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Trade Facilitationand Maritime Transport

The Development Agenda

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Trade Facilitation and Maritime Transport: The Development Agenda

This report has been produced as a joint project between the National Board of Trade and the Swedish Maritime Administration. The report has been written by Sofia Persson and Anna Dubaric-Norling at the Swedish National Board of Trade, in co-operation with Willand Ringborg at the Swedish Maritime Administration. The report has been financed by Sida (Swedish International Development Cooperation Agency).

Layout and design: Editor Publishing AB. Photo: Alf Brodin, EU, Istockphoto and others.Printing: Luftfartsverkets tryckeri, November 2009. ISBN: 978-91-86502-04-1.

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Maritime transport is a catalyst of world trade and this has been so for thousands of years.

Throughout centuries, and now in the era of globalisation, access to overseas markets has been a key element for emerging economies to create economic growth. Trade benefits both the seller and the buyer, and applied to macroeco-nomics and international markets, the prosperity of any nation is linked to its possibilities to import necessities and export its surplus. Trade is a vehicle of growth. And maritime transport is instrumental for bridging markets.

Control of foreign trade has, also throughout history, been a strong inter-est of the State – to collect tolls, to pro-tect the country’s domestic industry, to produce trade statistics. The border-crossing has been a bureaucratic jungle for the traders.

World trade today shows that these limitations and obstacles have – at least to a substantial extent – been overcome. Globalisation has occurred. But the benefits of globalisation are not distrib-uted equally in the world. Developing countries are not enjoying the full effect of their trade potential, and this is due mainly to two reasons, logistical con-straints and cumbersome border-cross-ing procedures. As concerns procedures,

it would be a sub-optimisation to refrain from efforts in this area. It is important to analyze, discuss and remove obstacles for foreign trade – trade facilitation. This report addresses the above issue in maritime context.

We, in the Maritime Society, have a responsibility to make trade easier. We have also a responsibility to maintain the commitment from our States, and as world citizens, to contribute to the decrease of poverty and distribution of growth as formulated in the United Nations Millennium Development Goals in the Johannesburg Summit 2002. Trade facilitation is an area where the Maritime Society can contribute, espe-cially in the area of maritime transport.

This report highlights the issues of trade facilitation in the maritime con-text. This is a theme to be discussed and developed. It is my hope that this report will be a contribution.

Jan-Olof SelénDirector GeneralSwedish Maritime Administration

Foreword

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Acronyms.............................................................................................................................................................................................................................7

1 World trade and maritime transport .............................................................................................................................................. 8

2 Trade, economic growth and poverty reduction ..............................................................................................................10

3 Trade facilitation ............................................................................................................................................................................................... 12

3.1 What is trade facilitation? ............................................................................................................................................................... 12

3.2 Trade facilitation measures ........................................................................................................................................................... 14

3.3 Trade facilitation challenges for developing countries .......................................................................................... 15

3.4 Gains and benefits from trade facilitation ........................................................................................................................ 16

3.5 Examples of trade facilitation initiatives in Africa ...................................................................................................... 18

4 Rules- and standard-setting organisations on trade facilitation ................................................................20

4.1 World Trade Organization (WTO) and the negotiations on trade facilitation .....................................20

4.2 International Maritime Organization (IMO) ................................................................................................................... 23

4.3 World Customs Organization (WCO) .................................................................................................................................. 24

4.4 United Nations Centre for Electronic Business and Trade Facilitation (UN/CEFACT) ............. 26

4.5 United Nations Conference on Trade and Development (UNCTAD) ........................................................ 28

4.6. International Standardization Organization (ISO).................................................................................................. 28

5 Bottlenecks in the trade chain: Focusing on the situation in developing countries ................30

5.1 High costs for transport and transit ......................................................................................................................................30

5.2 Need of reform and modernisation of border agencies ...................................................................................... 32

5.3 Ports – a frequent and common bottleneck ................................................................................................................. 33

5.4 Rent-seeking and corruption ...................................................................................................................................................... 34

5.5 Non-transparent and cumbersome documentary requirements .............................................................. 36

6 Technical assistance and support for capacity building in the area of trade facilitation .... 38

6.1 The Aid for Trade initiative ............................................................................................................................................................. 38

6.2 Policy coherence for development ........................................................................................................................................ 39

6.2.1 Coherence and cooperation among donors on trade facilitation .................................................... 42

6.3 Strategies for delivering technical assistance and support for capacity building ....................... 43

6.3.1 Twinning – a long-term commitment ....................................................................................................................... 44

6.3.2 Public-Private partnerships in trade and transport facilitation ........................................................ 45

6.3.3 Capacity building to strengthening developing countries participation in standard- and rulesetting .................................................................................................................................................................47

7 Conclusion .............................................................................................................................................................................................................. 48

8 Sources ...................................................................................................................................................................................................................... 52

Contents

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AEO .........................................................................................................................Authorised Economic Operator

AfT ....................................................................................................................................................................... Aid for Trade

ASEAN ....................................................................................The Association of Southeast Asian Nations

ASYCUDA ........................................................................................... Automated System for Customs Data

CB ............................................................................................................................................................. Capacity Building

COMESA ....................................................... The Common Market for Eastern and Southern Africa

DDA .................................................................................................................................. Doha Development Agenda

DFID ............................................................................................Department for International Development

DTIS ............................................................................................................... Diagnostic Trade Integration Study

EAC ................................................................................................................................The East African Community

ECOWAS...................................................................The Economic Community of West African States

EDI....................................................................................................................................Electronic Data Interchange

EIF ........................................................................................................................Enhanced Integrated Framework

EU .................................................................................................................................................................European Union

FAL ........................................... IMO’s Convention on Facilitation of International Maritime Traffic

GATT ..................................................................................................General Agreement on Tariffs and Trade

GDP ................................................................................................................................. Gross Domestic Production

HIPC ...................................................................................................................... Highly Indebted Poor Countries

ICT ....................................................................................... Information and Communication Technologies

IMF ................................................................................................................................. International Monetary Fund

IMO ...............................................................................................................International Maritime Organisation

ITCP ................................................................................... Integrated Technical Co-operation Programme

LDC .................................................................................................................................... Least Developed Countries

LLDC .............................................................................................................. Land Locked Developing Countries

LSC .................................................................................................................................. Liner Shipping Connectivity

MDG ........................................................................................................................Millennium Development Goals

OCED ................................................... Organisation for Economic Co-operation and Development

ODA ...................................................................................................................... Official Development Assistance

PCS......................................................................................................................................... Port Community System

PRSP .............................................................................................................Poverty Reduction Strategy Papers

PPP ...................................................................................................................................... Public Private Partnership

SACU ..........................................................................................................The Southern Africa Customs Union

SAFE ..............................................Framework of Standards to Secure and Facilitate Global Trade

SDT ...................................................................................................................Special and Differential Treatment

TA .......................................................................................................................................................Technical Assistance

TA/CB ..........................................................Technical Assistance and support for Capacity Building

TRTA ..............................................................................................................Trade Related Technical Assistance

TURC ............................................................................................. Technical Unit for Restructuring Customs

UN ....................................................................................................................................................................United Nations

UNCTAD ...................................................... United Nations Conference on Trade and Development

UN/CEFACT ..The United National Centre for Electronic Business and Trade Facilitation

UNECE ..................................................................................................UN Economic Commission for Europe

UN/EDIFACT .......................................................................................................................................United Nations/

...............................Electronic Data Interchange For Administration, Commerce and Transport

UNDP ............................................................................................ United Nations Development Programme

WCO ...............................................................................................................................Word Customs Organization

WTO ...................................................................................................................................... World Trade Organization

Acronyms

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Globalisation increases the opportunities for international trade. Trade facilitation can be a

prerequisite to make use of these trad-ing opportunities. It is a concept direct-ed towards reducing the complexity and cost of the trade transaction proc-ess and making the procedures more efficient, transparent and predictable. Trade facilitation is hence becoming an increasingly important tool for develop-ment, allowing countries to trade goods on time with low transaction costs.

The aim of this study is to discuss how trade facilitation can reduce transac-tion costs for maritime transport and contribute to increased integration of developing countries in international trade. It will address the situation in Sub-Saharan Africa in particular.

Maritime transport is essential to the world trade. Over 80 per cent of the volume of world merchandise trade is carried by sea, and an even higher per centage of developing-country trade is carried in ships (UNCTAD, 2008a).

Before the current financial crisis, world trade had undergone a period of strong expansion. During the period from 1995 to 2007, trade grew more rap-

idly than the world GDP (Gross Domes-tic Production). w Since 1995, world trade in goods has

increased by 170 per cent in nominal terms (108 per cent in real terms).

w In 1995, trade comprised almost 22 per cent of the world economy. Twelve years later, in 2007, this figure has increased to 32 per cent (National Board of Trade, 2009c). This development has gone hand in

hand with an increase in the volumes of traded goods transported by sea (see figure 1). In 2007, international seaborne trade was estimated at 8 billion ton of goods loaded. During the past three decades the annual average growth rate of world seaborne trade is estimated as 3.1 per cent. Dry cargo (bulk, break-bulk and containerized cargo) accounted for 66.6 per cent of the good loaded. The rest is oil and petroleum transports. (UNCTAD, 2008a)

The major loading points for goods transported by sea are located in devel-oping countries and the goods are pre-dominantly transported to developed countries (see figure 2).

A breakdown of the group of devel-oping countries shows that goods are

World tradeand maritimetransport

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predominantly loaded in Asia which represents close to 40 per cent of the total goods loaded followed be Americas (14.7 per cent), Africa (10.5 per cent) and Oceania (0.1 per cent). The transport flows thus go from developing countries to developed countries. 53 per cent of the volume of world seaborne trade is unloaded in developed countries.

The environmental impact of trans-port for trade is an important issue. Transports, commercial as well as pri-vate, contributes to 14 per cent of the total global discharge of greenhouse gases. Although over 80 per cent of the global trade in goods are transported by sea, maritime transports contribute to less than 2 per cent. (National Board of Trade, 2008a)

The development in international trade and transport has been promoted by several factors. Tariffs and other bar-riers to trade have decreased through multilateral negotiations in the WTO and through regional and bilateral agreements. Many developing coun-tries, such as China and India among others, have also undertaken unilateral liberalisation of their trade policies. Larger trade volumes also results from increased in trade complexity. Compa-nies are increasingly sourcing parts from other countries and also using different geographical locations for their produc-tion.

Transport systems have also evolved to today’s container ships taking advan-tage economies of scale. The costs of maritime transport have declined over time. The WTO World Trade Report 2008 cites three main technological and institutional changes as reasons for the lowering of shipping cost. First the development of open registry shipping, scale effects from increased trade and containerization. (World Trade Report, 2008)

SOURCE: NATIONAL BOARD OF TRADE BASEDON WTO STATISTICS DATABASE (WORLD TRADE),

UNCTAD REvIEW OF MARITIME TRANSPORT 2008, 2006, 2005, 2003, 2002, 1998 AND 1997

(MARITIME TRADE) AND IMF (GDP)

Figure 2

Figure 1

SOURCE: UNCTAD REvIEW OF MARITIME TRANSPORT 2008, P. 7

63%

33%

4%

46% 53%

1%

Goods loaded Goods unloadedDeveloped countries

Transition economies

Developing countries

Developed countries

Transition economies

Developing countries

Per centage of volume of world seaborne trade in 2007, by country group.

Indices for total world trade, maritime trade and GDP (gross domestic production).

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Trade,economic growthand poverty reduction

Openness to trade is one of several important factors to achieve economic growth. Countries

that are open to trade have had faster economic growth than countries that have been more closed to trade. Greater openness to trade is clearly associated with faster economic growth, but it is not the only factor contributing to growth. Other factors such as technical innovation, a responsible economic poli-cy and education are also necessary.

Trade contribute to a positive eco-nomic development both by generat-ing incomes from exports, as well as by importing products in demand. Through trade both the exporting and importing country can take advantage of their respective resources and relative competitive advantage in a more effi-cient way, and contribute to diffusion of new knowledge through technology transfer.

