What does “trade facilitation” really mean?
Autor: Eduardo N. B. Leite
Customs Compliance & Risk Management (CCRM) Journal, Issue 21, June / July 2023
What does “trade facilitation” really mean? | O que realmente significa “facilitação do comércio”?
With the increase in globalization and economic interdependence between countries, trade facilitation has become a critically important issue for the global economy. Consequently, trade facilitation has been addressed in all its possible meanings, in all fields and scopes, and by all institutions that are somehow linked to international trade, composing a true Tradeweb of players with specific roles and common objectives.
In this chain of relationships, it is possible to verify that efforts are being made to strengthen cooperation between Governments, Inter-Government agencies, Customs and other Government Agencies, Businesses, Institutions, Associations and Academia.
A few introductory remarks
First of all, in the perspective of international agreements and conventions, trade facilitation refers to the set of measures and policies aimed at reducing obstacles to international trade, including tariffs, excessive regulations and customs bureaucracy. On the other hand, some measures, instead of reducing procedures, impose additional layers to increase safety, compliance and the fluidity of cross-border transit.
In addition to international agreements, there are several ways to promote the facilitation of international trade, the main ones being, standardization, harmonization and investment in logistics infrastructure. But this is of no use if the rulers, population and institutions of a country do not understand the benefits and importance of standards.
In history, many international agreements aimed at somehow standardize and harmonize procedures, precisely because this primitive way proved to be the most effective way of facilitating the transit of goods, people and investments.
Overview of the Tradeweb
One type of agreement is Global Foundational, such as those that create Global International Organizations open to all countries, like the United Nations (UN) and its agencies [1], World Trade Organization (WTO) and World Customs Organization (WCO).
Under the auspices of these Global International Organizations, some agreements, conventions, standards and Model Laws are prepared, signed and updated or hosted to address customs, international trade, transport and facilitation issues such as Contracts (UNCITRAL), Use of Electronic Communications in International Contracts (UNCITRAL), E-Commerce (UNCITRAL), E-Signature (UNCITRAL), Electronic Transferable Records (UNCITRAL), Use and Cross-border Recognition of Identity Management and Trust Services (UNCITRAL), Limitation Period in the International Sale of Goods (UNCITRAL), Cross-border Paperless Trade (UNESCAP), Harmonization Frontier Controls (UNECE), TIR Carnets (UN), Civil Aviation (ICAO – Chicago and Montreal conventions), Maritime (IMO FAL Convention), Carriage of Goods by Sea (UN), Liability of Operators of Transport Terminals (UN), Contracts for the International Carriage of Goods Wholly or Partly by Sea (UN), Classification and Description of Goods (WCO - HS [2]), Tariffs (WTO - GATT/TFA [3]), Customs Valuation (WTO/WCO - GATT [4]), Customs Procedures and Regimes (WCO - RKC [5], WTO - GATT and WTO - TFA [6]), Temporary Admission (WCO - Istanbul Convention), Containers (WCO - Customs Convention on Containers and IMO Convention for Safe Containers), Rule of Origin (WTO - GATT/RO), Import Licensing (WTO - GATT/ILP), Preshipment Inspection (WTO - GATT), Technical Barriers to Trade (WTO - TBT), Sanitary and Phytosanitary Measures (WTO - SPS), Subsidies and Countervailing (WTO - GATT/ASCM), Anti-dumping (WTO - GATT), Safeguards (WTO - Safeguards Agreements), Service (WTO - GATS), Intellectual Property (WTO - TRIPS), Agriculture (WTO - Agriculture Agreement), Investment (WTO - TRIMS), etc.
It is also worth remembering the Foundational Regional Integration Agreements that create economic blocks, customs unions or free trade zones restricted to regions or countries such as the European Union (EU) and the MERCOSUL, United States-Mexico-Canada Agreement (USMCA), Trans-Pacific Partnership (TPP), etc. Within the scope of these agreements, we also see deliberations related to the same topics dealt with by Global International Organizations.
The above mentioned Regional International Organizations also usually sign agreements among themselves such as the agreement under negotiation between the EU-MERCOSUL or between them and other countries such as MERCOSUL-CHILE, in both cases, are previsions on the same
topics dealt with by the Global International Organizations.
Finally, it is important to emphasize that countries establish bilateral or multilateral agreements, outside the Foundational Regional Integration Agreements and without establishing free trade zones, dealing with the same themes as Global International Organizations, such as the Protocol to The Agreement on Trade and Economic Cooperation between The United States of America and Brazil.
