to go beyond this paragraph.

China said that to facilitate the process of the review, members are welcome to raise questions of concern well in advance of the meeting.

The US welcomed what it said was the constructive nature of China’s statement, adding it would continue to participate in informal talks on this matter.

The Chairman said he was ready to conduct informal consultations.

The Chairman also reported, under other business, that he intended to report at the next WTO General Council meeting that the 90-day period for the examination of the waiver request by the EC for its tariff arrangements to combat drug trafficking, which first appeared on the agenda in November 2001, had lapsed, and that in the CTG proceedings some members have expressed concerns about the EC tariff arrangements.

Trade experts and observers noted that the kind of trade preferences being given or advanced by the EC, US and others, as a way of getting some of the developing countries to tackle problems that had an effect on the major industrial nations, is resulting in a situation of “robbing Peter to pay Paul”. All such preferences are costless to the countries concerned, and merely make goods imported from one set of developing countries more competitive vis-a-vis goods from others. (SUNS5126)

From TWE No. 281 (16-31 May 2002)