Access to larger and richer markets is a key factor to enable domestic firms to generate the level of demand required to exploit economies of scale. Through specialization and economies of scale

the production cost per unit decreases as production rise. Prices are also low-ered by the competition that comes from trade. The combination of lowered pric-es and specialized products is beneficial for consumers.

The relationship between trade and poverty alleviation is more complex than the relationship between trade and growth. Trade creates conditions for economic growth, which in its turn, is a precondition for poverty allevia-tion. Developing countries are a diverse group with differing trade patterns, natural resources, factor endowments and comparative advantages. Trade has an effect on growth, employment, rev-enue, consumer prices and government spending in a country, which all, in turn, affect the poor (WTO , 2008). Which groups are poor in a society and the rea-sons for their poverty differ from coun-try to country. And, consequently, the degree to which trade benefits poverty reduction varies across countries. To do a correct analysis on the relationship between trade and poverty reduction in a country one needs to look at each

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country’s specific conditions. (National Board of Trade, 2008d)

How trade affect the poor depends on how much the trade-induced growth is concentrated in the sectors where the poor are economically active. It also depends on the relationship between economic growth, employment and income poverty in that country and on the ability of the poor to take advan-tage of the opportunities created by trade. (OECD, 2008) The distribution of income and wealth, and the policies for distributions of resources, will also have an impact on the development of poverty.

In general, there are direct and indirect affects of trade. Increased trade, as an effect of liberalisations or reduction of trade barriers, directly affects the prices in a market. How the poor are affected by these price changes in a specific sector depends if they are net producers or net consumers. Fishermen in a closed market might be negatively affected by increased imports of fish and a lowering of prices, whereas the consumers in the same market will benefits from lower prices. How price changes impact the poor also depends on the costs for distribution, the way markets are structured and domestic taxes and regulations. Increased trade also have a direct affect on employment and salaries. Increased trade both creates and destroys opportunities for employ-ment and how this affects the poor is country specific depending on in which sector the poor are active. (National Board of Trade, 2008d)

Economic growth and increased productivity are two indirect effects of trade that are both necessary for poverty reduction. However, in the short term, increased productivity could be negative for some groups, as the same produc-tion results could be achieved with less resources leading to unemployment and

poverty. Increased openness to trade can lead to increased inequality in income levels. Nevertheless, economic research shows that the inequality would have to be extreme for trade not to result in reduction of poverty in absolute terms. (National Board of Trade, 2008d)

In its World Trade Report 2008, the WTO concludes that, although some poor households can be affected nega-tively, overall the economic literature indicates that trade contributes to pov-erty alleviation.

Over many years governments in most economies have increasingly opened their economies to international trade. These openings have come through the multilateral trading system in the WTO, increased regional cooperation or as a part of domestic reform programmes. International trade is an integral part of the process of globalisation. How-ever, not all developing countries have managed to take advantage of the trade opportunities that come from globalisa-tion. The economic performance for developing economies in Africa remains below that recorded by developing countries as a whole (UNCTAD, 2006). Africa’s share in the total world export was 3.1 per cent in 2007 and this share has been decreasing since the 1950s. (National Board of Trade, 2009a)

High trade cost and supply-side con-straints may be one explanation as to why countries in Africa are not able to take advantage of trading opportu-nities. One measure to address these constraints is to invest in physical infra-structure that is essential to carry out production and trade, so as to allow traders easier access to international markets. An equally important measure relates to regulatory reform to cut red tape and reduced cumbersome border procedures. Trade facilitation is a con-cept aiming at precisely that.

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Tradefacilitation

1) The UN Convention called ”Rotterdam rules” is one exam-ple of international rules that will facilitate international maritime trade by making its underlying contract and docu-mentation more efficient and clearer. The Rotterdam Rules govern the carriage of goods by sea and connecting or previous transports by land (www. rotterdamrules 2009.com)

2) OECD, Policy Brief “Trade Facilitation: The Benefits of simpler, more transparent Bor-der Procedures”, Aug. 2003

This section introduces the concept of trade facilitation, discusses gains and benefits and how to

achieve trade facilitation. It also looks at the challenges that developing countries have in their participation in interna-tional trade.

3.1 What is trade facilitation?Trade facilitation relates to a wide range of areas and activities such as govern-ment regulations and controls, business efficiency, transportation, informa-tion and communication technologies as well as payment systems. Customs play a central role in the trade chain but in order to achieve trade facilita-tion all agencies at the borders must be involved. It is a concept directed towards reducing the complexity and cost of the trade transaction process and

ensuring that all these activities take place in an efficient, transparent and predictable manner.

The United National Centre for Elec-tronic Business and Trade Facilitation (UN/CEFACT) defines trade facilitation as:

“The simplification, standardisation and harmonisation of procedures and associated information flows required to move goods from seller to buyer and to make payment”.

This is a broad definition that encom-passes the whole trade transaction proc-ess; from the placement of an order to the delivery of the goods and the payment. This is a process that can be divided into three stages; buy, ship and pay. In each of these stages there are a number of actors – both public and pri-vate – involved (see figure 3).

Using the UN/CEFACT definition, trade facilitation is not: w Trade promotion is proactive measures by a company, industrial branch or even a country advertising its own sales, national or international.

w Trade negotiations: Trade negoti-ations normally refer to the dialogue between seller and buyer of a parti-cular commodity or service, or bet-ween countries, in order to improve trade and sales between them.

w Trade promotion and negotiations both concern commercial actors in a particular commercial context or transaction.

Trade facilitation is not…

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Between the actors involved in the chain there is a flow of goods and a flow of information/data. Through trade facilitation the flow of goods can be improved through facilitation of the procedures and information flows. This reduces the time and money spent in international trade. There are also requirements related to the different modes of transport used for interna-tional trade1). These procedures and information requirements are not a part of trade facilitation as defined by the UN/CEFACT.

Efforts to achieve trade facilitation in a country are strengthened by alliances and partnerships with international and local stakeholders in both the public and the private sectors2). An ordinary trade transaction involves a large number of actors, both public and private. To facili-tate the trading environment it is impor-tant to involve all these actors. The key elements are broad cooperation and dia-logue between:w The Government (e.g. ministries of

trade, transport, and finance, including customs, and related institutions), in designing and implementing national laws and regulations regarding trade and transport

w The Trading Community (importers and exporters) who can benefit from such solutions in their international trade transactions and service pro-viders (transport operators, banks, insurance companies, etc.) by offering market-oriented trade and transport solutions, and lowering the transac-tion costs of the flow of goods and money. In addition to a close cooperation

between the public and the private sec-tor, there need to be a clear political will and commitment in order to ensure that reforms are undertaken and sus-tained.

SOURCE: UN/CEFACT INTERNATIONAL SUPPLy CHAIN REFERENCE MODEL

w Importerw Exporterw Import Country

Authoritiesw Export Country

Authoritiesw Insurance

Companyw Chamber of

Commercew Export/Import

Agentw Licensing

Agencyw Credit Checking

Companyw Other Interme-

diaries

w Transporter (Air-, Rail-, Road- and Sea related)

w Inspection Company (PSI)

w Other Interme-diaries

w Customs (Im-port-, Export- and Transit Country)

w Health Authorities

w Port Manage-ment

w Agriculture Authorities

w Custom Brokers

w Other Interme-diaries

w Banksw Financial

Institutionsw Other Interme-

diaries

Figure 3The international trade chain.

Figure 4Figure 4Trade facilitation principles.

SOURCE: NATIONAL BOARD OF TRADE

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Trade facilitation

3.2 Trade facilitation measures

Using the UN/CEFACT definition, we can identify three trade facilitation principles, adding transparency as a fourth. Transparency means that coun-tries should ensure that all information, requirements and processes for cross-ing borders are clear specific and easily accessible for all involved. Simplifica-tion of administrative and commercial formalities, procedures and documents cuts red tape for companies and contrib-utes to a less bureaucratic trade process. To achieve trade facilitation countries should take advantage of the international standards on data, documents and proce-dures, including those on the use of ICT to exchange information efficiently, that exists on trade facilitation. The purpose of having international standards and recommendations is to ensure that the procedures of international trade work in the same general direction, with compat-ible tools and globally accepted measures. Harmonisation of applicable laws and regulations, for instance within a customs union, is another step towards trade facil-itation through regional integration.

There is a number of concrete trade facilitation reforms that countries can undertake to increase efficiency, trans-parency and predictability, such as:w The reduction, simplification and stand-

ardization of data and documentation required by customs and other agencies

w The creation of an environment that allows for systematic dialogue between government and the business commu-nity

w The coordination and cooperation between customs and other control agencies, with the view to achieve a “single window”

w The harmonization of regulations of border agencies

w The use of “aligned documents”, in

particular the United Nations layout Key for Trade Documents

w Establishing “Trade Enquiry Points” where all trade related information is available

w Adjusting the opening hours of border crossings to commercial needs and flexibility to work outside usual busi-ness hours

w Publicising laws, procedures and other rules affecting import, export and transit, in an easily manner within an agreed timeframe

w Information and communication tech-nologies (ICT) are important tools for promoting trade facilitation by enhancing transparency, ensuring con-sistency and supporting simplification

w Use of risk management and author-ised trader schemes (AEO) by customs and other agencies at the border

w Establishment of transit corridors which is a route between two or more countries that have agreed to apply facilitated procedures.Any approach to implementing trade

facilitation measures should take into account the specific circumstances, needs and capacities of individual coun-tries. There is no universal one-size fits all approach, each country must adopt a strategy suitable for its specific context.

It is, however, important that trade facilitation reforms are based on globally accepted standards, rules and methods. The international community has at its disposal a large number of standards and recommendations on trade facilita-tion issues that reflect best practices. Using international standards and rec-ommendation benefits governments as they can draw upon existing solutions when implement trade facilitation meas-ures. For operators trading in various countries, business is greatly simplified if trade procedures and documents in these countries are based on common

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SOURCE: WORLD BANk DOING BUSINESS 2009

standards, and to the greatest extent possible, harmonised. This is particu-larly true when it comes to electronic exchange of data and documents.

3.3 Trade facilitation challenges for developing countries

Developing countries is not a homog-enous group. There are, however, some challenging conditions common to developing countries, to more or less extent, which are relevant when dis-cussing trade facilitation and the case of developing countries. Many countries have poor infrastructure, such as roads, railways, electricity and also infrastruc-ture for information and communication technology. Transport costs are high and for some countries this is further aggra-vated by geographical constraints. Prob-lems related to good governance leads to less efficient government institutions. Often these institutions lack the means to assess and ensure compliance of reforms and have difficulties of meeting requirements of international standards. Often there is also inadequate coordina-tion between governmental agencies. Corruption is another factor that can hold back development and add extra cost to trade. An environment that is conducive for cooperation between the public and the private sector is another factor that often is lacking. All of these conditions contribute to a situation in which exporters and importers in devel-oping countries are at a disadvantage in international trade. Lack of funds and competing development demands are a part of the explanation why countries have not been able to come to terms with these issues. (National Board of Trade, 2003) However, it should be not-ed that not all of these challenges can be addressed through trade facilitation.

Statistics presented in UNCTAD

Transport Newsletter shows a correla-tion between trade facilitation indica-tors and income levels (see figure 5). The number of documents and signa-tures needed for a trade transaction are much higher in poor countries than in the rest of the world. This clearly put traders from these countries at a disad-vantage in an international perspective.

SOURCE: UNCTAD TRANSPORT NEWSLETTER NO. 30, FOURTH QUARTER 2005

Figure 5

Figure 6

Correlation between trade facilitation indicators and income levels. Countries grouped in according to income levels.

Average time to import and export per regional group.

