Trade+facilitation+-+principles+and+benefits

Trade facilitation is emerging as an important factor for international trade and the economic development of countries. This is due to its impact on competitiveness and market integration and its increasing importance in attracting direct foreign investments. As a result, it is very high on the international political agenda, and it is part of the ongoing WTO multilateral trade negotiations, as well as part of wide international technical assistance programmes for developing and emerging economies, such as Aid for Trade. =Introduction= Over the last few decades, countries have made significant progress in lowering trade tariffs and dismantling quota systems. International trade has increased and become more global, with developing and transition economies accessing supply chains. The worldwide separation of production cycles, along with just-in-time logistic techniques and the emergence of e-business, has made companies more dependent on efficient, fast and reliable movement of goods. This development has highlighted the need to reduce or eliminate inefficient administration of trade procedures. Lack of transparency about rules, outdated and heavy clearance processes, multiple documents in different formats and with various data elements, all increase the costs and time of doing trade. Today they are seen as posing greater barriers to trade than tariffs and quotas do. Customs and administrative requirements that go beyond what is necessary hinder traders by “thickening” the border of countries (Wilson, Norbert 2007). Hence, it is more important than ever to achieve trade facilitation, as this helps to ease cumbersome systems and lengthy procedures that complicate and reduce trade. =What is trade facilitation?= The primary goal of trade facilitation is to help make trade across borders faster and cheaper, whilst ensuring its safety and security. In terms of focus, it is about formalities, procedures, and the related exchange of information and documents between the various partners in the supply chain. For UNECE and its UN Centre for Trade Facilitation and Electronic Business (UN/CEFACT), trade facilitation is “the simplification, standardization and harmonization of procedures and associated information flows required to move goods from seller to buyer and to make payment”. Such a definition implies that not only the physical movement of goods is important in a supply chain, but also the associated information flows. It also encompasses all governmental agencies that intervene in the transit of goods, and the various commercial entities that conduct business and move the goods. This is in line with discussions on trade facilitation currently ongoing at the WTO. =Why does it matter?= There are great potential gains from trade facilitation for both governments and the business community. Public entities will profit in terms of enhanced trade tax collection, better use of resources and increased trader compliance. Traders will gain in terms of higher predictability and speed of operations and lower transaction costs, resulting in more competitive exports on global markets. For countries as a whole, reducing unnecessary delays and costs attracts investments, and supports growth and job creation. At the same time, a more efficient and transparent delivery of public services allows an administration to maintain high security levels and effective government control, while diminishing opportunities for corruption. Trade facilitation measures can particularly benefit developing countries, where it frequently takes three times as many days to export goods as it does in developed ones. Exports from developing countries require nearly twice as many documents and six times as many signatures (World Bank: Doing Business 2012). Such potential benefits have been measured by many studies and reports, particularly from the World Bank and the OECD. At the macro level, these look at the positive effects on the trading environment and trade volumes. E very extra day required to ready goods for import or export decreases trade by around 4% (OECD 2011). For the APEC region, reforms in countries that perform below the regional average could increase intra-APEC trade by 245 $billion. At the micro level (firms), these studies assess the ease of doing trade and a firm's export performance, measured as export intensity and diversity. And they find that exporters in African countries with more efficient Customs agencies send more products abroad (Yoshino 2008). =What does it involve?= The fundamental principles of trade facilitation are transparency, simplification, harmonization and standardization.
 * Figure 1. The Four pillars of Trade Facilitation (Source: National Board of Trade, Sweden)**


 * Transparency** within government promotes openness and accountability of a government's and administration's actions. It entails disclosure of information in a way that the public can readily access and use it. This information may include laws, regulations and administrative decisions of general application, budgets, procurement decisions and meetings. Regulatory information should be published and disseminated, when possible, prior to enforcement to allow parties concerned to take note of it and make necessary changes. Furthermore, relevant stakeholders and the general public should be invited to participate in the legislative process, by providing their views and perspectives on proposed laws prior to enactment.


 * Simplification** is the process of eliminating all unnecessary elements and duplications in trade formalities, processes and procedures. It should be based on an analysis of the current, “As-Is”, situation.


 * Harmonization** is the alignment of national procedures, operations and documents with international conventions, standards and practices. It can come from adopting and implementing the same standards as partner countries, either as part of a regional integration process or as a result of business decisions.


