Info Service on WTO and Trade Issues (Nov13/09)
20 November 2013
Third World Network
caution against rush into a trade facilitation agreement
Published in SUNS #7699 dated 19 November 2013
Geneva, 18 Nov (Kanaga Raja) -- A group of eminent trade experts from
developing countries has advised developing countries to be very cautious
and not be rushed into an agreement on trade facilitation (TF) by
the Bali WTO Ministerial Conference, given the current internal imbalance
in the proposed agreement as well as the serious implementation challenges
"While it may be beneficial for a country to improve its trade
facilitation, this should be done in a manner that suits each country,
rather than through international rules which require binding obligations
subject to the dispute settlement mechanism and possible sanctions
when the financial and technical assistance as well as capacity-building
requirements for implementing new obligations are not adequately addressed."
This recommendation is in a report by the Geneva-based South Centre.
The report, "WTO Negotiations on Trade Facilitation: Development
Perspectives", has been drawn up from discussions at two expert
group meetings organised by the Centre.
The eminent experts included Rubens Ricupero (former Secretary-General
of UNCTAD), S. Narayanan (former Ambassador of India to the WTO),
Ali Mchumo (former Managing Director of the Common Fund for Commodities
and former Ambassador of Tanzania to the WTO), Li Enheng (Vice Chairman,
China Society for WTO Studies), Carlos Correa (Professor, University
of Buenos Aires), Deepak Nayyar (Vice Chair, Board of South Centre,
former Vice Chancellor of Delhi University and former Chief Economic
Advisor to Government of India), Yilmaz Akyuz (Chief Economist, South
Centre, former Director of UNCTAD's Globalisation and Development
Strategies Division) and Chakravarthi Raghavan (Editor Emeritus of
the South-North Development Monitor).
Noting that an agreement on trade facilitation has been proposed as
an outcome from the Bali WTO Ministerial Conference, the South Centre
report said that the trade facilitation negotiations have been focused
on measures and policies intended for the simplification, harmonization
and standardization of border procedures.
"They do not address the priorities for increasing and facilitating
trade, particularly exports by developing countries, which would include
enhancing infrastructure, building productive and trade capacity,
marketing networks, and enhancing inter-regional trade. Nor do they
include commitments to strengthen or effectively implement the special
and differential treatment (SDT) provisions in the WTO system".
The negotiations process and content thus far indicate that such a
trade facilitation agreement would lead mainly to facilitation of
imports by the countries that upgrade their facilities under the proposed
agreement. Expansion of exports from countries require a different
type of facilitation, one involving improved supply capacity and access
to developed countries' markets.
Some developing countries, especially those with weaker export capability,
have thus expressed concerns that the new obligations, especially
if they are legally binding, would result in higher imports without
corresponding higher exports, which could have an adverse effect on
their trade balance, and which would therefore require other measures
or decisions (to be taken in the Bali Ministerial) outside of the
trade facilitation issue to improve export opportunities in order
to be a counter-balance to this effect.
According to the report, another major concern voiced by the developing
countries is that the proposed agreement is to be legally binding
and subject to the WTO's dispute settlement system. This makes it
even more important that the special and differential treatment provisions
for developing countries should be clear, strong and adequate enough.
The negotiations have been on two components of the TF: Section I
on the obligations and Section II on special and differentiated treatment
(SDT), technical and financial assistance and capacity building for
Most developing countries, and more so the poorer ones, have priorities
in public spending, especially health care, education and poverty
eradication. Improving trade facilitation has to compete with these
other priorities and may not rank as high on the national agenda.
If funds have to be diverted to meet the new trade facilitation obligations,
it should not be at the expense of the other development priorities.
"Therefore, it is important that, if an agreement on trade facilitation
were adopted, sufficient financing is provided to developing countries
to meet their obligations, so as not to be at the expense of social
development," the report stressed.
The negotiation mandate established in the "Modalities for Negotiations
on Trade Facilitation" of the 2004 July Package, the report noted,
was confined to "clarifying and improving" relevant aspects
of trade facilitation articles under the GATT 1994 (i. e. Articles
V, VIII and X GATT), with a view to further expediting the movement,
release and clearance of goods, including goods in transit.