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An OECD survey of studies show that transaction costs due to delays in trade caused by cumbersome border proce-dures, have been estimated at some 1–15 per cent of the value of world trade. There are large differences between countries. The higher numbers are often true for developing countries that have not undertaken trade facilitation reforms and therefore still have rela-tively more cumbersome and inefficient procedure for trade. (OECD, 2009)

Time spent for import and export is a cost to trade. A World Bank study shows that for each day that a shipment of goods is delayed due to import or export procedures, trade decreases with at least one per cent (Djankov, Freund & Pahm, 2006). Another economist, Hummel, finds that each day goods are in traffic is equivalent to a 0.8 per cent tariff (Hum-mel, 2001). Figure 6 shows the times it takes to import and export in different regions using the World Bank index Doing Business.

The World Bank index clearly shows that developing countries have longer times for export and import, with Sub-Saharan Africa as the region in which the process to export and import take the longest time3). However, within each region the variation between the most and the least efficient country is often quite large. In Chad it takes on average 78 days to export and 102 days to import. The most efficient country in the Sub-Saharan group for imports is Mauritius with 16 days and for export Senegal with 14 days on average.

The World Bank notes that only about one quarter of the delay is due to poor road and port infrastructure, whereas 75 per cent of the delays are due to administrative hurdles such as customs procedures, tax procedures, clearances and cargo inspections. This means that three quarters of the delays could be

addressed through trade facilitation efforts. (Djankov, Freund & Pahm, 2006)

Traders from landlocked countries face even bigger hurdles in export and import. In order to get their goods to and from a port traders have to pass one or several border and comply with dif-ferent requirements at each border.

Using Hummel’s (2001) estimate that one day in transit equals a tariff of 0.8 per cent, we note that the export time delays in Sub-Saharan countries equals a tariff of 27.7 per cent, in addition to the existing tariffs they face in their export markets. For South Asian export the corresponding number would be 26.4 per cent and 8.6 per cent for OECD countries. Having long time for import and export is clearly a disadvantage for countries in their international trade.

An OECD study used a gravity model to see how trade flows would be affected by a change in the number of days at borders when importing (“estimated elasticity).” It studied how the customs and administrative procedures of the importing country affect third country exports. The study found that a 10 per cent reduction on the importer’s time at the border increase trade by 6.3 per cent (OECD, 2009).

3.4 Gains and benefits from trade facilitation

There are great potential gains to be had from trade facilitation, especially for developing countries. Today time and money are wasted because of cumber-some trade procedures that create an additional cost on trade that hamper business and hold back economic devel-opment. Unnecessary and excessive data and documentation requirements, lack of transparency in customs, excessive clearance times, lack of coordination, and the absence of modern techniques, are just a few of the problems contrib-

3) The average time to export composed of four stages: pre-shipment activities; inland car-riage and handling; terminal (port) handling, as well as cus-toms and technical control.

Trade facilitation

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uting to this. Sub-Saharan countries face comparatively longer timeframes to import and export and have higher transport costs as well as a relatively higher number of documentation required. (UNCTAD, 2009)

The development dimension of trade facilitation is central. The previous sec-tion showed that developing countries often have cumbersome trade proce-dures. Many developing countries are in need of a good trading environment for their SME’s and an efficient collec-tion of customs revenue. In the effort of tackling these issues, trade facilitation emerges as a fundamental tool. (National Board of Trade, 2003)

Trade facilitation benefits all stake-holders involved – the business commu-nity as well as the government. It aims to ensure that trade can flow with mini-mum impediments and more efficient government control methods.

The business community gains from trade facilitation through faster deliv-ery and reduced transaction costs. It is important for traders that the applica-tion of rules is predictable. This will allow them to know what to expect in their everyday contacts with customs and other authorities. Simple and effi-cient trade procedures lift the burden of bureaucracy for companies and they can instead focus on their core activity. This is particularly important for small and medium sized enterprises (SME’s) that face proportionally higher costs for complying with cumbersome proce-dures than larger companies. In a trans-parent trade regime, market participants have a clear view of the rules applied on the respective markets. Their produc-tion can thus be based on an accurate assessment of potential costs, risks and market opportunities. Transparency is also essential for attracting foreign direct investments (FDI). A country

with a transparent trading regime and efficient procedures is more likely to attract foreign investments and increase its international trade. Many develop-ing countries are highly dependent on FDI. A study made by Dollar et al (2004) with data from over 7,000 companies in developing countries concluded that customs clearance time is a key determi-nant when companies decide to invest in developing countries (OECD, 2009).

The government will also gain from having a transparent trading regime in which the rules and the procedures are

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clearly communicated. In this kind of trading regime there will be less risk for corruption and discretionary decision by individual officials. Corruption is increasingly recognised as an important problem that hampers trade and growth. If national government administrations are able to utilise modern procedures to enhance control and ensure proper col-lection of revenue they can at the same time contribute to the economic devel-opment through increased trade. Jamai-ca introduced a customs reform pro-gramme including, among other things the implementation of a single point clearance mechanism, the introduction of risk assessment and the publication of a customs manual of procedures and later on customs automation service. As a result customs revenue increased by 110 per cent between 1998 and 2001 (OECD, 2009).

Benefits from improved trade facilita-tion focusing on the situation in devel-oping countries, include:w Reduced trade and transport costw Fewer documents required for export

and import w Encouragement of foreign direct

investmentw Less opportunity for rent seeking and

corruption w Accelerated economic developmentw Faster customs clearance and release

through predictable official interven-tion

w Simpler commercial framework for doing both domestic, regional and international trade.

3.5 Examples of trade facilitation initiatives in Africa

Customs is one of the core agencies in the trade chain and trade facilitation initiatives in customs therefore have a potential for large impact. As a result

of a customs modernization project in Mozambique, the customs revenue increased 38.4 per cent. The background for the project was that the government in Mozambique had decided to reform and modernize its customs service with the ambition to increase revenue collec-tion, combat corruption and smuggling and at the same time better facilitate the movement of goods. A Technical Unit for Restructuring Customs (TURC) was established to initiate and oversee the reform. A UK based company was contacted to manage the reform and the funding came from the Department for International Development (DFID), the IMF, the World Bank, the UNDP and the Mozambique government. The project was well integrated in Mozambique’s more general Poverty reduction strat-egy reform and coordinated between the government and the donors. An evaluation of the project found that the revenue collection increased, goods clearance time were reduced radically and the number of staff was increased. (OECD; 2006)

The importance of Information and Communication Technology (ICT) for trade facilitation has also been high-lighted in this section. TradeNet in Gha-na is one interesting example of a project that has lead to many positive effects. The purpose of TradeNet was to make trading procedures easier by using ICT and connect all agencies at the border to one system. Before the reform, trade operators had to criss-cross between agencies in the harbour to process the necessary documents, a time consuming and inefficient procedure. This situation also created opportunities for ”facilita-tion money” to speed up transactions, to be permitted to jump the line, or to adjust a customs declaration to suit the particular objectives of those involved. One of the lessons learned was the

Trade facilitation

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importance of high level commitment. In the beginning of the project elections made the political commitment low, this changed when new leaders came to power and was important for the project to continue. Another important lesson learned was that even though an agency has been working with an area for some time, the help from outside technical assistance can help to speed up process-es that had already been started. (World Bank, 2006b)

There is a strong case to be made for trade facilitation with a regional perspective. Even if globalisation has increased the international trade, most trade is still regional. It therefore makes sense to facilitate trade within a region. COMESA (Common Market for Eastern and Southern Africa) currently com-prises 19 member countries with a popu-lation of over 400 million. One of the main objections is to create a free trade area guaranteeing the free movement of COMESA’s products and services and the elimination of all tariffs, quotas and non-tariff trade barriers. In order to reduce the cumbersome, time-consum-ing and costly procedures that the busi-ness community faces in the conduct of international trade, COMESA has adopted and is implementing a number of measures on the simplification and harmonisation of trade documents and customs procedures. In some mem-ber States, a single goods declaration document has replaced as many as 32 documents. Hence, it is no longer neces-sary for freight forwarders, importers, exporters and other users to complete different documents for specific customs transactions. Another example of a trade facilitation initiative in COMESA is the Chirundu One Stop Border Post (OSBP), which aims to increase simplification and harmonisation of joint border con-trols between Zambia and Zimbabwe.

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The purpose of having internation-al standards and instruments on trade facilitation is to ensure that

the procedures of international trade work towards the same general direc-tion, with compatible tools and globally accepted measures.

A number of international organisa-tions have developed international standards and recommendation on trade facilitation. Naturally all these organisa-tions have focused on the parts of the trade chain that fall into their specific mandate. Taken together their recom-mendations provide a broad framework of trade facilitation measures for coun-tries that wishes to take part of interna-tional best practices.

The WTO negotiations have brought new attention to the issue of trade facili-tation and present a unique opportunity to create global rules for international trade. But trade facilitation is not a new issue on the international agenda. Organizations such as the IMO, WCO and the UN/CEFACT have all been active in elaborating standards and rec-ommendation to harmonise and facili-tation trade since the 1960s. The back-ground for their work was the realisation

that a situation in which each country had their own documents, data to be submitted, procedural requirements etc was becoming unmanageable and a bar-rier to trade and growth. In today’s glo-balised world with increasing number of trade transactions, higher demands on fast and efficient delivery and more countries participating in international trade, the role of these organisations is more important than ever.

4.1 World Trade Organization (WTO) and the negotia-tions on trade facilitation

The WTO is a forum for trade negotia-tions, rule setting and resolution of trade disputes with 153 member countries. It was established in 1995 and succeeded the GATT (General Agreement on Tar-iffs and Trade).

The Doha Development Agenda (DDA) started in 2001 and is the 9th round of the WTO trade negotiations that seeks to further liberalise trade and review trade rules. Issues under negotia-tion include, for example liberalisation of trade in agricultural and industrial goods, liberalisation of services and trade facilitation. The WTO member

Rules- and standard-setting organisationson trade facilitation

4

21

4) Annex D Modalities for Negotiations on Trade Facilita-tion is atn annex to the WTO General Council’s decision on the Doha Agenda work pro-gram (called “July package”) from 2004.

countries have had difficulties agreeing in the negotiations, which has resulted in a dragged on process.

Trade facilitation became a part of the negotiation in 2004 after a decision by the WTO General Council. The scope of the trade facilitation negotiations concerns rules, formalities, procedures, documents and fees needed for import, export and transit. The objective is to achieve simple and modern trade rules that benefit both government and trad-ers. Trade facilitation is not a new issue in the WTO and the negotiations aim at clarifying and improving three existing GATT Article on: w Freedom of Transit (GATT Articles V) w Fees and Formalities connected with

Importation and Exportation (GATT Article VIII)

w Publication and Administration of Trade Regulations (GATT Article X).The negotiations should also find

provisions for effective cooperation between customs trade facilitation and customs issues.

The objective of the ongoing WTO negotiation is to improve and adapt the WTO rules on trade facilitation to suit today’s trading system. In proposals in the negotiations, countries make refer-ence to existing standards and instru-ments on trade facilitation. The WTO rules on trade facilitation would, con-trary to other international organisations recommendations, lead to binding rules.

It is recognised that in order to fully reap the benefits from trade facilitation a basic infrastructure supporting trade such as road and rail infrastructure, port facilities, telecommunications facilities, etc, have to be in place. However, these aspects are not covered by the negotia-tions.

The text in the mandate, called Annex D4), on special and differential treatment (SDT) for developing coun-

tries and technical assistance for imple-mentation is considered a novelty in the WTO (Kleen, 2008). The mandate states that “the extent and the timing of enter-ing into commitments shall be related to the implementation capacities of devel-oping and least developed members”. Members, in particular developed coun-tries, should commit to deliver support and assistance to allow implementation. It is stated that “in cases where required support and assistance for such infra-structure is not forthcoming, and where a developing or least-developed Member continues to lack the necessary capacity, implementation will not be required”. (WTO, 2004)

When writing this in the autumn of 2009, the negotiating group was still discussing how to address the issues of special and differential treatment (SDT) for developing countries and techni-cal assistance and support for capacity building (TA/CB) in a future Agreement on Trade facilitation. In the negotiating group, a consensus seems to be emerg-ing that developing and least developed countries should carry out the imple-mentation in accordance with an indi-vidual implementation schedule that the country has identified and notified to the WTO.

