Down with the biggest remaining barrier to trade
by Maria Livanos Cattaui (As published in the Financial Times FT Exporter 11 March 1998)
Paris, 11 March 1998 - As the world's trade diplomats prepare to celebrate the 50th anniversary of the multilateral trading system they should remind themselves that the biggest remaining non-tariff barriers are cumbersome customs regulations and procedures that have failed to keep up with the expansion and increased complexity of trade.
Successive multilateral trade negotiations, culminating in the Uruguay Round that gave birth to the World Trade Organization,
have brought tariffs down to their lowest levels this century. Inevitably, this unprecedented liberalization has drawn attention to other practical obstacles to the free flow of goods across borders - like rocks revealed by an ebbing tide.
International trade has increased 15-fold over the half century. More and more industrial products sold throughout the world are assembled in one country from components manufactured in several others. Increased reliance on just-in-time production and delivery makes speedy customs clearance a major issue for business.
Customs modernization and harmonization have become a priority for companies that find their operations severely hampered by administrative delays at borders and stand to be disadvantaged even more as economic globalization gathers pace. Small and medium-sized companies, especially those in developing countries, are among the most affected.
Clearly, the extent of customs delays and red tape varies enormously from country to country. But everywhere, the goal must be to apply the full benefits of modern technology and management practices to reconciling the control and revenue-raising requirements of customs with the imperatives of a global economy.
Failure by governments to take account of business needs for simple, transparent, coordinated and harmonized customs procedures will erode the value of the achievements over half a century which trade ministers will be commemorating at the WTO's Golden Jubilee in Geneva on 20 May.
The good news is that governments are becoming increasingly aware of the urgency of customs modernization. The first ministerial conference of the WTO in Singapore at the end of 1996 marked a breakthrough when governments for the first time placed simplification of trade procedures, including customs, on the WTO's agenda. The Group of Seven summit has taken up the issue and brought in customs experts to work on standardization of data requirements for customs purposes.
On the practical level, the International Chamber of Commerce (ICC) and the World Customs Organisation (WCO), which groups customs administrations, are already working together under a formal cooperation agreement. One of ICC's contributions has been a series of International Customs Guidelines encouraging customs authorities to use automation and electronic information systems as extensively as possible.
ICC has for example proposed that customs process essential control information before goods arrive at frontiers, that they should take greater advantage of X-ray and other non-intrusive examination techniques and that customs working hours be tailored to commercial needs. Suggestions include acceptance of a commercial document as the export declaration instead of insistence on completion of an official form.
Underlying the business pressure for customs reforms is the realization that customs priorities have changed, at least for the industrialized countries. As tariff barriers come down, the relative importance of customs' revenue-raising functions has diminished
Customs procedures in the industrialized countries these days are increasingly focused on interdiction of drugs, suppression of environmental hazards, protecting endangered species, controlling sensitive goods and intellectual property protection. These are interests that business fully shares.
For developing countries, revenue raising remains the main function of customs. But this different emphasis does no
t lessen the need for reform. Wherever there are inefficient and unpredictable customs controls, often compounded by corruption, trust is destroyed and revenues lost.
Because it involves agents of the state who should be dependable guardians of the law, customs corruption is particularly pernicious. It is a significant handicap to economic development in many countries of Africa, Asia, Latin America and eastern Europe. The risk of delays and exposure to demands for illicit payments deters foreign companies from setting up production or processing plant, causing incalculable damage to a country's ability to attract foreign direct investment.
The World Customs Organisation has proposed remedies that include adequate remuneration for customs officials, internal and external auditing and fair rules for appointments and promotion. But the question remains: how are these and other recommendations to be translated into effective action? The WCO is an irreplaceable source of detailed expertise, but lacks the power to put a political head of steam behind its proposals. That must be remedied.
Business through ICC is currently working with the WCO on strengthening the Kyoto Convention on simplified and harmonized customs procedures. At the same time we are urging the WTO to back global customs reform by giving obligatory and enforceable status to that convention, making it subject to the WTO dispute settlement mechanism. Further, ICC wants the WTO to coordinate initiatives designed to improve customs procedures.
The potent influence of the international lending agencies - International Monetary Fund and World Bank - should also be mobilized to secure agreement of offending governments to radical reform of poor quality customs services.
In the new global economy, business and customs must put an end to past adversArial, Helvetica, sans-serif relationships and work closely together. While companies do not want to become surrogate policemen, they can advise customs authorities on how customs procedures may best be adapted to current trading practices.
More than that: in cooperation with customs, companies can ensure that their own operations, from initial packaging and checking to shipment and delivery, are organized so as to provide maximum safeguards against the infiltration of illicit drugs or other hazardous substances.
One idea from the chemicals industry is that governments should assign those traders with a record of proficient and ethical management of their cross-border activities the status of authorized international traders, who could be registered with the WTO. They would be allowed to conduct import and export operations under a fast-track non-intervention regime, a privilege that would depend on post export or import audits or spot checks to ensure that the rules were being strictly obeyed.
A revolutionary idea perhaps - but one in the spirit of the new partnership that business seeks to pursue with customs authorities the world over.
ICC Commission on Trade and Investment