Thus, the negotiations are not meant to limit or eliminate the rights
and obligations of Members under the three GATT articles or to impinge
on national policy and regulatory space. Yet, several of the proposed
provisions are in fact amending, not just clarifying, the GATT Articles
V, VIII, and X.
This goes beyond the negotiation mandate and would require an amendment
of the GATT in accordance with the procedures provided for by the
Agreement Establishing the WTO, said the report.
It further emphasised that the negotiation mandate sets an intrinsic
link between Section I and Section II of the draft text, whereby it
conditions implementation by developing countries and LDCs on the
acquisition of financial and technical capacity, based on the delivery
of assistance by developed country Members of WTO (as contained in
Paragraphs 2, 3, 6 of Annex D of the "July package" WT/L/579).
The report goes on to highlight the main issues of concern for a large
number of developing countries on the trade facilitation issue. It
said that many developing countries have legitimate concerns that
they would have increased net imports, adversely affecting their trade
balance. While the trade facilitation agreement is presented as an
initiative that reduces trade costs and boosts trade, benefits have
been mainly calculated at the aggregate level.
Improvements in clearance of goods at the border will increase the
inflow of goods. This increase in imports may benefit users of the
imported goods, and increase the export opportunities of those countries
that have the export capacity.
However, the report noted, poorer countries that do not have adequate
production and export capability may not be able to take advantage
of the opportunities afforded by trade facilitation (in their export
"There is concern that countries that are net importers may experience
an increase in their imports, without a corresponding increase in
their exports, thus resulting in a worsening of their trade balance."
Many of the articles under negotiations (such as the articles on ‘authorized
operators' and ‘expedited shipments') are biased towards bigger traders
that can present a financial guarantee or proof of control over the
security of their supply chains. There is also the possibility that
lower import costs could adversely affect those producing for the
"The draft rules being negotiated, mainly drawn up by major developed
countries, do not allow for a balanced outcome of a potential trade
facilitation agreement," the report asserted.
New rules under Section I are mandatory with very limited flexibilities
that could allow for Members' discretion in implementation. The special
and differential treatment under section II has been progressively
diluted during the course of the negotiations. Furthermore, while
the obligations in Section I are legally binding, including for developing
countries, developed countries are not accepting binding rules on
their obligation to provide technical and financial assistance and
capacity building to developing countries.
The trade facilitation agreement would be a binding agreement and
subject to WTO dispute settlement. The negotiating text is based on
mandatory language in most provisions, which includes limited and
uncertain flexibilities in some parts.
Accordingly, said the report, if a Member fails to fully implement
the agreement it might be subject to a dispute case under the WTO
DSU (Dispute Settlement Understanding) and to trade sanctions for
The cost of non-compliance could thus be significant; and to avoid
potential trade sanctions, countries may have to invest in infrastructure
and incur substantial costs to comply with binding commitments. It
is worth noting that several WTO Members have been already challenged
under WTO dispute settlement based on the grounds established by articles
V, VIII, and X of the GATT 1994.
"Many of the proposed rules under negotiations are over-prescriptive
and could intrude on national policy and undermine the regulatory
capacities and space of WTO Member States. The negotiating text in
several areas contains undefined and vague legal terminology as well
as ‘necessity tests', beyond what the present GATT articles require."
According to the report, these could establish multiple grounds for
challenging a broad range of WTO Members' laws, rules, regulations
and measures not only in matters that pertain to customs, but also
on more broadly trade-related matters and on regulations ‘on or in
connection with' import, export and transit of goods (for example,
in the proposed article 1 on ‘publication and availability of information'
and article 6 on disciplines on fees and charges').
It further pointed out that several provisions would have significant
influence on national legislative processes. For example, some of
the articles proposed under the agreement refer to an undefined open-ended
category of ‘interested parties' which have to be included among those
which a country has to consult prior to introducing new laws or measures
(Article 2 on ‘prior publication and consultation').
The reference to the category ‘interested parties' is not in the present
GATT 1994. It could include an expanded list of entities that have
a direct or indirect relation to the trade transactions covered by
the agreement, and do not necessarily have to be located in the territory
of the Member implementing the measure.
"This may lead to lobbying and pressures by various interest
groups from outside the Member, which could have an undue influence
on national regulatory and legislative processes."