It has been suggested that the coun-tries in their schedules should divide the provisions/ measures to implement into different categories:w Those provision or part of provisions

that are to be implemented immedi-ately after the Agreement’s entry into force

w Those that are to be implemented after the expiry of a transitions period [to be identified in the schedule]

w Those that are to be implemented sub-ject to the provision of adequate and sufficient technical assistance and sup-port for capacity building

Issues discussed in the WTO trade facilitation ne-gotiationsw Publication and availability

of informationw Time periods between

publication and implemen-tation

w Consultation and com-menting on new and amended rules

w Advance rulingsw Appeals proceduresw Other measures to en-

hance impartiality and non-discrimination

w Fees and charges connec-ted with importation and exportation

w Formalities connected with importation and exporta-tion

w Consularisationw Border agency coopera-

tionw Release and clearance of

goodsw Tariff classificationw Matters related to goods

in transitw Customs cooperation

in order to facilitate trade

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However, a number of outstanding issues remain to be decided by the nego-tiating group.

Reducing the transaction costs through trade facilitation reform has the potential to yield large benefits to devel-oping countries. A study by the Swedish National Board of Trade analysed the potential effects of the Doha Round on national revenues and trade. It looked at the four main negotiating areas - liberal-isation of agriculture; market access for industrial goods, liberalisation of serv-ices and trade facilitation – and found the negotiations on trade facilitation to have the greatest potential to benefit developing countries. (National Board of Trade, 2006)

Implementing trade facilitation measures mainly bring benefits to the implementing country itself, but they

also help the country´s trade partners (National Board of Trade, 2006). Thus, rather than being a zero-sum game, the negotiations can benefit all countries involved by reducing transaction costs for international trade.

There are four organisations that are participating in the negotiations as observers, the WCO, the World Bank, the IMF and UNCTAD,

Within the framework of the negotia-tions the WTO secretariat has, together with the observer organisations and other donors, assisted developing coun-tries with national self-assessment workshops. The aim is to identify which of the proposals in the negotiations that country comply with, and also to set up a list of priorities for future implemen-tation and identify needs for technical assistance. The working mode of the

rules- and standardsetting organisations on trade facilitation

23

5) http://www.imo.org

workshop is to bring together all stake-holders involved in trade facilitation in the country. The result of the workshop could be used by countries to develop their capacity building plans.

If the negotiations are terminated and the member countries agree on a WTO Agreement on Trade facilitation, implementation of the agreement will be the next phase. Donor countries and organisations have made commitments to contribute to the implementation of the Agreement in developing and least-developed countries through techni-cal assistance and support for capacity building. Many international organisa-tions have expertise that will be needed in the implementation phase.

4.2 International Maritime Organization (IMO)

Maritime transport is a highly inter-nationalised area were coordination, standardisation and regulation has come far. The International Maritime Organi-zation (IMO) is an institution within the UN, where member states negotiate regulations and standards regarding maritime transport. IMO started in 1959 with the main focus on safety issues but over time this has changed into the IMO covering a broader scope.

The IMO’s Convention on Facilitation of International Maritime Traffic (FAL) was adopted in 1965. The background to the convention was that the vari-ous national regulations and document requirements in international maritime trade had grown so much that it became not only burdensome, but a threat to the whole sector. Hence the need for an international standard on maritime transport was recognised.

The objective of the convention is to prevent unnecessary delays in mari-time traffic, to aid cooperation between governments and to secure the high-

est practicable degree of uniformity in formalities and other procedures. The Convention contains “Standards” and “Recommended Practices” on formali-ties, documentary requirements and procedures which should be applied on arrival, stay and departure to the ship itself, and to its crew, passengers, bag-gage and cargo. Seven documents stand-ards have been developed by FAL (see box to the right).

The IMO FAL committee oversees issues relating to the implementation of the FAL convention. The FAL con-vention has been amended a number of times. The list over the last amend-ments made in 2005 gives an indication of the issues prioritised to achieve trade facilitation such as the use of pre-arrival and pre-departure information, the use of a single point to avoid duplication of information, and electronic submission of information5).

There is also ongoing work in the IMO to develop guidelines for setting up a Single Window system in maritime transport. These guidelines would com-plement the recommendations devel-oped by in UN/CEFACT on setting up a Single Window. In the maritime context, the Single Window could be used for

“IMO is not only working with partners to address environmental and security concerns – it is also supporting sustainable development, in-cluding efforts to reach the Millennium Development Goals, our set of targets for addressing a range of social ills by the year 2015. Trade is critical to poverty eradication. Even in today’s high-tech world, where we send information electronically in seconds, shipping remains one of the world’s most international industries, serving more than 90 per cent of global trade. It provides an important source of income and employment for many poor States. IMO is assisting developing countries in building safe, secure and efficient shipping services while protecting their waters and coasts. Helping developing countries to boost their shipping, while preserving the environment, contributes to the prosperity of humanity as a whole. Here again we see how IMO is central to our broader United Na-tions mission to achieve peace and progress.”

(UN Secretary-General Ban ki-Moon at the IMO 100th Council session,June 2008)

uN Secretary-general Ban Ki-Moon

Document standards from the Convention on Faci-litation of International Maritime Traffic (FAL):w General Declaration (FAL

Form 1)w Cargo Declaration (FAL

Form 2)w Ship’s Stores Declaration

(FAL Form 3)w Crew’s Effects Declaration

(FAL Form 4) w Crew List (FAL Form 5)w Passenger List (FAL Form

6)w Dangerous Goods Manifest

(FAL Form 7)The forms of these docu-

ments are set out in the An-nex to the convention.

Documentstandards

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pre-arrival information and to allow all the information required by government authorities to be provided by a visiting ship through one point of entry. (IMO, 2009a)

Many developing countries cannot yet give full and complete effect to IMO’s instruments. For this reason the IMO has established an Integrated Technical Co-operation Programme (ITCP), with the purpose of assisting countries in building up their human and institution-al capacities to enable them to comply with the IMO’s regulatory framework.

In the UN Secretary-General’s state-ment at the IMO’s 100th Council ses-sion, he underscored the importance of maritime transport for trade, and how IMO contributes to the efforts to reach the Millennium Development Goals.

IMO has established a linkage between the ITCP and the Millennium Development Goals (MDG). It is stated in the programme that the IMO should give priority to those activities which not only promote early ratification and effective implementation of IMO instruments, but also contribute to the attainment of the MDGs. Special con-sideration should be given to the needs of least developed countries and the small developing states, and the particu-lar maritime transport needs in Africa. (IMO, 2009b)

IMO has identified that the work of the organisation has a major and direct impact on at least five of the Millen-nium Development Goals. In the context of trade and development, it is MDG 1, Eradicate extreme poverty and hunger, and MDG 8, Develop a global partner-ship for development, that are most rel-evant. In relation to reduction of poverty (MDG 1), the IMO notes that transport and logistics costs are among the most critical problems facing developing countries. Increased maritime capacity

and effective maritime transport tends to increase shipping capacity and trade volumes, which is an enabling factor for reduced poverty through higher growth and increased earnings for seafarers, the port sector and other trade-related sec-tors of a society. The IMO also notes that an effective port sector is a key factor to increase maritime capacity. Reduction of delay costs from administrative proc-esses and customs procedures is another enabling factor that could contribute to reduced poverty by increasing trade and growth. Most intercontinental trade is transported by liner shipping. Access to regular and frequent shipping services is an important trade enabler and a deter-mining factor of nations’ competitive-ness6). (IMO, 2007)

The eighth MDG recognises that although individual countries are responsible for the realisation of the MDGs in their own country, outside assistance will often be needed from the UN, developed countries and other international organisation. Cooperation is needed to provide this assistance in the most effective way. It is noted that through its capacity as the UN regula-tory agency of the maritime sector, the IMO should take the lead in putting into place a global partnership for develop-ment in maritime transport through institutional capacity-building, advo-cacy of global rules and improvement of standards and maritime capacity in developing countries. (IMO, 2007)

4.3 World Customs Organization (WCO)

The World Customs Organization (WCO) is an intergovernmental organi-sation with the mission to improve the effectiveness of customs administration by, among other things, creating inter-national instruments for the harmonisa-tion of customs systems and by effective

6) Liner Shipping Connectivity (LSC) is an index developed by UNCTAD to compare access to liner shipping between coun-tries.


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communication between its member states. The WCO today has 176 mem-bers.

To fulfil its mission of improving the effectiveness and the efficiency of its members, customs administrations across the world, WCO develops and administers various international instru-ments, tools and standards for the har-monisation and uniform application of simplified and effective customs systems and procedures governing the cross-bor-der movement of commodities, people and means of transport.

The International Convention on the Simplification and Harmonisation of Customs procedures (Kyoto Conven-tion) entered into force in 1974 but was revised and updated in 1999. The revised Kyoto Convention is one of the major

international instruments developed by the WCO. The Convention is recognised as an international standard, and is used as a benchmark for global customs com-munity. The convention contains mod-ern and efficient customs formalities and procedures, harmonised customs documents for use in international trade and transport and provides for the use of risk management techniques and the optimal use of information technology by customs administrations.

In 2005 the WCO Council adopted the Framework of Standards to Secure and Facilitate Global Trade (SAFE). The SAFE framework is one of the most ambitious initiatives for security in the supply chain and it has a potential to affect almost all world trade if all WCO members implement it. Moreover, the

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framework also applies to all modes of transport. SAFE is a tool that aims to protect the international supply chain from threats posed by international terrorism, organised crime and other customs offences, while providing a platform to facilitate the movement of legitimate goods traded internationally.

One of the core features of SAFE is the concept of Authorised Economic Opera-tor (AEO). The leading idea behind these systems is that customs should focus their resources and attentions to the goods that are unknown, leav-ing well known compliant companies to go about their business. This also gives the advantage of trusted AEO’s goods quickly moving again through the supply chain, should an incident occur that forces a stop. The concept of authorised operators is not confined to customs but can be applied by other authorities involved in border controls. A large number of WCO countries have committed to implementing an AEO-programme. One of the main challenges in respect of the implementation of SAFE is the mutual recognition of AEOs that are certified by different customs administrations. In the absence of a sys-tem for mutual recognition trade from some countries, in particular develop-ing countries, may find themselves at a serious competitive disadvantage (UNCTAD, 2008a).

When SAFE was adopted the ques-tion arose whether all WCO member states would be able to implement the framework in its entirety. The WCO members recognised that there exist a clear risk that countries which lack capacity, in the form of both infrastruc-ture and administrative capacity, would not be able to fulfil SAFE’s require-ments in respect to security measures. Consequently the participation of poor countries in international trade could be

made difficult. Since 2006, the WCO has initiated a number of capacity building programmes and activities. The most comprehensive is the WCO Columbus Programme. It is aimed at customs mod-ernisation and implementation of the SAFE and the Revised Kyoto Convention as well as other trade facilitation stand-ards and best practices.

The WCO is also working with the regional introduction of SAFE. For example, the East African Community (EAC), the Southern Africa Customs Union (SACU), the Economic Commu-nity of West African States (ECOWAS) and the Association of Southeast Asian Nations (ASEAN) shall cooperate to har-monise the introduction of SAFE.

4.4 United Nations Centre for Electronic Business and Trade Facilitation (UN/CEFACT)

UN/CEFACT is the UN Centre for Trade Facilitation and Electronic Busi-ness. Its principal focus is on facilitating national and international transactions through the simplification and harmoni-sation of processes, procedures and the flow of information. UN/CEFACT works in a practical way with the development of tools and recommendations through a number of different working groups. It is located in the UN Economic Commis-sion for Europe (UNECE), which is part of the United Nations network of region-al commissions. The UN/CEFACT working groups consist of participants from inter-governmental organisations, individual countries’ authorities and also from the business community.