Most of the agreements on International Trade were conducted under the auspices of the WTO and there are about 60 agreements [7], which highlights the importance of the creation of the WTO, in particular for having hosted the negotiations of the Trade Facilitation Agreement, an important milestone for international trade facilitation.
Equally noteworthy is the WCO's founding convention, and its important agreements such as the Harmonized System Convention and the Kyoto Convention (1973/1999) and, last but not least, the essential role of the UN and its agencies, which contributes, with unique distinction, to the dissemination throughout all countries of trade facilitation principles enriched with the fundamental values of Sustainable Development.
Two important concepts in trade facilitation: standardization and harmonization
Standardization
There are two important concepts in trade facilitation, the first is standardization [8]. The procedures may be exactly the same (classification of goods in HS) or be based on the same regulation (TBT, SPS, etc.), could be an International Agreement, a Private Standard (voluntary standard), a Public Standard (can be either voluntary or mandatory), from the International Organization for Standardization (ISO) or the International Chamber of Commerce (ICC) ICOTERMS, for governments like the WCO Data Model (DM), WCO SAFE Framework, WCO ECommerce Package, the UN/UNECE, UN/CEFACT and UN/EDIFACT Recommendations or as the standards established by national standardization systems. As an example of global standardization, the obligation to use ISO 31.000 in risk management for the Authorized Economic Operator.
In this regard, it is important to point out that not all standards are good, some are ugly, and others are bad, according to a relevant study carried out by UNCTAD [9]. Computer language formats are also important communication and data exchange standards such as XML, JSON, TXT, etc., as well as means of identifying people and companies on the Internet.
Harmonization
The second concept is harmonization, in this way we can establish an equivalence of truths in different standards. In harmonization the standards are different, but they both communicate and have the same objectives, similar forms or similar means. When standards are different, through mutual recognition agreements harmonization can be achieved. For example, the mutual recognition agreements between programs from different countries of Authorized Economic Operators. When the languages are different through interoperability harmonization can be achieved. For example, the UN/CEFATC Recommendation 36 covers the interoperability between two or more electronic Single Windows in different countries or economies.
Another example is the WCO Trader Identification Number (TIN). The Guidelines provide technical standards and guidance for establishing a globally unique TIN for the exchange of AEO master data and the efficient identification of economic operators. The Guidelines will assist with the successful implementation of AEO-MRAs in a standardized and harmonized manner in order to avoid disparate approaches that would have IT and cost implications [10].
Some of the challenges
Despite the obvious benefits of trade facilitation, significant challenges still need to be overcome. Countries may have conflicting interests in trade facilitation, with some seeking to protect their domestic industries and others seeking to promote trade liberalization and openness. Additionally, the COVID-19 pandemic has presented additional challenges to trade facilitation, with restrictions on the movement of people and goods around the world.
The use of standards is widely encouraged and used in all segments of society, as well as contributing to the 2030 Agenda for Sustainable Development. “Using standards in technical regulations promotes international regulatory coherence; helps companies, communities and organizations move toward a more resilient and sustainable model of production and consumption; and help conserve Planet Earth’s precious resources.” [11].
International Agreements and Standards are not immutable and are constantly evolving, such as the Kyoto Convention of 1973, revised in 1999, and the regularly updated ones: ISO standards, the Harmonized System, the WCO SAFE Framework.
The common denominator in trade facilitation: standardization
If we pay attention, in almost everything related to trade facilitation the common denominator is standardization. The commodity designation and coding system (Harmonized System convention) is one of the pillars of trade facilitation as it is a globally accepted framework for classifying commodities and provides a standardized and consistent system for identifying, classifying and coding products.
Conclusion
Taking everything into consideration, trade facilitation has become a crucial issue for the global economy, intending to reduce obstacles to international trade. Several methods are used to promote trade facilitation, such as international agreements, standardization, harmonization and investment in logistics infrastructure. International organizations such as the UN, WTO, and WCO play a significant role in the creation, negotiation, and update of conventions, agreements and standards related to customs and international trade. Standardization and Harmonization are essential aspects of trade facilitation, with these methods it is possible to enable equivalence of truths, mutual recognition and interoperability between different systems and countries. Therefore, it is crucial to continue promoting trade facilitation through the implementation of these methods to further enhance regulatory' convergence and coherence towards sustainable international trade.
__________
[1] United Nations Economic Commission for Europe - UNECE, International Maritime Organization - IMO, International Civil Aviation Organization - ICAO, United Nations Commission on International Trade Law - UNCITRAL, Economic and Social Commission for Asia and the Pacific - ESCAP.
