Trade facilitation — time for change
On Second Thought'by Dietmar Jost
Trade facilitation has become a rich men's club! Common sense tells us trade facilitation measures should aim to lower the cost for industry to comply with customs laws and regulations. Since 2001, however, international trade and transport has been confronted with increasing demands for investments in supply chain security in order to maintain an acceptable level of customs treatment. The current development comes in particular at the disadvantage of small and medium-sized enterprises, which represent the vast majority of brokers, truckers, freight forwarders and other important service providers along the trade and logistics chain.
Before Sept. 11, 2001, trade facilitation was not only very high on the agenda, but also close to implementation. In 1999, the World Customs Organization finished its work on the revised Kyoto Convention to establish a robust and thorough framework for simplification and harmonization of customs procedures. In 2000, the Group of 7 most industrialized countries had completed harmonizing and standardizing data requirements for their respective standard import processes and transferred the work to the WCO for global roll out (now known as the WCO Data Model).
Concepts such as the Unique Consignment Reference (UCR) were developed to establish a full audit trail of international consignments from origin to destination. Between 1996 and 2000, the United States and United Kingdom tested closer cooperation through the so called International Trade Prototype, where companies that would meet certification criteria of both customs administrations could accomplish their border formalities through submitting a single declaration satisfying both export and import requirements.
These developments were based on the 'authorized trader,' a concept heavily promoted by the revised Kyoto Convention. The main criteria are a good history of compliance with customs laws and a satisfactory system for managing commercial records. The benefits offered to traders in return are clearly defined and also allow small and medium-sized enterprises to justify the often modest investments in people, procedures and systems. Benefits range from fewer formalities and data requirements over periodic declarations and deferred payment to duty and tax self-assessment.
Soon after 9/11, customs administrations were confronted with intelligence suggesting that the international trade and transport networks could be abused as a modus operandi for terrorist activities. Before the 'authorized trader' could even demonstrate its potential in securing international trade, customs administrations quickly approached the WCO and called for a new program to secure and facilitate the international trade supply chain. As a result in 2005, the WCO adopted the SAFE Framework of Standards establishing the Authorized Economic Operator (AEO) as the new means for customs-trade partnerships. However, for companies ' including authorized traders ' to obtain AEO status, they have to invest significantly in physical security measures, making the entry ticket for preferential customs treatment more expensive.
So, what is customs offering those firms that are considering making the extra investment in their security architecture? Customs administrations around the world seem to agree the benefit for AEOs will be a lower risk scoring, leading to fewer inspections and shorter delays at the border. In the European Union, AEOs will also benefit from a reduced data set for advance arrival and departure declarations.
Since the benefits to trade are so small in comparison with the associated cost of AEO membership, customs administrations are starting to remember why they had established the WCO in 1952 as the Customs Co-operation Council. Through closer cooperation among customs administrations, AEOs could benefit from mutual recognition of their AEO status and receive the same benefits in partner countries without having to reapply for AEO certification. That is a really tangible benefit!
In June 2007, the U.S. and New Zealand customs administrations were the first to sign a mutual recognition arrangement (MRA) granting exporters from New Zealand under its Secure Exports Scheme the equivalent of the Customs-Trade Partnership Against Terrorism benefits in the United States. Since then, New Zealand has concluded an MRA with Japan and discussions are progressing well between the EU and China. EU-U.S. negotiations are also under way, but the pace is not encouraging nor responsive to the call for action in the current economic crisis.
The strictly bilateral and selective approach applied to MRAs by governments could also potentially establish new trade barriers around 'like-minded' countries. I am sure the WCO and the World Trade Organization will observe these developments and safeguard the principle of free trade.
Mutual recognition of AEO programs should be the beginning of an era of closer cooperation. Customs administrations should become more courageous in implementing the Guidelines to Standard 1 of the WCO SAFE Framework of Standards. By offering more integrated customs treatment such as the 'Authorized Supply Chain' as defined in the WCO Supply Chain Management Guidelines, customs administrations could continue what the United States and United Kingdom had started with their International Trade Prototype.
The benefits for AEOs, even the smallest, are at stake, however, if shipments to the United States would have to undergo the anticipated 100 percent scanning. Customs- trade partnerships would lose their commercial justification. Governments can not afford to lose these partnerships with the private sector in the fight against terrorism and organized transnational crime.