Trade Facilitation and the Global Economy

Chapter 2. Trade facilitation around the world: The state of play

Abstract

This chapter provides an update, at the entry into force of the Trade Facilitation Agreement (TFA), of trade facilitation efforts worldwide, using the OECD Trade Facilitation Indicators (TFIs). The TFIs offer a snapshot of trade facilitation actions on the ground for over 160 countries, drawing on comparative data to shed light on emerging successes, opportunities, and challenges for countries worldwide.

The entry into force of the TFA brought new momentum to trade facilitation efforts

The entry into force of the WTO Trade Facilitation Agreement (TFA) on 22 February 2017 reinforced the centrality of trade facilitation on the global trade agenda. Uniquely among WTO agreements, the TFA directly links implementation of the Agreement to the capacities of developing and least developed countries. While all developed country WTO Members1 have to implement the TFA from the date of its entry into force, this special and differential treatment (SDT) allows developing and least-developed countries to determine when they will implement individual provisions of the TFA and to only implement some provisions upon receipt of technical assistance and support for capacity building (Box 2.1). The TFA is thus being implemented gradually, with different parts of the Agreement implemented earlier than others by countries around the world.

The unique structure of the TFA means that understanding its implementation requires information on the state of play on trade facilitation around the world, on the main advances being made and on the remaining challenges that countries will need to address.

The 2017 update of the OECD Trade Facilitation Indicators (TFIs) provides, at the time of entry into force of the TFA, a precise and comprehensive overview of the strengths and weaknesses of national border-process mechanisms for more than 160 countries around the world. The updated TFIs not only show progress achieved since 2013, they also provide a baseline for monitoring future progress. Analysis of the TFIs also helps identify areas where domestic reform and investment in technical assistance and capacity building are likely to yield significant benefits.

This chapter begins with an overview of implementation across all countries covered in the TFIs, including a breakdown by income group, followed by snapshots of regional performance (regional groupings are set out in Annex B). The chapter then digs deeper into what the TFIs tell us about the implementation of areas covered by the TFA, and the remaining challenges.

Box 2.1. Implementing the WTO Trade Facilitation Agreement

A unique feature of the WTO TFA is that developing and least developed WTO Members categorise and notify each provision according to their capacity for implementation. Provisions are identified as those to be implemented upon entry into force of the TFA (Category A); to be implemented after a transitional period (Category B); and to be implemented upon the receipt of technical assistance and support for capacity building (Category C).

Six developing and least developed WTO Members1 have committed to implementing the entire TFA as of the date of its entry into force, while another ten have committed to fully applying over 90% of the Agreement as of that date.2

Of the approximately 36 notifiable measures under the TFA almost 80% are indicated for immediate implementation by over 50% of developing and least developed country Members. More than 70% of those Members also designated a quarter of all measures as Category A (that is, to be implemented as of the date of entry into force of the Agreement or within the following year). For 40% of those WTO Members, almost 95% of TFA measures were designated as Category A (Neufeld, 2016).

Of the 93 Category A notifications received as of February 2017, the most frequently notified measures tend to relate to quite specific or narrow issues. The most frequently notified category A measure is pre-shipment inspection (Article 10.5), followed by the use of Customs brokers (Article 10.6), and provisions (Article 9) related to the movement of goods intended for import under Customs control. The next most frequently notified Category A provisions are also very specific, relating to detention (Article 5.2) and temporary admission of goods and inward and outward processing (Article 10.9).

Broader provisions follow next, including those related to the application of common Customs procedures and uniform documentation requirements for the release and clearance of goods throughout a Member’s territory (Article 10.7); return of rejected goods (Article 10.8); transit of goods (Article 11); procedures for appeal or review (Article 4); penalties (Article 6) and use of international standards (Article 10.3). Measures relating to making information available (Article 1) are also increasingly notified under Category A.

The least frequently notified measures are for Single Windows (Article 10.4, Category A in less than 30% of notifications); Authorised Operators (Article 7.7); measurement and publication of average release time of goods (Article 7.6); test procedures (Article 5.3); and advance rulings (Article 3).

By region, those countries indicating the earliest implementation timeframes are in Europe (with an average of over 80% of category A commitments), followed by the Middle East (78%). Latin America and the Caribbean ranks equal third with Asia and the Pacific with average Category A designation rates of 57%, while Central Asian countries (50%) and those in Africa (36%) indicate longer timeframes.

1. Hong Kong, China; Israel; Korea; Mexico; Singapore; and Chinese Taipei.

2. Chile, Colombia, Costa Rica, the former Yugoslav Republic of Macedonia, Malaysia, Qatar, Saudi Arabia, Turkey, and Uruguay.

Source: Neufeld (2016) and Trade Facilitation Facility Notifications Database (2017), www.tfadatabase.org/.

The big picture: Current state of play on trade facilitation globally

The TFIs show that implementation of measures falling under the scope of the TFA was already well underway at the time of its entry into force in February 2017 (Figure 2.1). The TFIs also indicate that good progress has been made on many of the substantive provisions of the TFA that developing and least developed WTO Members committed to apply from the date of entry into force or within the following year (termed by the Agreement as Category A provisions).

Worldwide performance is even in a number of areas, but others pose challenges for lower-income countries

While there are some differences in implementation amongst countries including by both income and geography, worldwide performance was relatively even in a number of areas, in particular in relation to areas covered by the TFA disciplines on border fees and charges and streamlining of border procedures.