[2] International Convention on the Harmonized Commodity Description and Coding System.
[3] General Agreement on Tariffs and Trade (GATT) - 1947/1994 and Trade Facilitation Agreement - 2013.
[4] General Agreement on Tariffs and Trade (GATT) 1994 and the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade.
[5] Revised Kyoto Convention - 1999.
[6] Trade Facilitation Agreement - 2013.
[7] The full list and status of agreements can be viewed on the WTO website: https://www.wto.org/english/docs_e/legal_e/legal_e.htm
[8] The broad concept of standards is described in the UNECE document ECE/TRADE/C/WP.6/2012/6: “standard - document, established by consensus and approved by a recognized body, that provides, for common and repeated use, rules, guidelines or characteristics for activities or their results, aimed at the achievement of the optimum degree of order in a given context". In this definition there is no statement that the standard is a document or that its application is exclusively voluntary, so this term allows that the standards can be either voluntary or mandatory, depending on the decisions of the relevant national standardization systems in different countries.
[9] Trade barriers: picking the good from the bad and the ugly.
[10] WCO: https://www.wcoomd.org/en/topics/facilitation/instrument-and-tools/tools/trader-identification-number.aspx
[11] UN/UNECE: https://unece.org/trade/wp6/using-standards#accordion_0
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Customs Compliance & Risk Management (CCRM) Journal, Issue 21, June / July 2023
What does “trade facilitation” really mean? | O que realmente significa “facilitação do comércio”?
With the increase in globalization and economic interdependence between countries, trade facilitation has become a critically important issue for the global economy. Consequently, trade facilitation has been addressed in all its possible meanings, in all fields and scopes, and by all institutions that are somehow linked to international trade, composing a true Tradeweb of players with specific roles and common objectives.
In this chain of relationships, it is possible to verify that efforts are being made to strengthen cooperation between Governments, Inter-Government agencies, Customs and other Government Agencies, Businesses, Institutions, Associations and Academia.
A few introductory remarks
First of all, in the perspective of international agreements and conventions, trade facilitation refers to the set of measures and policies aimed at reducing obstacles to international trade, including tariffs, excessive regulations and customs bureaucracy. On the other hand, some measures, instead of reducing procedures, impose additional layers to increase safety, compliance and the fluidity of cross-border transit.
In addition to international agreements, there are several ways to promote the facilitation of international trade, the main ones being, standardization, harmonization and investment in logistics infrastructure. But this is of no use if the rulers, population and institutions of a country do not understand the benefits and importance of standards.
In history, many international agreements aimed at somehow standardize and harmonize procedures, precisely because this primitive way proved to be the most effective way of facilitating the transit of goods, people and investments.
Overview of the Tradeweb
One type of agreement is Global Foundational, such as those that create Global International Organizations open to all countries, like the United Nations (UN) and its agencies [1], World Trade Organization (WTO) and World Customs Organization (WCO).
Under the auspices of these Global International Organizations, some agreements, conventions, standards and Model Laws are prepared, signed and updated or hosted to address customs, international trade, transport and facilitation issues such as Contracts (UNCITRAL), Use of Electronic Communications in International Contracts (UNCITRAL), E-Commerce (UNCITRAL), E-Signature (UNCITRAL), Electronic Transferable Records (UNCITRAL), Use and Cross-border Recognition of Identity Management and Trust Services (UNCITRAL), Limitation Period in the International Sale of Goods (UNCITRAL), Cross-border Paperless Trade (UNESCAP), Harmonization Frontier Controls (UNECE), TIR Carnets (UN), Civil Aviation (ICAO – Chicago and Montreal conventions), Maritime (IMO FAL Convention), Carriage of Goods by Sea (UN), Liability of Operators of Transport Terminals (UN), Contracts for the International Carriage of Goods Wholly or Partly by Sea (UN), Classification and Description of Goods (WCO - HS [2]), Tariffs (WTO - GATT/TFA [3]), Customs Valuation (WTO/WCO - GATT [4]), Customs Procedures and Regimes (WCO - RKC [5], WTO - GATT and WTO - TFA [6]), Temporary Admission (WCO - Istanbul Convention), Containers (WCO - Customs Convention on Containers and IMO Convention for Safe Containers), Rule of Origin (WTO - GATT/RO), Import Licensing (WTO - GATT/ILP), Preshipment Inspection (WTO - GATT), Technical Barriers to Trade (WTO - TBT), Sanitary and Phytosanitary Measures (WTO - SPS), Subsidies and Countervailing (WTO - GATT/ASCM), Anti-dumping (WTO - GATT), Safeguards (WTO - Safeguards Agreements), Service (WTO - GATS), Intellectual Property (WTO - TRIPS), Agriculture (WTO - Agriculture Agreement), Investment (WTO - TRIMS), etc.