None of the relevant GATT 1994 articles seem to require any consultation
with any party, inside the Member or outside, prior to promulgation
of laws or administrative regulations. There are only requirements
on prior publication before enforcement (of rules and regulations)
in certain cases. The proposed article would thus introduce a totally
new obligation which is intrusive with regard to a Member's regulations.
Several of the provisions under negotiations could hold significant
administrative and institutional burdens on LDCs and other developing
countries, said the report, adding that customs and customs-related
institutional mechanisms in these countries are not as advanced compared
to developed countries.
"It is worth noting that most of the proposals based on which
negotiations are undertaken were presented by developed countries,
reflecting the nature and form of practice that they already undertake
at the national level. Thus, developing countries are asked to converge
to the practice and standards of developed countries. While some developing
countries may have the capacity to upgrade their capacity accordingly,
many others will have difficulties in aligning the facilities of all
their customs agencies and in all regions of the country."
The experts' report stressed that meeting the obligations is likely
to involve significant costs for developing countries. The costs include
human resource expenses, equipment and information-technology systems,
as well as other significant infrastructure expenditures.
These costs would not be limited to a one-time investment and most
of them are of a recurring nature, and would thus be a burden especially
on low-income countries. For example, it noted, Turkey's efforts to
modernize its customs information technology required US$28 million.
In Morocco, the costs of information and communication technologies
(ICT) were estimated at US$10 million, while in Chile the total investment
cost of implementing an automated customs system amounted to US$5
million in the early 1990s.
In Jamaica, the introduction of the computerized customs management
system cost about US$5.5 million, while Tunisia needed US$16.21 million
to computerize and simplify procedures. Furthermore, a 2003 OECD report
highlighted that in Bolivia, a five year project for customs modernization
cost US$38 million, of which about US$25 million was spent for institutional
improvements and US$9 million for computerized systems.
For Chinese Taipei, express clearance alone necessitated establishing
20 new processing lines each equipped with an X-ray scanning machine.
There are a total of 117 officers at the express division, working
day and night shifts so as to provide a continuous day and night long
"The infrastructure and automated systems mentioned above are
only part of the investments required to allow implementing the practices
stipulated under a potential trade facilitation agreement," said
the report. A World Bank report noted that the costs of implementing
ICT at customs is only part of the life cycle cost of these systems
and that too often these maintenance and upgrading costs are underestimated
and not adequately included in the life cycle costs.
"Accordingly, meeting these costs will necessitate an allocation
in the national budgets and could divert limited resources from public
services, such as health care, food security and education to customs
administration," the South Centre report added.
"This is the reason developing countries are insisting that the
additional costs of meeting the new obligations are provided to them,
as was the understanding when the trade facilitation negotiation mandate
was established. However, there is not yet a binding or adequate commitment
for the provision of new and additional funds."
Most trade facilitation provisions under negotiations are entirely
new or go far beyond what the World Customs Organization (WCO) Revised
Kyoto Convention (RKC) requires. The arguments that the proposed trade
facilitation agreement would largely be a copy of the RKC, or that
it would simply reaffirm what most Member states already agreed to
in the RKC, do not hold, as it would contain obligations that go beyond
Moreover, said the report, any obligation undertaken under a new agreement
on trade facilitation could be enforced through the dispute settlement
body of the WTO and through cross-sectoral retaliation among countries,
unlike the Kyoto Convention.
"To be balanced, a trade facilitation agreement requires strong
and effective rules under Section II on SDT for developing countries,
particularly the LDCs. These countries need clear and mandatory rules
to operationalize the intrinsic link between their obligation to implement
and their acquisition of capacity."
Procedural rules under Section II should not be burdensome on these
countries in a way that dilute their rights as provided for under
Annex D. They should be able to designate themselves the provisions
under Section II, and to determine when they have acquired the capacity.
Moreover, the agreement should include mandatory rules on obligations
by developed country members to provide long-term and specific financial
and technical assistance, and capacity-building to developing and
least developed country Members in accordance with their specific
needs for implementing their obligations. A trade facilitation fund
should be established to ensure resources for the long-term.