Across the board, the most challenging areas for implementation relate to co‐operation of border agencies, both within a country and across the border. Domestic and cross-border co-operation among the agencies responsible for border controls remain a work in progress around the world, but encouraging steps have been taken by countries at all levels of development.

In terms of aggregate performance by income group, progress on automating the border process appears to be closely correlated with income, with less advanced economies faring less well than more advanced ones. This suggests that automation is an area where capacity building may yield significant benefits. Indeed, measures such as risk management or Single Windows feature heavily among the provisions WTO developing and least-developed country Members designated for implementation after a transitional period and for which technical assistance and support for capacity building would be required (Category C provisions).2 Income-related differences in performance are less marked for the streamlining of border procedures, possibly reflecting the extensive capacity building undertaken on Customs matters in recent years.

Low income countries (LICs) appear to face particular challenges in areas such as consultations with concerned stakeholders, advance ruling mechanisms and the availability and operation of appeal procedures. Their performance gap in these areas is quite significant compared to a relatively homogeneous average performance for other country income groups. This is also the case for governance and impartiality measures (which are included in the TFIs but are beyond the scope of the TFA). The distance of LIC performance from implementation of the full set of mandatory TFA provisions on advance rulings is consistent with their low number of Category A notifications for these provisions.3 This is less the case, however, for appeal procedures.

In general, more advanced economies perform better than countries at lower levels of development (Figure 2.1). For most policy areas, there is a significant difference between the performance of OECD countries and that of other groups. The largest disparities are found in areas beyond the mandatory provisions of the TFA, such as external border agency co-operation. The relationship between performance and income is also underscored by the distance of developing and emerging economies from the top 25% performers in the world (Figure 2.2). That said, there are also several areas where the gap is relatively small, such as for fees and charges, procedures or external border agency co-operation.

Performance among countries within income groups is far from homogeneous, with high and low performers in every group. Policy areas showing a wider variation appear to be those that are inherently more challenging to implement. Among LICs, more pronounced disparities in implementation occur in the areas of automation, advance rulings, appeal procedures, and involvement of the trade community, with most of the better performers coming from the top income quartile. Among lower middle income countries (LMICs) and upper middle income countries (UMICs), there are also wide variations in implementation of areas covered by the TFA disciplines on fees and charges and simplification and harmonisation of documents. High income countries outside the OECD area (HICs non-OECD) display the widest disparities in implementation across all areas. This reflects the fact that they are a very heterogeneous group, ranging from very high performers in Asia to less strong performers in the Middle East and North Africa (MENA) region. Performance is more consistent across OECD countries, with the exception of practices around documents and border agency co-operation.

Figure 2.1. Implementation of areas covered by the TFA is underway worldwide

TFIs, 2017: Full sample snapshot, income groupings

Note: The shaded area depicts measures that go beyond the mandatory provisions of the TFA and are to be implemented on a best endeavours basis. The dotted portion of the grey line highlights the fact that all TFA provisions for external border agency co-operation are “best endeavours”. The averages account for the economies where all indicators are available.

Source: TFIs (2017), www.oecd.org/trade/facilitation/indicators.htm.

Comparison of the 2015 TFIs to the 2017 update confirms the positive momentum generated by the negotiation and adoption of the TFA for all groups of countries (Figure 2.3). Several important trends are evident: while there were improvements in the overall performance of the LICs, LMICs and OECD groupings, the average performance of UMICs and high income non-OECD economies in 2015-17 only improved marginaly in some areas, such as in the involvement of the trade community, automation, and streamlining of procedures. The LICs and LMICs groupings also experienced improvements in information availability, advance rulings and governance and impartiality.

Figure 2.2. In general, more advanced economies perform better

Distance to top 25% of performers

Note: The figure shows the average gap between a group average’s performance for a selected area and the performance level of the top 25% countries for each area covered. OECD members’ performances are in the top quartile (best) performance for the overall sample.

Source: TFIs (2017), www.oecd.org/trade/facilitation/indicators.htm.

Figure 2.3. But there is positive momentum on implementation for all countries

TFIs: Income groups, 2015 and 2017

Source: TFIs (2017), www.oecd.org/trade/facilitation/indicators.htm.

Implementation varies significantly across regions

Regional averages confirm the picture from income group averages. Once again, the greatest challenges relate to the co-operation of border agencies within a country and across the border. The streamlining of formalities (harmonisation of documents, automation of the border process and simplification of procedures) and the availability of trade-related information also present continuing challenges across all regions (Figure 2.4). Performance on the streamlining of procedures and on consultations with stakeholders was relatively homogeneous across regions; this was much less the case for the availability of information, automation of the border process and harmonisation of trade documents. The widest disparities across regions occur in the operation and performance of advance ruling mechanisms, the availability and operation of appeal procedures and governance and impartiality. The relatively strong performance of Europe and Central Asia is largely driven by European Union members, while that of the Asia-Pacific region is driven by several East Asian high performers. The Sub-Saharan Africa (SSA) region is the weakest performer across the board, due mainly to lower performance in the areas of information availability, advance ruling mechanisms and automation, as well as governance and impartiality.4

Figure 2.4. TFIs 2017: Full sample snapshot, regional groupings

Note: The geographical groupings include OECD members. The averages account for the economies where all indicators are available.

Source: TFIs (2017), www.oecd.org/trade/facilitation/indicators.htm.