 * Standardization** is the process of developing formats for practices and procedures, documents and information internationally agreed by various parties. Standards are then used to align and, eventually, harmonize practices and methods.

To achieve these principles, full cooperation between government authorities and the business community is essential. =The supply chain perspective= Often activities promoted and conducted under the overall heading of trade facilitation focus on Customs administrations. Although Customs is a key player in trade facilitation, focusing on these agencies and their processes alone is not sufficient. Trade facilitation has to encompass the entire trade environment, actors and processes involved in a transaction. An international supply chain perspective should be adopted. A supply chain embraces all activities necessary for goods to be produced and delivered to the final consumer. Such activities include sourcing of raw materials, preparing for transport, requesting an import license, preparing documentation for Customs clearance, clearance, payment, and delivery to the consumer. As a minimum, a supply chain involves two parties, the seller and the buyer. In reality, a supply chain involves many different parties. These can be private-sector traders, transport operators, service intermediaries, or regulatory bodies from the public sector. Adopting a supply chain perspective makes it possible to view and understand all possible processes and the interlinkages between them. It provides the framework to logically connect different actors, procedures and requirements in one picture of the trade environment. In emphasizing the dependencies, it becomes clear that improvements are realized throughout the chain but changes in one area can easily be offset by stalemates in others. There are many variants of supply chains. Using a supply chain perspective therefore requires the use of a theoretical pattern that simplifies its complexity and can be used as a reference model. The Buy-Ship-Pay Model (BSP) developed by UN/CEFACT is an example of such a model. It presents the supply chain as a sequence of business processes that can be grouped into the high-level domains of Buy, Ship and Pay. The figure below illustrates the use of the BSP approach. For each domain, the model presents key activities, such as the activity “insure cargo” for the step “prepare for export” of the Ship domain. The model can be used in various ways, for example to gain understanding of the processes and actors involved, to help define the scope of a specific project, and to identify the impact of given trade facilitation initiatives and instruments. =How to make it happen= Trade facilitation is discussed at three levels: the national, regional and international level. At the national level, trade facilitation is a reform process that requires strong political support and involves different types of interventions and activities, which can be grouped into the following categories: These activities can be conducted inside a single entity as well as across agencies, and should involve, in multiple ways, the private sector and the business community. Since countries are at different development stages and work in different legal and administrative environments, each of them should individually determine what trade facilitation measures to implement, for what scope, and in which order. This is the objective of the political process that starts with a comprehensive needs assessment, leads to an analysis of the implementation options and solutions, and plans, monitors and evaluates the actual implementation of the reform initiatives. Beyond this national perspective, trade facilitation is also increasingly becoming an issue of international and regional cooperation. Cross-border harmonization is dealt with in various regional agreements, usually as part of regional trade, transit or transport agreements. According to UNCTAD, of more than 470 regional trade agreements (RTAs) notified to the WTO in 2010, about one-third of those in force contain trade facilitation measures (incl. Customs procedures). With the Doha Round of trade negotiations, trade facilitation has also become an issue of rule setting at the WTO. Member States have been negotiating since 2003 over a set of rules that could be incorporated into WTO law. The national, regional and international levels complement each other. In planning their reforms, countries should seek guidance from available trade facilitation instruments. These are international conventions, regional or bilateral agreements, standards and recommendations developed by international organizations, associations or regional bodies, as well as best practices and case studies. The advantages of using these instruments, in particular international rules and standards, are that they are neutral rules developed by experts, with high harmonization leverage when implemented by a large number of countries and businesses. International and national levels complement each other for another reason. The sharing of expertise and experience, which many international organizations support with their work, contributes to enhancing both political awareness and technical knowledge of trade facilitation. Such organizations are crucial partners for many countries seeking to advance trade facilitation, as they develop and manage instruments, and provide technical and financial assistance for their application.
 * Figure 2. The UN/CEFACT Buy Ship Pay Model (Source UN/CEFACT International Supply Chain Reference Model)**
 * regulatory reforms aiming at a clear, concise, transparent legal framework;
 * institutional development and inter-agency cooperation;
 * introduction and modernization of infrastructure for e-business, including IT systems;
 * changes in business processes and procedures, including adoption of risk management techniques; and
 * capacity building for implementing managers and officers.