Finally, said the report, in order for a trade facilitation agreement
to be made legally effective and become part of the WTO body of law,
it should be adopted through an amendment to the multilateral trade
agreements in Annex 1A of the WTO Agreement. An agreement along the
lines being proposed would alter the rights and obligations of Members
under GATT 1994. An amendment of this has to be undertaken in accordance
with Article X of the WTO Agreement.
Accordingly, a potential trade facilitation agreement will take effect
only after two-thirds of the WTO membership has ratified it. Moreover,
it will only be effective for Members that accepted it. The Members
that accept the agreement will also accept applying the ‘most-favoured
nation' rules to their commitments, thus extending accepted preferential
treatment to WTO Members having difficulties to accept the agreement.
In some overall conclusions, the report said that while it may be
beneficial for a country to improve its trade facilitation, this should
be done in a manner that suits each country, rather than through international
rules which require binding obligations subject to the dispute settlement
mechanism and possible sanctions when the financial and technical
assistance as well as capacity building requirements for implementing
new obligations are not adequately addressed.
Thus, it added, one possibility is that the agreement provides that
substantive provisions in the present Section 1 of the draft text
are not legally binding on developing countries, just as the provision
of financial resources and technical assistance is non-binding on
developed countries. Instead, developing countries can endeavour to
meet the obligations on an aspirational basis, and can apply for financial
resources for programmes to upgrade their trade facilitation capacities.
In case commitments under a multilateral trade facilitation agreement
are undertaken, these should be approached in a way that would provide
developing Members and LDCs with policy space and flexibility to adopt
and implement commitments commensurate with their capacity to do so,
and subject to the provision of technical and financial assistance
and capacity building.
"Developing Members and LDCs could then, at their discretion,
progressively move into higher levels or standards of implementation,
when capacity exists to do so, taking into account their development
According to the report, achieving the above necessitates a balanced
agreement with effective and binding rules on SDT that fully operationalize
Annex D (2004). Moreover, least developed countries should be exempted
from undertaking binding commitments as long as they remain LDCs.
This would be consistent with the understanding in other components
of the Doha work programme, where the draft modalities for agriculture
and NAMA stipulate that LDCs are not required to reduce their bound
The South Centre report said: "On the basis of the current content
of the negotiating text and given the current internal imbalance in
the proposed agreement, developing countries are advised to be very
cautious about rushing into a trade facilitation agreement by the
ministerial conference in Bali, given the implementation challenges
it carries. Furthermore, this decision should be considered in light
of what developing countries and LDCs are able to obtain in other
areas of interest to them."
The report also noted that a large part of the Doha work programme
(the Doha Development Agenda) that would benefit developing countries
and help to set right the imbalances of the Marrakesh Treaty remain
to be completed.
"Developing countries and LDCs are advised to ensure that the
entry into force of a trade facilitation agreement, if finally adopted,
is linked to the conclusion of the Doha mandate with its development
dimension fulfilled and based on the single undertaking."
As noted, some of the proposed obligations under a trade facilitation
agreement would change current GATT 1994 provisions. Therefore, a
formal process of amendment under article X of the Agreement Establishing
the WTO would be required. In case an agreement is accepted on a ‘provisional
basis', in the context of paragraph 47 of the Doha mandate, then WTO
Members are advised to define what they mean by ‘provisional'. The
enforceability of the new agreement should be conditional upon the
conclusion of the Doha Round as a single undertaking and the approval
of the new agreement in accordance with the WTO rules.
Hence, the DSU should not apply to the agreement when implemented
on a ‘provisional' basis. Within the period of provisional application,
Members should be able to voluntarily choose to apply all or parts
of the agreement. This may help avoid a scenario in which the developed
countries would already have attained a definitive agreement on trade
facilitation and then have no more interest in negotiating or completing
other issues in the single undertaking of the Doha round.
The report said that if a balanced text is not attained by the ministerial
conference in Bali, negotiations on trade facilitation can continue
post-Bali with a view towards attaining an agreement that is internally
balanced, as well as within a balanced overall Doha outcome.
"Political arguments about the damage that could be made to the
WTO as a global rule-making institution in case of failure to get
an agreement on this subject should not be given precedence over the
genuine interests of developing countries. Indeed, the greatest failure
of the WTO will be to make decisions that do not ‘ensure that developing
countries, and especially the least developed among them, secure a
share in the growth in international trade commensurate with the needs
of their economic development'," it concluded.