To a much larger extent than within income groups, performance variations are also notable across regions, particularly with regard to consultations with stakeholders, advance ruling mechanisms, availability and operation of appeal procedures, simplification and harmonisation of documents, automation of the border process, and inter-agency co-operation. Within-group disparities are most marked for the Asia-Pacific and Europe and Central Asia regions. In the Asia-Pacific region, wider disparities can be seen in the areas of consultations, advance rulings, and automation; the widest disparities in Europe and Central Asia concern automation, advance rulings, and appeal procedures.

A closer look: Key challenges in relation to the TFA

Transparency and predictability

Articles 1 to 6 of the TFA include provisions aimed at enhancing the transparency and predictability of the import, export and transit processes. Measures covered by these Articles are a first step in providing greater certainty and reliability in the transaction chain. These measures are reflected in variables in the first five TFIs, namely Information availability, Involvement of the trading community, Advance rulings, Appeal procedures, and Fees and charges.

Information availability measures in TFA Article 1 (Publication and availability of information) refer to web-based and other forms of publication about Customs and border-related rules and procedures, as well as transparency mechanisms such as enquiry points.

TFI data shows that the kinds of requirements falling under Article 1.1 are already quite widely implemented (Figure 2.5). Among the types of information listed in Article 1.1, countries across all income groups publish relatively widely the basic steps of importation, exportation and transit procedures (1.1.a) and applied rates of duties and taxes (1.1.b). LICs and UMICs also make available information regarding classification and valuation rules (1.1.d), appeal procedures (1.1.h) and agreements with third countries (1.1.i). This information is generally made available through paper publications, with online publication still lagging across country groupings. An increasing number of countries provide specific webpages for advance rulings; however, most do not have an interactive interface allowing online filing of advance ruling requests.

Figure 2.5. Availability of information provisions are already widely implemented

TFA Article 1: Publication and availability of information

Source: TFIs (2017), www.oecd.org/trade/facilitation/indicators.htm.

There has been relatively little progress in providing documents and forms directly for download on the Customs website, especially among LICs and LMICs. Moreover, new web functionalities – such as the existence of a specific page for professional users or the publication of user manuals – are currently in place only in some UMICs, high-income non-OECD economies, and OECD countries.

Significant progress has been made since 2012 in recognising the efficiency-enhancing potential of enquiry points (1.3): the majority of LMICs and UMICs and 60% of surveyed LICs maintain one or more enquiry points and offer the possibility to submit questions about Customs-related issues, either by phone or via an online form. However, timeliness of response from enquiry points appears to be problematic: less than 30% of developing countries had hours of operation fully aligned with commercial needs, or service charters establishing a standard response time to enquiries.

TFA Article 2 (Opportunity to comment, information before entry into force and consultations) seeks to ensure the involvement of the trade community in the design and everyday operation of border-related policies and procedures. The Article also refers to the scope, contents and outcomes of such consultations between traders and governments. In 2017, 50% of surveyed countries (mainly middle income and high income countries) hold regular consultations with traders – a share that has risen from 40% in 2015. Developing countries now appear to have well-established guidelines and procedures in place to govern the public consultation process (Figure 2.6). The scope of consultations has also been widened, with new stakeholders enjoying access to consultations; about 55% of developing and emerging economies seek to involve at least four stakeholder groups.

Figure 2.6. Dialogue with the private sector is progressing but modalities remain challenging

TFA Article 2: Opportunity to comment, information before entry into force, and consultations

Source: TFIs (2017), www.oecd.org/trade/facilitation/indicators.htm.

That said, the content and outcomes of consultations remain challenging for many countries. Less than half of surveyed countries consistently provide opportunities to comment (2.1.1), or allow an interval between the publication and entry into force of all new or amended trade related laws and regulations (2.1.2). Drafts are available before the entry into force of a rule and stakeholder comments are possible in 29% of LICs and 57% of UMICs, but only 14% of developing countries involve the trading community during the drafting stages of new trade-related legislation.

While general notice-and-comment procedures appeared to be in place across the countries surveyed, outside the OECD grouping these are not always used in the context of trade and border issues. Moreover, while public comments received during consultations appeared to be taken into account across 53% of the countries surveyed, administrations rarely provide explanations of how such comments were ultimately addressed, or to what extent.

TFA Article 3 (Advance rulings) addresses key mechanisms for providing traders with greater certainty about Customs requirements and duty liabilities and can play a particularly important role in facilitating trade (Box 2.2). Advance information can also be fed into Customs risk management machinery. While in more than 80% of countries across all income groups, Customs issues binding advance rulings (3.1 and 3.5), implementation of other provisions – relating to validity (3.3), refusal to issue or revocation (3.4), timely issuance (3.6), review (3.7) and publication of advance rulings of general interest (3.8) – varies considerably by country group (Figure 2.7). Upgrading advance rulings systems remains a work in progress for most countries.

Figure 2.7. Binding advance rulings are generally available, but other aspects remain a work in progress

TFA Article 3: Advance rulings

Source: TFIs (2017), www.oecd.org/trade/facilitation/indicators.htm.

Box 2.2. Do advance rulings increase trade flows?

Advance rulings are issued in relation to, for example, the tariff classification, valuation, and country of origin of goods, or duty drawback provisions.1 In those countries issuing them, typically more than 90% of advance rulings relate to classification, followed by advance rulings on the origin of the good.

Analysis using the TFIs shows a positive correlation between the TFI score in relation to advance rulings and the volume of trade flows, in particular for OECD and UMICs. This raises the question of whether trade volumes drive the demand for advance rulings or whether predictability from advance rulings reduces trade costs and thus increases trade volumes. In the OECD area, while a number of the largest traders issue the highest number of advance rulings (United States, Japan and Germany), several smaller traders, including Norway, Australia, Switzerland and the Netherlands issue only marginally fewer such rulings than the large traders in absolute terms.