UN/CEFACT has developed a series of trade facilitation and e-business standards, recommendations and tools for international trade. These tools are available for countries or businesses to implement and they reflect best


27

practices in trade procedures and data and documentary requirements. The UN Layout Key and UN/EDIFACT are two important standards for paper documents and electronic documents respectively. The UN Layout Key is an international model for documents used in international trade. Various interna-tional organisations in banking, freight forwarding and organisation respon-sible for transport by air, sea and road have aligned their paper documents to the UN Layout Key. UN/EDIFACT is an international standard for electronic data interchange (EDI). UN/EDIFACT is a set of internationally agreed stand-ards, directories and guidelines for electronic interchange of structured data. UN/CEFACT is currently working on a new generation of electronic mes-

sages in XML7).There are currently 35 UN/CEFACT trade facilitation recom-mendations. The recommendations are reviewed and updated on an ongoing basis. Some have as their purpose to reduce the complexity of existing proce-dures, while others strive to harmonise transaction data or the methods used for data transmission.

UN/CEFACT has done extensive work on Single Window solutions by elaborating a recommendation on how to establish a Single Window8): In its recommendations, UN/CEFACT notes that coordination among agencies at the border can include a range of meas-ures: from exchange of information to the establishment of a Single Window which provides access to all agencies through a single entry point.

7) XML is a set of rules for encoding documents electroni-cally.

8) Recommendation No. 33, No. 34 and No. 35.

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4.5 United Nations Conference on Trade and Development (UNCTAD)

The United Nations Conference on Trade and Development (UNCTAD) was established in 1964. The objective of UNCTA’s work is to maximise the trade, investment and development opportuni-ties of developing countries and to assist developing countries facing challenges arising from globalisation.

The organisation has three key func-tions; firstly to function as a forum for discussions between experts, secondly to undertake research, policy analysis and data collection on various subject matters, and, finally, to provide technical assistance to developing countries. When appropriate, UNCTAD cooperates with other organisations and donor countries in the delivery of technical assistance.

Since 1968, UNCTAD has published a yearly review of the development of maritime transport. The publication monitors developments affecting world seaborne trade and is an important source of information. UNCTAD also publishes two series of policy analysis: Economic development in Africa report and Least-developed countries report.

UNCTAD has also developed a customs management system – ASYCUDA. It was developed by UNCTAD at the request of the Economic Community of Western African States (ECOWAS) to assist in the compilation of foreign trade statistics in their member states. It has developed into a customs management system which covers most foreign trade proce-dures. The system handles manifests and customs declarations, transit, suspense procedures and accounting procedures. It generates trade data that can be used for statistical economic analysis. To date over 80 countries have installed ASYCUDA, or are in process of doing so.

UNCTAD and WTO have been joining

forces to ensure a better functioning of the multilateral trading system. In April 2003, the organisations signed a Memo-randum of Understanding providing for cooperation and consultations on their technical assistance activities and for the conduct of joint studies on selected issues. UNCTAD and WTO interact frequently, and the intergovernmental processes in both organisations are often attended by the same Government rep-resentatives.

4.6 The International Organization for Standardization

The ISO (International Organization for Standardization) develops and publishes international standards. National stand-ardisation institutes are linked to ISO through agreements and only one organ-isation in each member state is permit-ted to be a member. ISO’s work prima-rily concerns technical areas, but quality assurance and environmental work have been added to ISO’s work. ISO produces standards through the work of its tech-nical committees. A standard is adopted if at least 75 per cent of the member organisations adopt it.

ISO has a wide range of standards related to port management, transport and trade documents. Some of UN/CEFACT standards have become ISO standards such as the UN Layout Key for Trade Documents (ISO 6422), UN/EDI-FACT (ISO 9735) and Location of codes in trade documents (ISO 8440).

In 2005, the ISO adopted ISO/PAS 28000, “Specification for security man-agement for the supply chain”, which is a standard to enhance security in the supply chain. The idea behind the standard is to create a secure management of the supply chain by facilitate better controls of flows of transport, combating smuggling and to meet the threat of piracy and terrorism.

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In this section we will look at the bot-tlenecks in the trade chain that con-tributes to the long times required for

import and export in many developing countries. The objective is to shed light on some bottlenecks in the trade chain that can be addressed through trade facilitation.

A trade transaction is a complex undertaking. A great number of actors are involved in the movement of goods, from the time that the goods are sent from the exporter until they reach the importer. The environment in which the transaction takes place can have a large impact on how fast and easy the trade transaction is. If the costs – in time and money – for transporting goods and get-ting them across borders are high, there will be less trade. High transport costs, costs related to getting goods across borders, as well as costs related to high numbers of documentary requirements and lack of transparency are examples of non-tariff barriers that hinder trade.

5.1 High costs for transport and transit

High transport costs pose significant barrier to development. It causes fric-

tion in the movement of goods and people, as well as for the transmission of knowledge and technology (United Nations University, 2007). High trans-port costs increase the price that consumers pay for imported goods. Transport costs also affect the ability of a country to source input, such as raw material and technology from abroad. For exporting countries, it is difficult for their goods to be competitive in export markets if the transport costs of getting them there are high.

The relative importance of transport costs as a determinant of trade has increased over time. This is a result of the lowering of trade barriers such as tariffs and non-tariff barriers through trade negotiations and unilateral liberal-isation. Clark et al note that the effective rate of protection provided by transport costs is now in many cases higher than the one provided by tariffs. (Clark, Dol-lar & Micco, 2004). A study by Radelet and Sachs finds empirical evidence that countries with lower transport costs have had faster increases in manufac-tured exports and overall economic growth during the last three decades than countries with higher transport

Bottlenecks in the trade chain:Focusing on the situation in developing countries

5

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costs. [(Radelet and Sachs, 1998) in UNU, 2007]

Countries that lack territorial access to the sea (‘landlocked countries’) depend on transit through their neigh-bours for access to international mar-kets. For developing countries, the most important case of transit is road and/or rail transport to and from landlocked developing countries (LLDCs), most of which rely heavily on international mar-itime transport for their trading activi-ties. Transit procedures are intended to protect the revenues of the country of transit and to avoid that goods intended for transit are leaked to the domestic market9). Transit procedures should be simple so as not to generate excessive delays and costs. However, this is often not the case. Goods coming from or going to a landlocked country are often subject to additional trade barriers such as lengthy procedures for border-cross-ing which causes delays, unpredictabil-ity and high transportation costs. From the port of departure to the destination, consignments can take weeks and some-times months.

All together, there are 31 landlocked developing countries in the world and the majority of these countries lie in Africa or in Asia. 16 of these 31 countries are classified as highly indebted poor countries (HIPC). Of the world’s 50 least developed countries, 20 countries are landlocked. Landlocked countries’ transport costs are up to 50 per cent higher than those of coastal countries (Radelet & Sachs, 1998). Their trade volumes are around 60 per cent lower than those of costal countries (Limão & Venebles, 1999).

As a result of their geographical loca-tion, landlocked developing countries face a number of disadvantages, affect-ing their attempts to integrate into the global trading system. Their level of

competitiveness in global trade often lies in the hands of their neighbouring transit countries. This burden of high transit-transport costs on landlocked developing countries is a major impedi-ment to their economic development and to the development of their foreign trade. 9) www.gfptt.org

Landlocked countries without a sea coast, so called landlocked countries, face a particular disadvantage in trade since they depend on the neigh-bours for access to international markets.

For most developing countries, transit corridor arrangements have become a very important solution for transit traffic between transit countries and landlocked developing countries. A transit corridor could be described as a set of rules governing all aspects of transport and transit of goods throughout a given route (corridor) backed by a treaty signed by all participating countries. In other words it is a designated route bet-ween two or more countries along which the corridor partners have agreed to apply facilitated procedures and where there are support services available. The aim is for all relevant stakeholders to work together to en-sure efficient and secure transit along specific routes, to the benefit of land-locked and transit countries.

There are a number of positive ef-fects behind establishing transit cor-ridors. First of all, they offer the pos-sibility in confronting the concerns and interests of all relevant stakehol-ders, public or private. Regardless of whether these corridor arrangements are bilateral, regional or multilateral, the scope of such arrangements are focused, i.e. there is a defined group

of interested parties and all issues concerning the entire corridor can be dealt with in a holistic manner (e.g. institutional, infrastructure and ad-ministrative). In this way it is easier to initiate and effect changes, that oth-erwise may be very difficult at a wider regional or multilateral level.

It is very important that corridor ar-rangements are backed up by a pro-per institutional and implementation mechanism such as a management structure, involving the concerned go-vernments and the stakeholders.

The use of ICT is not only an im-portant element in regional and bila-teral transit agreements, but also in corridor transit arrangements, as it increases the possibilities of making the procedures more efficient, trans-parent and accountable in the supply chain.

According to UNCTAD the most ef-fective facilitation measures concen-trate on trade and transport corridors linking inland origins/destinations in landlocked countries with entry/exit seaports in coastal countries. One example of a corridor arrangement is the Northern Corridor Transit Agree-ment from 1985 between kenya, Uganda, Burundi, Rwanda and the De-mocratic Republic of Congo. Another example is the Walvis Bay Corridors, linking Namibia and its ports to the rest of the southern African region.

Transit corridors – A trade facilitation solution for landlocked countries

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5.2 Need of reform and modernisation of border agencies

Controls at the border are performed by a large number of border agencies with different mandates and priorities, usual-ly belonging to separate line ministries. Customs, immigration services, phy-tosanitary or veterinary control agen-cies, drug enforcement administrations, standard agencies, road authorities are only a few of the many agencies present at the border.10)

These agencies have the role of con-trolling the entry and exit of goods and persons at the border but they also have a crucial role to make sure that trade can flow smoothly across border. In many countries revenue collection has been the primary objective for customs. This is not surprising since customs in many developing countries often is the largest domestic contributor to the state budget through revenue collection. Experi-ences from the WCO capacity building programme in the East and Southern Africa, show that the notion that cus-toms have a broader economic role is not always well supported at a political level. Among these other responsibilities the WCO lists trade management which is to facilitate compliant trade, support a climate of inward investment and pro-tect compliant trade from unfair or ille-gal competition. (WCO, 2008)

The World Bank (2005) notes that although many countries have under-taken customs modernisation programs, far too many still operate inefficiently and, to some extent, fail to fulfil their objectives. The customs legislation might be outdated and not in line with international commitments, such as the WCO revised Kyoto Convention. Opera-tional procedures are often unneces-sarily complicated and not transparent. This leaves room for individuals to take

discretionary decision. Staff might lack the competence to work in a new, and changing, trade environment. Many administrations are also struggling with a high turnover of qualified staff due to low salaries. Finally the World Bank also notes that many customs administra-tions are not using available information and communication technology (ICT). (World Bank, 2005)

Another World Bank study, with case studies in Rwanda, Sri Lanka, Paraguay, Senegal, Egypt and the Philippines, paints a more positive picture of the state of reform and modernisation in customs. It was found that customs administration in general are far ahead of other border management agencies, such as those responsible for adminis-tering health, quarantine and technical standards, both in understanding the importance of and having implemented trade facilitation measures. (World Bank, 2006)

There are also increasing external demands to which border agencies have to adapt. Companies have changed the way they are operating and, consequent-ly, have new expectations from customs and other border agencies. More and more companies are using just-in-time manufacturing which makes the timely arrival of goods more essential. These companies cannot afford to have their goods tied up for long periods because of complicated or unnecessarily com-plicated procedures and inspections. Having transparent and efficient cus-toms procedures becomes a competitive advantage for a country that wants to attract foreign investments.

International commitments in the form of international standards from the WCO and the IMO, or regional and bilateral trade agreements also work as a push for reform. Threats by internation-al crime and terrorism have put security

10) Global Facilitation Partner-ship for Transportation and Trade (GFTPP)http://www.gfptt.org/entities/ TopicProfile.spx?tid= d0e7a7f9-d0db-472e-a3b0-eca745d212d9, August 27, 2009

Bottlenecks in the trade chain Focusing on the situation in developing countries

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high on the agenda in many countries with a new set of requirements and procedures that agencies have to fulfil.11) The same is also true for heightened safety requirements over health risk (such as SARS, Mad cow disease etc.) and illegal immigration.

5.3 Ports – a frequent and common bottleneck

Ports in developing countries represent a key asset for economic development. They need to operate efficiently and be properly structured in order to support an increase in trade and GDP by linking countries to global markets.