Analysis undertaken using the US CROSS (Customs Rulings Online Search System) database also indicates that the main predictors of the number of advance rulings, in order of importance, are: average tariff levels; the number of tariff lines; the percentage of trade entering under a preference program; and the number of importers. In sum, the overall volume of trade does impact advance rulings, but only modestly and in selected sectors.

Per Article 3 of the TFA, the TFI on advance rulings covers governance and efficiency of these mechanisms, as well as efforts to encourage compliance through increased communication between Customs administrations and traders. Countries scoring highest issue rulings quickly, post rulings for public review, keep rulings valid until revoked and allow importers to request a review of an advance ruling.

In addition to the efficiency of the mechanism, other aspects that may influence the demand for advance rulings include the length of validity of advance rulings (fewer requests are necessary when the ruling is valid for longer); or the applicable tariff (the higher the tariff, the more useful an advance ruling). Equally, advance rulings may not be in high demand in less complex trading environments (where, for instance, tariff classifications do not go beyond the six digit level2).

In sum, it is not trade volumes that drive the demand for advance rulings but advance rulings that increase trade volumes by improving predictability and reducing costs and delays, in particular in complex trade regimes.

1. Refunding import duties and fees for a product upon its re-exportation.

2. In the Harmonised System, which includes product classification at the 6 digit level while national classifications can be at 8 and 10 digit levels.

Source: Moïsé et al. (2011).

TFA Article 4 (Procedures for appeal or review) addresses basic characteristics of the appeal system such as transparency, fairness, accessibility, and timeliness and effectiveness of applicable rules and outcomes. A well-functioning appeals mechanism ensures transparent and accountable application and enforcement of legislation by Customs and related agencies. Although the right to appeal (4.1) now appears more widely available than in the period 2012-15, measures concerning the timeliness (4.4) and communication of the reasons for administrative decisions (4.5) are in place in only half of surveyed countries (Figure 2.8). Overall, aspects related to timing for appeals – including sufficient time to contest a decision, to prepare and lodge an appeal, and avoidance of undue delays in the rendering of decisions – appear to be particularly challenging for LICs and LMICs.

Figure 2.8. The right to appeal is widely available but timeliness and communication of processes varies

TFA Article 4: Appeal or review procedures

Source: TFIs (2017), www.oecd.org/trade/facilitation/indicators.htm.

TFA Article 6 promotes transparency and predictability of fees, charges and penalties. Provisions relating to penalties (6.3) were covered for the first time in the 2017 update of the TFIs.5 Performance around periodic reviews of fees and charges (6.1.4), information published on fees and charges (6.1.2), and limitation of fees and charges to the approximate cost of services rendered (6.2) all display significant variations by income group (Figure 2.9). They appear to be especially challenging for LICs.

Figure 2.9. Implementation of disciplines on fees and charges is modest and varies by income

TFA Article 6: Disciplines on fees and charges imposed on or in connection with importation, and exportation and penalties

Source: TFIs (2017), www.oecd.org/trade/facilitation/indicators.htm.

Accessible, publicly available data on fees and charges remains limited. With the exception of OECD countries and some high-income non-OECD economies, only a few developing countries (mainly UMICs) have a dedicated page covering fees and charges on their Customs websites.

In many of the developing countries surveyed, Customs administrations apply fees for services during normal working hours. Where countries charge fees for answering enquiries, in only about 65% of countries are these limited to the approximate cost of the services rendered. A further issue is the absence of periodic reviews of fees and charges. Time periods between the publication of new or amended fees and charges and their entry into force also remain insufficient in many cases, with about 65% of countries providing adequate advance notice to traders.

TFA Article 6.3 requires that administrative penalties imposed by Customs take into account the facts and circumstances of the case and be commensurate with the degree and severity of the breach. The Article also requires avoidance of conflicts of interest in the assessment and collection of penalties and duties; written explanations of penalties imposed and of the applicable legal provisions; and adjustment of penalties when a breach is voluntarily disclosed.

Implementation appears to be relatively homogeneous among LMICs and UMICs with regard to penalties for breach of Customs laws or regulations, procedural requirements for transparency and proportionality, and procedural guarantees (i.e. providing an explanation in writing, specifying the nature of the breach and the applicable regulation). However, LICs are still facing challenges, with implementation in only about a third of the grouping. Conflicts of interest in the assessment and collection of penalties and duties are still a significant problem: in only around half of the countries surveyed is remuneration of Customs officials independent of any penalties or duties they assess or collect. There is also scope for further progress on voluntary disclosure, with less than 30% of developing countries surveyed considering this to be a mitigating factor for the purposes of establishing penalties (Figure 2.10).

Figure 2.10. Implementation of disciplines on penalties is relatively homogenous among MICs, but remains problematic for LICs

TFA Article 6.3 snapshot: Disciplines on penalties

Source: TFIs (2017), www.oecd.org/trade/facilitation/indicators.htm.

Streamlining of formalities

Articles 7 and 10 of the TFA seek to minimise the number and complexity of import, export and transit formalities. Article 10 specifically addresses formalities and documentation requirements related to importation, exportation, and transit, while Article 7 covers the release and clearance of goods, including processes and requirements relating to perishable goods. These Articles are covered by the three TFIs on Formalities, namely Documents, Automation, and Procedures discussed below. Transit, a key issue for landlocked developing countries, is discussed in Box 2.3.

TFI variables relating to documentation requirements refer to the extent that trade documents are harmonised with international standards, and documentation requirements simplified, through use of copies and reduction in the number and complexity of required documents. Compliance with international standards6 (10.3) has improved among the surveyed countries over the past five years: as of 2017, about two-thirds of developing countries had ratified7 at least two of the relevant International Conventions (Figure 2.11).

Figure 2.11. Progress has been generally good on trade formalities

TFA Article 10: Formalities connected with importation and exportation

Source: TFIs (2017), www.oecd.org/trade/facilitation/indicators.htm.

The review and simplification of formalities and documentation requirements (10.1) remains a work in progress across all income groups. LICs lag significantly behind MICs in terms of reducing both the number of documents necessary for exporting and importing, and the average time required for the preparation of such documents. Periodic reviews of documentation requirements and discontinuation of those no longer needed are rare in practice: only 10% of LICs ensure that unnecessary requirements are discontinued as a result of such reviews (for UMICs, the figure is 40%).

In contrast, noticeable progress has been made on acceptance of copies (10.2); agencies in about 60% of developing and emerging countries accept copies when another government agency holds the original. However, even in those countries, copies are not accepted in all cases; only 8% of LICs and MICs accept copies without exceptions (related to the type of good, the circumstances or the agency) and the original may still need to be presented upon request.

Harnessing the power of information technology (IT), an increasing number of MICs, as well as HICs non-OECD, appear to be clearing import and export procedures electronically. That said, very little information is available on the actual percentage of import and export procedures that allow for electronic processing in LICs, LMICs and UMICs. By contrast, in the OECD area at time of publication the figure was 99.2%.

Article 10 provisions relating to pre-shipment inspection (10.5) and the use of Customs brokers (10.6) appear to be relatively widely implemented, although not without challenges for several LICs and LMICs (Figure 2.11). Countries still applying pre-shipment inspection are principally LICs, although similar arrangements can be found in some MICs. In some cases, pre-shipment inspection appears to have been eliminated only fairly recently: while half of the countries in Sub-Saharan Africa for which data were available were applying pre-shipment inspections in 2015, that share seems to have fallen to 43%.

Provisions on rejected goods (Article 10.8) and temporary admission of goods for inward and outward processing (Article 10.9) also show significant worldwide implementation.

The introduction and operation of Single Windows (Article 10.4) remains one of the most important challenges among TFA provisions, and the policy area where the least progress has been achived in particular for LICs. Around one-third of HICs non-OECD, UMICs and LMICs and only 10% of LICs appear to have a fully operational mechanism8 in place. This share appears to be higher for OECD economies (60%). Information on progress on IT and Electronic Data Interchange (EDI) systems (see below), suggests that a key remaining challenge for operationalising Single Windows is the quality of co-operation and information exchange among different government agencies, Customs departments, and border control posts.

Most surveyed countries state that a Single Window is either planned or in the process of implementation, highlighting the importance that countries attach to this mechanism. Given its importance, and the limited progress to date, implementation of Single Windows, and the related issue of co-operation among border agencies both domestically and across borders (also discussed below), are the subject of more detailed investigation in Chapters 3 and 4.

For the majority of surveyed countries, IT systems capable of EDI – essential for simplifying documentation requirements and reducing the complexity of document submission – are either being implemented or are already functional. IT systems in most LMICs and UMICs are ready for EDI, with most LICs indicating that implementation of such systems is already underway. Moreover, around-the-clock automated processing for Customs agencies is available in 60% of developing countries, up from 45% in 2015. The large majority of countries implementing around-the-clock automated processing are UMICs, high income non-OECD economies, and OECD countries.

Other challenges remain in automated border procedures, including pre-arrival processing (7.1) and its application in an automated environment; the existence of a system for the electronic payment of duties, taxes, fees and charges (7.2) and its integration with the automated declaration/cargo processing system; and the acceptance of digital certificates and signatures. While such features appear to be in place in half of MICs, implementation remains much lower in LICs (Figure 2.12).

Figure 2.12. Automating border procedures remains a challenge

TFA Article 7: Release and clearance of goods

Source: TFIs (2017), www.oecd.org/trade/facilitation/indicators.htm.

Even where automation is in place, more information would be required to determine whether it works reliably. The availability and reliability of connectivity and electricity for example, can greatly influence the reliability of automated systems, in particular for remote border posts in some developing countries. In many developing countries surveyed, access by public services such as Customs to reliable energy remains low and average electricity transmission and distribution losses remain very high (Moisé and Sorescu, 2013).

Risk management to improve the efficiency and reduce the burden of Customs controls (7.4) seems to have been successfully implemented and to be currently operating in an automated environment in 35% of surveyed countries – essentially UMICs, high income non-OECD economies and OECD countries. This is a notable improvement over previous years, when this was the case for only a quarter of the sample. Other countries surveyed (largely LMICs and LICs) either do not have such a system or are in the process of introducing one. For the large majority of HIC non-OECD, UMICs, LMICs and LICs, border controls other than Customs are not yet supported by a risk management system or the system is yet to be fully implemented (Figure 2.13).

Figure 2.13. Implementation of risk management has significantly improved, but mostly in higher income countries

Risk management implementation

Source: TFIs (2017), www.oecd.org/trade/facilitation/indicators.htm.

On balance, risk management efforts seem to have stalled at the single-agency (Customs) stage and have yet to achieve their full potential. Making risk management more comprehensive and integrating trusted trader programs, post-clearance controls, input from all border agencies and mutual recognition could bolster efficiency at the border and further sustain interagency co-operation. The deployment of risk management beyond Customs could be a useful area for future capacity-building efforts.