Most international trade continues to be transported by sea and ports are crucial nodes in the international trade chain. Goods come into ports for further exportation by road, rail or transhipment traffic. The goods are generally preceded by detailed information and bookings both for storage and shipping. The goods are announced when entering at the respective gates of the port. Before the goods can be loaded aboard the vessel of its destination it needs to go through customs clearance and controls by other government agencies, such as tax, stand-ards and statistics authorities, phytosan-itarian and veterinarian agencies.

How efficient a port is depends on a number of variables. Infrastructure is necessary to carry out the port activities, such as pilotage, towing and cargo han-dling and hence has a positive effect on port efficiency.

There are various ways to measure port capacity. The number of days it takes for the goods to pass through the port is one way. Inefficiency in port management is an important bottleneck that can slow down a trade transaction. In India, port equipment in reported to remain idle about 20 per cent of the time. Changing from one mode of

transport to another can also be a time-consuming undertaking. In Abidjan, Ivory Coast, the transit time between the container terminal and the port gate could be as long as 20 days, depending on the handling agent [de Castro (1996) in (OECD, 2009)].

One of the major obstacles in ports within developing countries can be the lack of coordination between different types of controlling authorities. In fact as many as 15 different authorities can be present at the border. Without coor-dination this often lead to goods being taken in and out of customs warehouses and containers opened a large number of times. The flow of information of goods between authorities, handling agents and storage will be repeated many times over. This puts strain on information systems and goods handling

11) For an overview of security initiatives in international trade, see National Board of Trade (2008b) Supply chain security initiatives: A trade facilitation perspective

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and increases the risk for damages on goods. In many countries 100 per cent of the goods are inspected, often by various authorities.

A related problem is the fact that in many developing countries the port facil-ities are port authorities, i.e. government owned, and many warehouses are cus-toms owned and operated. This gives few economic incentives to modernise and rationalise. According to a paper pub-lished by UNCTAD the per cent of world container throughput passed through government owned ports was 19 per cent, whereas the same figure for North-ern Europe was 6 per cent and for Africa

68 per cent (UNCTAD, 2007). The rea-son for the rapid development towards privately owned and operated ports has been the high costs for port modernisa-tion programmes. The case of customs warehouses is a delicate matter (Hey-mann, 2006). Many customs authorities would argue that protecting and regis-tering the goods is their core business and would be reluctant to let go of old practices including hand-written ledgers and manual handling of goods. How-ever, this practice has been abandoned by most customs authorities who have realised that warehousing and safety issues is something that is best managed by private operators who can develop the activities and stand for liabilities versus the freighters and goods owners.

Many ports do not have a written account of the main port procedures and sometimes port regulations are not clear about the acceptance of responsibility. This creates time delays and increases the risk of damage to product raising insurance costs. Some level of regulation increases port efficiency, but an excess of regulation could start to reverse these gains. (Clark, Dollar & Micco 2004)

5.4 Rent-seeking and corruption

The World Bank and the WCO define corruption as “the misuse of public power for private benefit”. Corruption is most likely to occur when individuals or groups have monopoly or discretion-ary powers over clients, and when the level of accountability is low. Corruption is also more likely to occur when there is little transparency on what rules and regulations that applies.

In many developing countries, high levels of corruption severely reduce the effectiveness of key public sector agen-cies. Customs administrations are often cited among the most corrupt of all


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Single Window – a solution for coordination among border agencies

A Single Window in a port – The case of Felixstowe Port Community System

Coordination of activities and requi-rements of all government agencies involved when goods cross borders is one way to reduce the number of days spent with pre-arrival documentation and inspections. A Single Window is one way to ac-hieve this co-ordination. To coordinate the physical inspections carried out by border agencies in another measure to achieve facilitation.

Figure 7: Stylised model from UN/CEFACT illustrating one way to operate a Single Window.

Source: UN/CEFACT recom-mendation No 33. p. 8

Experiences from the Swedish Single Window (tullverket.se) show that for Swedish traders the establishment of a Single Window meant that less time, and hence money, have to be spent on submitting the same information twice to two different agencies. With a Single Window traders also have easier access to information. The improved efficiency when submitting information can be

translated into clear benefits such as fe-wer delays, less uncertainty and a lowe-ring of barriers to trade. (National Board of Trade , 2008c)

For governmental agencies the Single Window means that less time has to be spent on tasks requiring lower skills and resources can be allocated to processes or procedures that are more complex

or not possible to computerise. The agencies also experience that the qua-lity of information submitted by traders have improved. With a Single Window, customs and other border agencies can improve its efficiency while at the same time improving the level of service offe-red to the customers (traders). (National Board of Trade, 2008c)

Ports are potential bottlenecks for international trade and transport. There are many actors in a port that rely on information from each other to perform the functions effectively. These actors are shipping lines and agents, forwarders and brokers, customs and other govern-ment authorities, transport operators and the ports/terminal operators.

In a port a so called Port Community System (PCS) can be one way of or-ganising a Single window. A PCS is an information hub that brings together all agencies and companies in a port. It pro-vides an opportunity for transaction re-cordkeeping and information sharing. A PSC can have a major role in facilitating more efficient movement of goods while

allowing customs and other authorities to maintain effective controls.

In the middle of the 1980s, a decision was taken to start implementing a Port Community System in the port of Felix-stowe, Uk. The port of Felixstowe had reached the stage where it needed to find a way of streamlining the processes and procedures that were causing delays to the movement of goods, or it would not be able to continue to expand. The objective of the Port Community System would be to eliminate, as far as possible, the number of paper documents that were carried around in the port. The processing of customs declarations was identified as one of the main causes of delay. Average clearance time was

between four and five days and figures showed that one in three customs decla-rations contained errors.

The experience from Felixstowe is that the Port Community System hel-ped reduce clearance time and paper documents. The users only have to do one single submission of data and that data is shared among the various actors through the PCS. To make a PCS func-tion there need to be a sense of “com-munity” among the actors in the port. It is necessary that they agree on common interests and accept a common action to make the PCS work.

Source: Long A. “Port community systems”, World Customs Journal vol 3, Number 1, April 2009

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governmental agencies. This is probably because the nature of the customs envi-ronment can be conducive to corrup-tion. Customs administrations are often the only agency with responsibility for certain administrative procedures. Even relatively junior officials profit from considerable discretionary decision-making powers. The level of supervision and accountability is often not sufficient.

However, customs is not the only agency to which these characteris-tics apply. Other government services related to imports and export also have monopoly powers and the opportunity to take discretionary decisions. OECD cites a study by the Integrated Frame-work saying that in the two Cambodian ports of Phnom Penh and Sihanoukville payments between USD 200 and USD 300 per vessel is necessary to encour-age customs and immigration services

to operate beyond 5 p.m., although both ports are equipped to handle vessels around the clock. (OECD, 2009)

Corruption leads to reduced public trust and confidence in government institution. For the individual trader it is an increased cost, which is often borne by the poorest in the community. In many countries, customs collects over 50 per cent of all government revenue and corruption can therefore represent a sig-nificant revenue leakage. Corruption can also act as a barrier to international trade and economic growth. The presence of widespread corruption can act as a major disincentive to foreign investment.

The reasons for corruption are com-plex. In many countries government official do not earn sufficient money to sustain a decent living standard for themselves and their families. Seeking kick-backs then becomes a method to survive. The World Bank cites Bolivia as an example where before reforms in the 1990, corruption had become part of an officially sanctioned system. Bolivian customs officials then worked pro bono and had to find compensation by solicit-ing and accepting facilitation money. (World Bank, 2005) Ample opportuni-ties for rent seeking is another reason for corruption. In customs such occa-sions for rent seeking are processing of import, export and transit declarations; assessment of value, origin and classifi-cation of goods; physical inspection and release of cargo; conduct of post-clear-ance audits; issues of import licenses, warehouse approvals etc.

5.5 Non-transparent and cumbersome documentary requirements

A problem that many traders face is that they do not know what rule and require-ments they have to fulfil to import and export. This is a problem for companies


37

that are not accustomed to import and export, in particular, but even more experienced companies face this issues when exporting to new markets. Smaller companies that do not have the compe-tence in-house often choose to contract a customs broker to handle all dealings necessary for import and export. The need for information and transparency on trade rules and regulations is an issue that is under negotiation in the WTO trade facilitation negotiations.

Another bottleneck to trade in many countries is the number of documents that traders and transporters have to fill in. Regulations can become a burden in the activities that they are supposed to control. In the introduction to the IMO’s FAL convention it is noted that few activities have been subject to more over-regulation than maritime transport. A ship visiting several countries are often requested to fill in numerous forms related to a number of regulation for shipping, customs, immigration, health, narcotic drugs, quarantine, environ-mental conservation and security. These forms often vary from port to port. Hence shippers are requested to supply the same information on a number of occasions. The result is that ships and cargo is delayed. (UNCTAD, 2008b)

The World Bank index Doing Business shows how many documents a trader needs to fill in and submit for export and import in every country. This number is a good indication on how easy it is to trade in a country. Figure 8 shows the average number of documents in each region. There are significant differ-ences between regions but also within each region. The average number of export documents are close to eight in sub-Saharan Africa, but in Angola and Malawi the exporting company will have to submit 12 document on average.

The World Bank compares the

situation for a trader in Denmark and Burundi to underline reality behind the numbers in the tables. A trader in Denmark wishing to export, needs three documents (an export declaration form, a bill of lading and a commercial invoice) and two signatures (one by a customs official and one at the port) to complete all requirements for shipping a cargo abroad. A trader wanting to do the same thing in Burundi, a landlocked country, needs to prepare 11 documents, do 17 visits to various offices to collect a total of 29 signatures. The whole proc-ess for the Danish trader takes 5 work-ing day, whereas the Burundian trader have to spend 67 days in average to move the goods from the factory until they can be shipped out. (Djankov, Freund and Pahm, 2006)

In many countries trade and trans-port documents are submitted in paper format. This means that all documents are processed manually. One of the chal-lenges with this is that it is difficult to perform follow-up and post-clearance audits.

SOURCE: WORLD BANk DOING BUSINESS 2009

Figure 8Average number of documents needed to import and export in each region.

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Technical assistance and support forcapacity building inthe area of trade facilitation

The importance of international trade as a catalyst for economic growth and national development

is well recognised. At the United Nations Millennium Summit in September 2001, a declaration was adopted by world leaders stating developed and develop-ing countries were to work in partner-ship together for the betterment of all. Eight development goals to be achieved by 2015 were set up – the Millennium Development Goals (MDGs). Most of the focus in the MDG is on the fundamental needs for people in developing coun-tries. The various MDGs are mutually interdependent. Infant and maternal mortality, for example, is affected by households and local communities’ income, employment, equality, access to food, water, sanitation and education. Trade contributes to growth as a source of income and employment, hence it potentially has an impact on several of the Millennium Development Goals.

The opportunities for countries to trade internationally have improved since the WTO (World Trade Organiza-tion) was created in 1995. The regula-tory framework for international trade has gradually become more open and

predictable, and the use of traditional trade barriers such as tariffs and quo-tas has declined through multilateral negotiations and under preferential market access schemes. (National Board of Trade, 2009c) Although the opportunities for international trade have improved, not all countries have been able to take advantage of these trade openings. Restricted market access in their export markets is one such explaining factor. Another factor is barriers related to internal capacity constrains and complicated border and port procedures. This report has pre-sented bottlenecks in the trade chain that hamper developing countries pos-sibilities to trade. Trade facilitation can be an effective way to address some of these constraints and contribute faster and more efficient trade transactions in these countries.

6.1 The Aid for Trade initiativeResearch, evaluation and the interna-tional political agenda have highlighted the need to complement the increased market access for developing countries with other measures for poor countries to take greater advantage of opportuni-

6

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ties in international trade. Developing countries have also themselves long stressed the need for increased techni-cal assistance and support for capacity building related to trade. As a response to this, the Aid for Trade initiative was launched at the WTO Ministerial meet-ing in Hong Kong in 2005. It is designed to take a holistic approach to trade related aid. Aid for Trade is a part of the Official Development Assistance (ODA) and covers a broad range of issues such as technical assistance, infrastructure and production capacity.

Aid for Trade aims: w At enabling the developing countries,

particularly Least Developed Coun-tries (LDCs), to use trade more effec-tively to promote growth, employment, development and poverty reduction and to achieve their development goals.

w Helping developing countries build and modernise the supply-side capac-ity and trade related infrastructure so that they have easier access to markets and can export more.

w Assisting developing countries to implement and adjust to trade reform and liberalisation, including in the form of labor market and social adjust-ments.

w Assisting regional integration, contrib-uting to a smooth integration of the countries in the region into the global trading system and to assist in the implementation of trade agreements. A survey among developing countries

shows that trade facilitation is rated as the second most effective area for trade related support. Simplification of customs procedures and improvements to port authorities are considered par-ticularly important and useful. (OECD, 2007)

To monitor the progress WTO and OECD have produced a joint report

on the development in some areas of Aid for Trade. A positive outcome as a result of Aid for Trade initiative is the increased mainstreaming of trade into the recipient countries development strategies, thereby clarifying the needs and priorities of developing countries. Donors are scaling up Aid for Trade delivery. The largest share of Aid for Trade still goes to Asia, but Africa and especially Sub-Saharan Africa is catch-ing up. In 2007, the value of Aid for Trade to Africa was 9.5 billion USD. Sub-Saharan Africa is the priority region for most donors for Aid for Trade support. (OECD, 2007)

The WTO notes that in order for Aid for Trade to be successful it needs to be matched by close cooperation at the international and regional level among intergovernmental organisations with core responsibilities in these areas and their member governments. The success also depends on creating closer coopera-tion in national capitals between trade, finance and development officials of WTO member governments.12) This is in line with thinking on Policy coherence for development.

6.2 Policy coherence for development

The OECD defines policy coherence for development as “the pursuit of develop-ment objectives through the systematic promotion of mutually reinforcing poli-cy actions on the part of both OECD and developing countries”. Policy coherence recognizes that aid alone cannot reduce poverty, other policy areas also need to work towards the objective of reducing poverty. There are several dimension of coherence according to the OECD13):w Internal coherence with development

co-operation policiesw Intra-country coherence: consistency

between aid and non-aid policies

Technical assistance and support forcapacity building inthe area of trade facilitation

12) http://www.wto.org/ english/tratop_e/devel_e/ a4t_e/aid4trade_e.htm

13) OECD presentation ”The policy coherence for develop-ment work in the OECD” retrieved 2009-10-29 from http://www.oecd.org/ dataoecd/24/58/39327642.pdf

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w Inter-donor coherence: consistency of aid and non-aid policies of many donors

w Donor-partner coherence to achieve shared development objectives: con-sistency of donor and developing-countries policies.In this context, we will address the

importance of consistency of aid and non-aid policies and coordination among donors.

Coherence is an important part of Sweden’s Policy for Global Develop-ment. The coherence policy means that all policy areas and policy instru-ments at the government’s disposal are to work towards a common goal, aiming at fair and sustainable global development. Other policy areas have access to instruments that may be more effective in reducing poverty than the instruments available in development cooperation, with trade policy being one of five priority areas cited. Sweden’s development assistance should be har-monised with that of other donors and be adapted to the needs and priorities of partner countries. In a Government Communication it is noted that there is a risk of conflict of interest in certain areas which could make policy forma-tion more challenging. However, the first few years of work to implement the policy for global development have revealed that the greatest challenges of the policy lies in indentifying and realis-ing potential synergy effects. The policy should be based on two perspectives: the perspective of poor people on devel-opment and a human rights perspective (Government Communication 2005/06: 2004).

In the EU Commission’s communica-tion on policy coherence for develop-ment, the point of departure is the rec-ognition that EU policies in other areas than development have had some unin-

tended impact on third countries. The objective of the policy coherence for development is therefore to strengthen the synergies between EU policies other than aid, and development objectives. It is important that the policies pursued in different areas are not in opposition. Trade is identified as one of the thematic areas where EU can control the out-come. The Commission writes that trade stimulates economic growth and thereby helps generate resources to meet the objective of poverty reduction and attain the other Millennium Development Goals (MDGs), but it needs to be sup-

Technical assistance and support for capacity building in the area of trade facilitation

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ported by appropriate flanking policies.(EU Commission, 2009). The successful conclusion of the WTO Doha negotia-tions would be one important step. Stud-ies have shown that the trade facilitation negotiation is one area where develop-ing and least developed countries stand to make the greatest gains.

The linkages between poverty, trade and economic integration should be an integral part of the policy for global development in developed countries. One example of the importance of con-sistency between different policy areas in the area of trade facilitation, is the

issue of supply chain security initia-tives. Since the millennium, a number of international supply chain initiatives with the aim of strengthening security have been put into place. The initiatives consist of programmes for partner-ship between customs authorities and companies, rules for advance commu-nication of data on international ship-ments, minimum security requirements, standardisation of security management and cooperation between companies. Most of the initiatives have been taken by governments or customs authorities but many international organisations are

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also active in this field. (National Board of Trade, 2008b)

One central issue is how the econo-mies of developing countries are affected, and whether these countries are particularly negatively affected by stricter security requirements. A study by Dulbecco and Laporte (2003) claim that developing countries are systemati-cally punished due to the fact that they are not at the same level in respect of security certification. At the same time they do not necessarily constitute a high risk. As more and more countries introduce certification programmes for security in the supply chain there is a risk that developing countries that lack resources and have inefficient systems for the exchange of information and security controls will not share the ben-efits promised by these programmes and even experience a deterioration in their prospects of participating in interna-tional trade. (National Board of Trade, 2008b)

There appear to be strong reasons for paying particular attention to the impli-cations for trade and, the situation of developing countries in particular, when countries elaborate these kinds of rules. Otherwise they might have a detrimen-tal effect on some countries ability to participate in international trade.

6.2.1 Coherence and cooperation among donors on trade facilitation

Another part of the coherence concept is inter-donor coherence. The need for the donor community to coordinate amongst themselves, and with the part-ner countries, is recognized in the Paris Declaration.

The Paris declaration was adopted in 2005 by 120 donor and partner coun-tries, other international organisations and the civil society. According to the

declaration the partner countries com-mit to take a greater responsibility for their own development by initiating political and economic reforms. The donor countries on their side commit to align their assistance to the partner countries and to coordinate their aid with other donors. The Paris Declara-tion stresses that aid and capacity build-ing should be led by partner countries and guided by their thinking on capacity building. The commitments by countries and donors are meant to put an end to a technical co-operation that is fragment-ed and donor driven, and to usher in an approach in which donors respond to strategic country-led thinking on capac-ity development.

In the UN system the “Delivering as One” initiative is an example of how the UN could achieve coherence. It is a pilot initiative that is testing ways to increase the UN system’s impact on the lives of people in programme countries by delivering more coordinated, effective and efficient assistance. The Secretary-General launched the initiative in Janu-ary 2007 in eight programme countries: Albania, Cape Verde, Mozambique, Paki-stan, Rwanda, Tanzania, Uruguay, and Vietnam. The objective is to increase the UN system’s impact through more coherent programmes, reduced transac-tion costs for governments, and lower overhead costs for the UN system. The country pilots should be based on four principles: one leader, one budget, one programme and one office.14)

An OECD review of technical assist-ance and support for capacity building (TA/CB) in trade facilitation also under-scores the importance of coherence among donors. Previous experiences show that donors should take account of ongoing reforms and consult and co-ordinate with other donors and organi-sations to avoid duplication, increase 14) www.undg.org


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synergies between their interventions and create a more integrated approach to technical assistance and support for capacity building. The OECD concludes that ideally donors should undertake or fund trade facilitation reform in the framework of a comprehensive, joint donor strategy. Such an approach could lead to cost efficiencies, an effec-tive division of labour and enhance the donors’ collective impact. (OECD, 2006)

Trade facilitation, as defined by the UN/CEFACT, encompasses a broad range of measures. Organizations such as the IMO, WCO and the UN/CEFACT have a clear role and mandate to elabo-rate international standards and recom-mendations within their specific areas of competence. The IMO elaborates standards on maritime transport, the WCO for customs administrations and the UN/CEFACT elaborates standards and recommendation that can be used by both the government agencies and business. These standard-setting organi-sations also have an important role in assisting developing and least-developed countries in their implementation of these standards.

The WCO Colombus Program and the IMO Integrated Technical Assistance Program (ITCP) are two examples of how these organisations work in a struc-tured way with capacity building in their respective fields.

The next section will take a closer look at some strategies for delivering techni-cal assistance and support for capacity building in the area of trade facilitation.

6.3 Strategies for delivering technical assistance and support for capacity building

In order to support and improve devel-oping countries position in the inter-national trade different kind of aid

modalities can be used. Trade related cooperation can vary from support-ing the positions in the international negotiations to physical infrastructure improvement.

In the following we will highlight a few strategies for delivering trade relat-ed support in the area of trade facilita-tion: twinning, public-private partner-ships and mentorship. It is by no means intended to be an exhaustive list, but merely an indication of the various ways

15) United Nations (2008) Achieving the Millennium Development Goals in Africa

An example of a coherence initiative for Least-Developed Countries

The Enhanced Integrated Fram-ework for Trade-Related Technical Assistance (EIF) to least-developed countries (LDCs) is a process to sup-port LDC governments in trade capa-city building and in integrating trade issues into overall national develop-ment strategies. The EIF is supported by the International Monetary Fund (IMF) , the International Trade Centre, UNCTAD, the United Nations Deve-lopment Programme, the World Bank, and the WTO.

EIF has two main objectives: to “mainstream” (integrate) trade into the national development plans such as the Poverty Reduction Strategy Papers (PRSPs) of least-developed countries; and to assist in the coordi-nated delivery of trade-related techni-cal assistance in response to needs identified by the LDC. The EIF is built on the principles of country owner-ship and partnership.

The implementation of the Enhan-ced Integrated Framework involves three stages. First preparatory ac-tivities including an official request from the country to participate in the EIF process; a technical review

of the request; and establishing a National EIF steering committee, is required. When the formal request has been approved, the process moves on to the diagnostic phase. A Diagnostic Trade Integration Study (DTIS) includes comprehensive ana-lysis of both internal and external barriers to trade. It covers macro-economic developments, trade poli-cy and market access, transport and trade facilitation, product standards, investment climate, trade support institutions, and trade, poverty and sector studies. In the third stage follow-up activities start with the translation of the diagnostic phase’s findings into the elaboration of inte-grating the action plan into the na-tional development plan (the PRS). The action plan serves as basis for trade related technical assistance (TRTA) delivery.

Most African Least Developed Countries have completed Diagnos-tic Trade Integration Studies (DTIS) under the Integrated Framework for Trade-Related Technical Assistance. The next step is now to transform the result into trade development and competitiveness strategies. This will require coordinated assistance from development partners to enable Af-rican countries to address key trade-related bottlenecks. (MDG Africa Steering Group, 2008) 15)

enhanced integrated Framework

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in which the donor community and recipient countries can work together in trade facilitation.

Trade related aid is provided in differ-ent modalities. Technical assistance (TA) and capacity building (CB) are two strat-egies for development cooperation with different characteristics. The distinction between the two is however not crystal clear.

The emphasis of the technical assist-ance approach lies in the transfer of knowledge to partner countries to allow them to negotiate agreements and implement the results. This often implies a focus on short-term training and consultancy. Technical assistance as an instrument for development coopera-tion has been criticized for being sup-ply- and donor-driven and hence less effective. (Sida, 2007)

Trade capacity building, on the other hand, focuses not only on capacity improvement of individuals but on the capacity and capability of organisations and systems in the partner country

which calls for interventions which are more long-term and qualitative by nature than traditional technical assist-ance. (Sida, 2007) Various types of twin-ning (see below) are often applied as a method in capacity building.