Remaining challenges for measures falling under the provisions of TFA Article 7 lie at a more operational level. For instance, only 20% of the countries surveyed, mostly in the UMICs and HICs groupings, appear to calculate and publish average release times (Article 7.6). By contrast, the separation of release from clearance (7.3) appears unrelated to income level, and is available in around 40% of LICs, LMICs and UMICs.

Adoption of measures for perishable goods (7.9), whether relating to physical inspections, storage conditions or the separation of release from clearance, is underway but incomplete across all income groupings. That said, progress is notable among UMICs: more than half of surveyed countries that treat perishable goods differently from non-perishable goods across the clearance process were in this grouping. In general, border agencies in LMICs and UMICs give appropriate priority to perishable goods when scheduling required examinations, but do not generally allow for the clearance of these goods outside normal business hours.

TFA Article 7.5 calls for the adoption or maintenance of post-clearance audits (PCAs). Post-clearance auditing is one of the most effective trade facilitation strategies available to border agencies as it enables the immediate release of imported cargo through the subsequent use of audit-based regulatory controls to check compliance with relevant regulations. However, while most countries seem to allow for PCAs, in practice they seem to be seldom used and to lack standard policies and procedures to ensure transparent and risk-based implementation. This is an area where there remains considerable scope for improvement.

TFA Article 7.7 refers to mechanisms for identifying and offering better treatment to traders who meet specific criteria. Traders meeting criteria related to good management, solvency, security and compliance records – termed Authorised Operators (AOs) – can be offered additional trade facilitation measures related to import, export, and transit formalities. Many such initiatives are underway at both national and regional levels (Figure 2.14). OECD countries have progressed considerably in enlarging AO coverage and expanding the participation of SMEs, but equivalent information is scarce for the rest of the surveyed countries.

There are wide disparities in the transparency of the criteria for qualifying as an AO, as well as in procedures for submission and review of applications for AO status; the timeliness with which such a certification is granted; and the number and types of benefits granted to AOs. Across programs surveyed in HICs non-OECD, UMICs, LMICs and LICs, benefits granted to AOs mainly cover the deferred payment of duties, taxes, fees and charges, and rapid release times. More mature AO programs in OECD countries also cover reduced documentary and data requirements, use of reduced guarantees, and clearance of goods at AO premises. Across the sample, the least granted benefit is a single Customs declaration valid for a given period.

Figure 2.14. Some progress has been made on Authorised Operators but conditions and benefits vary

Authorised Operators programmes

Source: TFIs (2017), www.oecd.org/trade/facilitation/indicators.htm.

Information on expedited shipments and associated release procedures (7.8) shows that, in 65% of surveyed countries, goods may benefit from expedited release to persons meeting certain criteria. But this benefit is limited to certain types of goods, generally either those entering through air cargo facilities or of low value. Only in very few (mostly OECD) economies does expedited release apply to all goods, irrespective of type, weight or value.

Box 2.3. Transit facilitation remains challenging across most regions

The TFA addresses the important issue of transit in Articles 7 and 10 (which focus on rationalisation and simplification of transit formalities) but also in Article 11 (Freedom of Transit), which prohibits unnecessary requirements, delays, restrictions, charges or discrimination against traffic in transit. These provisions are particularly important for landlocked and transit countries, which face significant administrative, technical and logistical difficulties.

Estimation of separate, statistically robust transit indicators presents considerable challenges, including a narrower sample of landlocked and transit countries; the scarcity of reliable data on implementation; and the need for specific bilateral transit data, for which there is no publicly available database depicting actual flows. Early in the development of the TFIs, four transit-specific indicators were developed to try to capture the particular challenges affecting landlocked countries. Collaboration with the USAID Trade Hubs for West Africa and Southern Africa and with UNESCAP allowed data to be collected in 2012 for selected African and Asian countries.1 The main findings from this exercise are set out below.2

Streamlining of transit formalities and the existence of transit agreements and co‐operation seemed to be the major factors influencing transit trade in goods and in particular manufactures. Landlocked countries’ exports were strongly influenced by the availability of transit guarantees, as well as by the rationalisation and simplification of import and export formalities and the availability of trade-related information.

Only half of the countries surveyed in the 2012 transit study published information on transit fees and charges, either in publications or on the Customs website. Among the many fees associated with the cross-border movement of goods, the most opaque were escort fees. These cover the cost of an official vehicle escorting individual trucks through the country of transit in order to ensure that goods in transit from the port are not off-loaded before reaching the border. No information was available on the method of calculating transit fees and charges for countries in Asia, while the majority of countries in Africa seemed to be calculating such fees and charges ad valorem. Transit fees and charges were periodically (annually or more frequently) reviewed by only a third of the surveyed countries.

Information on transit formalities appeared to be available in African countries. Relevant documents and procedures were reviewed periodically, but less frequently than for fees and charges (every two years at best). West African countries had physically separate transit facilities at all entry points, while in the Southern African sub-region there were either no physically separate border crossing facilities, or they were present only at large transit entry points. In Asia, separate border-crossing facilities for transit were available in half of the surveyed countries.

Physical inspections on transit goods were generally limited in Asia thanks to risk assessment; however, a third of surveyed Asian countries applied the same quality controls and technical standards to transit goods as on imported goods, while another third applied controls only to hazardous materials and high risk cargos. In Africa, transit trade goods were subject to frequent physical inspections, as a risk-based system was not used or used only on a limited basis, but quality controls and technical standards were generally not applied to transit trade. Electronic data submission did not seem to be widely used for transit trade. Pre-arrival processing seemed to be available in half of the surveyed countries but applied only partially, for selected importers/goods/entry points/modes of transport. Half the surveyed countries – and only one in Africa – seemed to have at least partially established a Single Window for transit trade.