In figure 9 (page 42) the difference between TA and CB is schematically illustrated and it is demonstrated that there is a common core. Technical assistance tends to be short term but can be a small part in a larger project, with the aim to enhance the knowledge in a specific area, while capacity building projects tend to be more long term.

EC is the main donor of TA/CB for trade facilitation followed by the World Bank and United States. Lower Mid-dle Income Countries were the largest recipients of TA/CB with a share of 39 per cent. The Least Developed Coun-tries (LDC) accounted only for 16 per cent each of the support given. (OECD, 2006)

6.3.1 Twinning – a long-term commitment

Twinning is an example of a method where both TA and CB are used as tools. Twinning, or institutional cooperation, is an aid modality where authorities/government agencies or organisations in the developing country cooperate with parallel or similar organisations in the host country. The institutional coopera-tion is normally long-term and involves long and short term advisors, training courses, study tours and drafting imple-menting legislation.

The section on bottlenecks in the trade chain indicated that lack of capac-ity in border agencies is one trade con-straint. Twinning can be an effective way to organise capacity building to strengthen these agencies.

In the EU, twinning has been used to support the candidate countries,


Figure 9Technical assistance and capacity building.

SOURCE: NATIONAL BOARD OF TRADE

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potential candidate countries and EU neighbouring countries in Eastern Europe, Central Asia, North Africa and the Midd le East to strengthen recipient countries administrations so that they can develop in line with EU standards and regulations.

Sweden has a long tradition of twin-ning between public agencies in Sweden and their sister organisations in devel-oping countries. The Maritime Admin-istration in Sweden has implemented one of the first EU twinning projects in Egypt as part of efforts to harmonise the neighbouring countries to EU standards and improve maritime safety in adjacent

seas. The first part of the project ended in March 2009 and has included training and institutional support to the Egyptian Maritime Safety Administration. A sec-ond part continues 2009–10 to harmo-nise laws and reorganising operations to implement the regulatory framework of new international conventions.16)

6.3.2 Public-private partnerships in trade and transport facilitation

For trade facilitation reforms to be effective and sustainable, stakeholders from the whole trade chain need to be involved in the reform. Trade facilita-tion reforms can bring substantial effi- 16) www.sjofartsverket.se

46

ciency gains to the private sector, which therefore often has an interest in seeing trade facilitation reforms implemented. Public-private partnerships (PPP) bring together stakeholders to design and implement trade facilitation reforms. By involving private companies and private sector organisations with competences in trade and transport, and with vested interests in the success of their business, PPPs can develop the most efficient and properly regulated supply chain. The private sectors stakeholders can thus contribute with knowledge and also financial funding. (Global Facilita-tion Partnership for Transportation and Trade, 2005)

One way for donors to support broad involvement in trade facilitation reform is to encourage public-private partner-ships. Public-private partnerships are often used for investments in transport infrastructure and services. Ports are one example of where private sector involve-ment has been prominent in reforms initiatives. Since the 1990s governments has started inviting the private sector to contribute to port development with capital and operational experience.17) Single Window is another trade facilita-tion measure that is a potential area for public- private partnership. It is an area where there are clear gains for the pri-vate sector. UN/CEFACT is considering elaborating a recommendation on pub-lic-private partnership that will possibly include Single Window solutions.

Another example of a PPP is the Wal-vis Bay Corridor Group in Namibia and the other SADC18) countries. It is a pub-lic-private partnership established to promote the utilisation of the Walvis Bay Corridors, which is a network of trans-port corridors principally comprising the Port of Walvis Bay, the Trans-Kala-hari Corridor, the Trans-Caprivi Corri-dor, the Trans-Cunene Corridor and the


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Trans-Oranje Corridor. The objective is to facilitate a one-stop shop coordinat-ing trade along the Walvis Bay Corri-dors, linking Namibia and its ports to the rest of the southern African region.

6.3.3 Capacity building to strength-ening developing countries participation in standard- and rulesetting

International standards and rules are important in trade facilitation, which has been presented in previous sections in this study. Standards elaborated in the IMO, the WCO or UN/CEFACT and other organisations are often refer-enced in national legislation. It is not yet clear if a future WTO Trade facilitation Agreement will make explicit references to specific international standards, such as the revised WCO Kyoto Convention for instance, but there will probably be a general reference to the importance of international standards. It is therefore important for developing countries to be present when international stand-ards are elaborated and in international negotiations; to become standard-setters instead of standard-takers.

In a support guide to the WTO trade facilitation negotiations elaborated by the World Bank, it is noted that negotia-tions, especially multilateral trade nego-tiations within the context of the WTO, require timely and effective processes that ensure a country’s interests are ade-quately represented. Once negotiations begin they can quickly build momentum on particular issues, there is the risk that decisions will be taken on the issues without consideration of a particular country’s concerns. (World Bank, 2005) This description of multilateral negotia-tions is also true for international stand-ard-setting – participation and timely input is necessary for a country that wishes to influence the process.

One important objective of capacity building could therefore be to encour-age and support developing countries to become more pro-active in international organisations (negotiations and stand-ardization) to influence the outcome from these processes. One example of such a project is a mentorship program by the Swedish National Board of Trade that aims at enhancing capacity in the participating countries related to the WTO Agreement on Technical Barriers to Trade (TBT).

The mentorship program is designed to address the weak implementation of the TBT Agreement in some Sub-Saharan African countries through the mentorship of TBT experts from the Board. The program runs for three years and there are three yearly meetings in connection to the regular meetings of the WTO TBT Committee. Although the project is not yet terminated and evaluated, there are indications that these types of more long-term mentor-ships linked to a specific process in the WTO yield positive results. It could be interesting to explore if similar projects could be elaborated in the area of trade facilitation.

17) http://siteresources.worldbank.org/PPPILP/Resources/1.1.pdf

18) SADC (Southern African Development Community)

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Maritime transport is important for developing countries and their ability to participate in

international trade. Over 80 per cent of all goods are transported by sea and ports are nodes in an international net-work of trade transports that span the globe. With increased efficiency in the trade chain, where maritime transport is essential, the costs of trading interna-tionally can decrease.

Trade and economic integration con-tribute to growth, and with the right conditions in place, trade also leads to poverty alleviation. The opportuni-ties for trade have improved during the last decade as trade barriers have come down through multilateral negotiations in the WTO, regional and bilateral trade agreements and economic reforms. But not all countries have been able to take advantage of the trade opportunities that come from globalisation. Africa’s share of world exports has dropped dur-ing the last decades.

There are various reasons as to why countries are not able to participate in international trade to the extent that they may wish. Although trade barri-ers, such as tariffs, have been reduced

there are still a number of barriers that remain. High costs to transport and tran-sit goods to ports, time-consuming pro-cedures to get goods across borders and through ports, as well as high numbers of documentary requirements and lack of transparency are examples of non-tariff barriers that hinder trade. These are all barriers that can be addressed through trade facilitation reforms.

The report has shown that trade facilitation can contribute to economic development and increased trade. The largest potential for improvement through trade facilitation seems to exist in developing countries. Implementing trade facilitation measures mainly bring benefits to the implementing country itself, but they also help the country´s trade partners. Thus, rather than being a zero-sum game, trade facilitation can benefit all countries involved by reduc-ing transaction costs for international trade. There is therefore a strong case for developing countries, international organisations and the donor community to engage in trade facilitation reforms.

The Aid for Trade initiative has highlighted the need to complement increased market access for develop-

Conclusion

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49

ing countries with other initiatives. Developing countries need technical and other forms of assistance, to be able to reap the fruit of international improvements for trade. The launch of the WTO trade facilitation negotiations has sparked a discussion on the merits of trade facilitation and, also, the role of the donor community in assisting developing countries to integrate better into the trading system. Organisations such as the IMO, WCO and the UN/CEFACT have a clear role and mandate to elaborate international standards and recommendations with a global remit. Their role in assisting developing and least-developed countries in their imple-mentation of these standards is equally important.

Given the importance of maritime transport and ports in the trade chain, it is clear that the IMO has an impor-tant role to play in delivering techni-cal assistance and support for capacity building, together with the donor com-munity and other international organi-sations. As stated in the IMO’s Integrat-ed Technical Co-operation Programme (ITCP), the organisation should take the lead in putting into place a global part-nership for development in maritime transport though institutional capacity-building, advocacy of global rules and improvement of standards and maritime capacity in developing countries.

Support for trade facilitation reforms can span from short term, specifically targeted, technical assistance to more long-terms institutional-building efforts. Both these forms of support are valu-able, but to assist in reform and modern-isation of trade-related agencies more long-term capacity building is probably necessary. The report has highlighted some ways in which technical assistance and support for capacity building can be structured.

This report presented the main international organisations that have developed international standards and recommendations on trade facilitation. Taken together their recommendations provide a broad international frame-work of trade facilitation measures. To ensure that the trade chain is working as smoothly as possible, the different parts of this international framework also need to be compatible with each other. To achieve this kind of coherence the IMO, the WCO, the UN/CEFACT and other organisations should work together to harmonise trade facilitation standards and recommendations. For the UN agencies, this would be a con-crete way to fulfil the UN delivering as one-promise.

There are large benefits to be held from implementing trade facilitation reforms both for the trading commu-nity and the public sector. By making the trade process more transparent and easier the business community gain through faster delivery and reduced transaction costs. The gains are particu-larly important for small and medium sized companies for whom the costs of compliance with procedures are pro-portionally higher than for larger firms. Predictable application of rules allows traders to know what to expect in their everyday dealings with government agencies involved in trade. Simple and efficient trade procedures lift the bur-den of bureaucracy for companies and they can instead allocate resources to expanding and increasing competitive-ness. Governments will profit in terms of better control methods and improved public finance by lowering administra-tion costs and freeing resources for re-deployment. Moreover, trade facilitation contributes towards economic develop-ment and is essential for attracting for-eign investments.

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A WTO Agreement on Trade facilita-tion would address some of the bot-tleneck in the trade chain identified in the study. The agreement would cre-ate binding rules for the WTO mem-ber countries and contribute towards greater predictability and simplified procedures for importing and exporting goods.

Transparency on rules and regulations and the use of automated ICT-systems could contribute to reducing the scope for corruption in customs and other border agencies. A speedy conclusion of the negotiations should therefore be a priority. But countries should not wait for an Agreement on Trade facilitation to start implementing trade facilitation reforms.

The report has highlighted some ini-tiatives with large potential for trade facilitation:w At a national level, a partnership

between the public and the private sector is necessary to achieve trade facilitation. A great number of actors are involved in the movement of goods, from the time that the goods are loaded at the premises of the exporter until they reach the importer. All these actors should be involved in trade facilitation reforms and imple-mentations related both to the logisti-cal process and the document flows. Public-private partnerships can range from consultations to jointly financed projects, for instance in ports.

w Increased coordination between agen-cies at the border would make trading across borders easier. In many coun-tries ports are bottlenecks in the logis-tical chain. Customs, port agencies, immigration services, phytosanitary or veterinary control agencies, drug enforcement administrations, standard agencies, road authorities are only a few of the many agencies present at

the border or in the port. The use of Single Window is a concept that has proved to yield good results. In bring-ing all these agencies together.

w Promotion of regional integration schemes is another trade facilitation measure that holds great potential. To assist regional integration is specifi-cally mentioned as one of the aim of Aid for Trade. Landlocked countries need to pass through their neighbour-ing countries to reach access maritime transport. For these countries in par-

Conclusion

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ticular it is important to address the issue of time-consuming border cross-ings. Transit corridors is one solution that has proved efficient. The importance of international trade

as a catalyst for economic growth and national development is well recognised. The opportunities for international trade have increased through globalisa-tion and a reduction in trade barriers. Trade facilitation can be a way to make use of these trading opportunities, espe-cially in developing and least developed

countries where cumbersome trade procedures often create an additional cost on trade that hamper business and hold back economic development. Trade facilitation is hence becoming an increasingly important tool for develop-ment, allowing countries to trade goods on time with low transaction costs. With coordinated support from the donor community, developing countries can reap the benefits from an improved trad-ing environment through trade facilita-tion.

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