Transit guarantees were accepted in one or more non-monetary forms in the majority of surveyed Asian countries and in half of the African countries; the other half of African countries did not accept transit guarantees in any form. The lack of banking infrastructure and financial markets able to support the issuance of such guarantees often led transit countries to require the deposit of full duties and taxes to cover the transit operation. Limited information was available on the average number of days necessary for full release of guarantees for the countries surveyed. For several of the surveyed countries, the guarantee system was covered by different regional agreements implementing systems similar to the Transports Internationaux Routiers (TIR) guarantee system.3

Transit agreements and co-operation, including the ASEAN Framework Agreement on the Facilitation of Goods in Transit; the Transit Routier Inter-Etats (TRIE) transit system developed in the Economic Community of West African States (ECOWAS); or the transit systems that have been developed by members of the Southern African Customs Union (SACU) and the Southern African Development Community (SADC), can promote unencumbered and cost-effective access to sea ports for landlocked countries. However, they frequently suffered from lack of enforcement due to overlapping and multiple membership or because national regulations took precedence in practice. Co-operation to simplify documentation requirements seemed to be stronger in the Southern Africa region, and much weaker in West Africa. For most of the surveyed Asian countries there was some co-operation between the agencies involved in transit, albeit varying in nature and intensity. The situation was relatively similar in Africa, with limited co-operation in West Africa and somewhat stronger co-operation covering procedural and legal dimensions for most countries in Southern Africa.

1. Analysis on transit was based on data covering Azerbaijan, Bangladesh, Benin, Bhutan, Burkina Faso, Cambodia, the People’s Republic of China, Côte d’Ivoire, Ghana, India, Indonesia, Kyrgyz Republic, Malaysia, Mozambique, Namibia, Nepal, Pakistan, Philippines, Russian Federation, Senegal, Singapore, South Africa, Sri Lanka, Tanzania, Thailand, Togo and Viet Nam.

2. Given the limited availability of trade data on an ongoing basis, it was decided not to continue separate data collection and analysis on transit beyond this initial exercise.

3. TIR is an international transit system, based on the TIR UN Convention and implemented at global level in public-private partnership. With TIR, goods are contained in sealed load compartments, and the contents are detailed in a TIR Carnet, accompanying the driver and the cargo along its journey. Customs simply verify the Carnet and that the seals are intact, rather than opening the container and physically checking the load.

Source: United Nations Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States (2007); West Africa Trade Hub (2010); Moïsé and Sorescu (2013).

The development and implementation of PCAs, AO programs, and expedited release procedures are intrinsically linked. PCAs can help detect potential high-risk traders, but can also identify low-risk traders eligible for “fast-track” permissions and simplified procedures available under AO and other time and cost-saving compliance recognition-based programs.

Border agency co-operation: Institutional and operational challenges

Co-ordination among domestic border agencies aims to increase operational efficiency and facilitate legitimate trade by removing redundant or sequential controls and duplicative documentation requirements. TFA Article 8 calls for agencies to “co-operate with one another and co-ordinate their activities in order to facilitate trade” at the national level (8.1), and provides five illustrative cross-border co-operation activities (under 8.2). Newly-elaborated variables included in the 2017 TFI series aimed to shed light on how agencies can best achieve these goals.9

In 2015, co-operation among various border agencies within the same country (8.1) seemed to be relatively well-established for around half of countries surveyed. The 2017 data explores more specific implementation challenges in: the institutional and legal and regulatory frameworks; the procedures for co-operation; communication and information exchange; and infrastructure and equipment. A significant number of surveyed countries have in place a general co-operation framework for co-ordination, exchange of information and mutual assistance across domestic agencies involved in the management of trade. Explicit co-ordination strategies are present in more than half of OECD economies and non-OECD HICs, but in only 13% of UMICs. A significant number of countries appear to have also established inter-agency co-ordination bodies, but detailed information about their operation remains scarce.

Day-to-day implementation challenges can be successfully addressed through systems connectivity and open communication amongst relevant agencies, bolstered by clear delineation of authority and responsibilities and clear frameworks for sharing data, infrastructure and equipment. In OECD countries, domestic inter-agency co-ordination mechanisms meet regularly to develop strategy and oversee implementation of border agency co-operation. They also promote the sharing of inspection and documentary control results, sharing of infrastructure, and delegation of controls from other border agencies to Customs. These practices are also gaining ground in the rest of surveyed countries, in particular in UMICs and non-OECD HICs (Figure 2.15).

Figure 2.15. Domestic border agency co-operation is progressing for some key functions

Domestic border agency co-operation: Key strengths

Source: TFIs (2017), www.oecd.org/trade/facilitation/indicators.htm.

There remains considerable scope for improvement, however. While border agencies around the world may be progressively sharing inspection and control results, co-ordination of these processes and requirements is underway in only approximately 40% of countries surveyed. Development of interconnected or shared computer systems and real time availability of pertinent data, as well as interagency collaboration on the certification of AOs, also remains incomplete across all groups, including OECD countries (Figure 2.16).

Figure 2.16. But there is considerable scope for improvement

Domestic border agency co-operation: Key challenges

Source: TFIs (2017), www.oecd.org/trade/facilitation/indicators.htm.

Co-operation with border agencies in neighbouring and third countries is even more challenging than domestic border agency co-operation. Between 2015 and 2017 most progress was made on the alignment of working days and hours, with the best performers found among OECD countries and LICs. Good progress was also made on alignment of procedures and formalities, which is under implementation in most surveyed countries, but which is not yet fully operational outside the OECD area (Figure 2.17).

Figure 2.17. Most progress on cross-border co-operation concerns alignment of working hours

Cross-border agency co-operation: Streamlining of procedures

Source: TFIs (2017), www.oecd.org/trade/facilitation/indicators.htm.

Development and sharing of common facilities is fully operational in only 30% of OECD countries. One-Stop Border Posts (OSBPs) are operational in only a few developed economies and are in various stages of progress at several borders in Africa. OSBPs require significant infrastructure investment, as well as high levels of co-operation and trust.

Efforts to deepen cross-border agency co-operation through automation are underway, but remain incomplete. Advances have been made mainly in OECD countries and mostly in co-ordination/harmonisation of data requirements and documentary controls. In other areas, such as co-ordination/harmonisation of different computer systems, risk management co-operation and systematic sharing of control results among neighbouring countries, implementation by OECD countries is again significantly more advanced than in other countries surveyed (Figure 2.17).

Figure 2.18. Efforts to deepen co-operation by automation are underway, but incomplete

Cross-border agency co-operation: Automation tools

Source: TFIs (2017), www.oecd.org/trade/facilitation/indicators.htm.

Governance and impartiality

The final TFI indicator, for additional good governance practices, goes beyond the scope of the TFA. It covers clearly established and transparent structures and functions; the existence of a Code of Conduct and an ethics policy; internal audits, and transparent provisions for financing; and internal sanctions in the Customs administration.

Around 60% of surveyed countries outside the OECD grouping provide a description of the structures and functions of the Customs administration on their respective websites; however, information about the financing of Customs is available in only 25% of these countries.

Notable progress has been made in implementing internal audit systems and in communications strategies making Codes of Conduct available to all employees, but less in establishing a help desk or a special body to guide staff on ethical issues. Only limited information on the implementation and transparency of sanctions against misconduct is found in Customs Codes.

Information on the publication of annual Customs reports is available for half of the countries surveyed. A third of the developing and emerging economies surveyed (mainly UMICs and HICs non-OECD) publish annual Customs reports and make them publicly available. But the large majority of countries provide only limited information on Customs activities, with little information on budget, duties collected, complaints or efficiency indicators.

For OECD countries, significant improvements have been made in areas such as internal communication of policies and procedures, transparency and proportionality of disciplinary provisions, existence of clear provisions for the financing of the Customs administration, and inclusion of sufficient information in annual reports on Customs activities. However, significant disparities persist across the OECD in terms of the transparency and proportionality of non-compliance penalties for border agency staff.

Way forward: Paving the way for full implementation of the TFA

Analysis from the TFIs shows that, in countries around the world, efforts to improve trade facilitation are underway and have been further galvanised by the entry into force of the WTO TFA. Solid progress is evident in a number of areas since the previous TFIs covering the period 2012-15.

Implementation of some provisions, notably risk management and automation, appears to be correlated with income, but good progress on many areas covered by the WTO TFA is occurring across countries at all levels of development. There is also significant variation within country income and regional groupings, with strong performers found in all regions and income levels.

Strongest progress has been made on consultations and border formalities, underscoring that TFA implementation need not require costly investment. For all countries, co-operation among border agencies, both domestically and with neighbouring and third countries remains a significant challenge. These areas are the subject of further investigation in the following chapters.

Bibliography

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Moïsé, E., T. Orliac and P. Minor (2011), “Trade Facilitation Indicators: The Impact on Trade Costs”, OECD Trade Policy Papers, No. 118, OECD Publishing, Paris, http://dx.doi.org/10.1787/5kg6nk654hmr-en.

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Notes

← 1. In the WTO, developing Member status is self-selected. Least Developed Countries are defined with the reference to the United Nations classification of LDCs.

← 2. As notified to the WTO up to February 2017.

← 3. As notified to the WTO up to February 2017.

← 4. This is however outside the purview of the TFA.

← 5. The provisions on penalties were not included in previous iterations of the OECD TFIs due to scarcity of related data.

← 6. This variable covers the ratification of the following International Conventions: Facilitation of International Maritime Traffic (2005); International Civil Aviation (2006); Temporary Admission of Goods (Istanbul Convention, 1990); Harmonized Commodity Description and Coding System (International HS Convention, 1986); and Simplification and Harmonisation of Customs procedures (Revised Kyoto Convention, 1999, General Annex).

← 7. Nonetheless, scoring for the “international standards compliance” variable should be interpreted with caution; ratification of a treaty does not automatically mean its full and immediate implementation, while some countries in the sample may have not ratified such conventions, but are already applying some of the provisions in practice.

← 8. The scope and ambitions of these mechanisms can vary widely. The variable on Single Windows does not investigate the scope and characteristics of the surveyed mechanisms.

← 9. The 2012 and 2015 TFI indicators (i) and (j) mirrored the coverage of WTO TFA Article 8, which does not specifythe most appropriate way of ensuring border agency co-operation. New variables added in 2017 reflect the main factors seen as critical for efficient border agency co-operation in existing international agreements or recommendations and the literature, complemented by case studies of countries with relevant experience. In so doing, they seek to measure effective interagency co‐operation based on worldwide best practice, not to assess what might be needed for country compliance with TFA provisions.