It is also worth remembering the Foundational Regional Integration Agreements that create economic blocks, customs unions or free trade zones restricted to regions or countries such as the European Union (EU) and the MERCOSUL, United States-Mexico-Canada Agreement (USMCA), Trans-Pacific Partnership (TPP), etc. Within the scope of these agreements, we also see deliberations related to the same topics dealt with by Global International Organizations.
The above mentioned Regional International Organizations also usually sign agreements among themselves such as the agreement under negotiation between the EU-MERCOSUL or between them and other countries such as MERCOSUL-CHILE, in both cases, are previsions on the same
topics dealt with by the Global International Organizations.
Finally, it is important to emphasize that countries establish bilateral or multilateral agreements, outside the Foundational Regional Integration Agreements and without establishing free trade zones, dealing with the same themes as Global International Organizations, such as the Protocol to The Agreement on Trade and Economic Cooperation between The United States of America and Brazil.
Most of the agreements on International Trade were conducted under the auspices of the WTO and there are about 60 agreements [7], which highlights the importance of the creation of the WTO, in particular for having hosted the negotiations of the Trade Facilitation Agreement, an important milestone for international trade facilitation.
Equally noteworthy is the WCO's founding convention, and its important agreements such as the Harmonized System Convention and the Kyoto Convention (1973/1999) and, last but not least, the essential role of the UN and its agencies, which contributes, with unique distinction, to the dissemination throughout all countries of trade facilitation principles enriched with the fundamental values of Sustainable Development.
Two important concepts in trade facilitation: standardization and harmonization
Standardization
There are two important concepts in trade facilitation, the first is standardization [8]. The procedures may be exactly the same (classification of goods in HS) or be based on the same regulation (TBT, SPS, etc.), could be an International Agreement, a Private Standard (voluntary standard), a Public Standard (can be either voluntary or mandatory), from the International Organization for Standardization (ISO) or the International Chamber of Commerce (ICC) ICOTERMS, for governments like the WCO Data Model (DM), WCO SAFE Framework, WCO ECommerce Package, the UN/UNECE, UN/CEFACT and UN/EDIFACT Recommendations or as the standards established by national standardization systems. As an example of global standardization, the obligation to use ISO 31.000 in risk management for the Authorized Economic Operator.
In this regard, it is important to point out that not all standards are good, some are ugly, and others are bad, according to a relevant study carried out by UNCTAD [9]. Computer language formats are also important communication and data exchange standards such as XML, JSON, TXT, etc., as well as means of identifying people and companies on the Internet.
Harmonization
The second concept is harmonization, in this way we can establish an equivalence of truths in different standards. In harmonization the standards are different, but they both communicate and have the same objectives, similar forms or similar means. When standards are different, through mutual recognition agreements harmonization can be achieved. For example, the mutual recognition agreements between programs from different countries of Authorized Economic Operators. When the languages are different through interoperability harmonization can be achieved. For example, the UN/CEFATC Recommendation 36 covers the interoperability between two or more electronic Single Windows in different countries or economies.
Another example is the WCO Trader Identification Number (TIN). The Guidelines provide technical standards and guidance for establishing a globally unique TIN for the exchange of AEO master data and the efficient identification of economic operators. The Guidelines will assist with the successful implementation of AEO-MRAs in a standardized and harmonized manner in order to avoid disparate approaches that would have IT and cost implications [10].
Some of the challenges
Despite the obvious benefits of trade facilitation, significant challenges still need to be overcome. Countries may have conflicting interests in trade facilitation, with some seeking to protect their domestic industries and others seeking to promote trade liberalization and openness. Additionally, the COVID-19 pandemic has presented additional challenges to trade facilitation, with restrictions on the movement of people and goods around the world.
The use of standards is widely encouraged and used in all segments of society, as well as contributing to the 2030 Agenda for Sustainable Development. “Using standards in technical regulations promotes international regulatory coherence; helps companies, communities and organizations move toward a more resilient and sustainable model of production and consumption; and help conserve Planet Earth’s precious resources.” [11].
International Agreements and Standards are not immutable and are constantly evolving, such as the Kyoto Convention of 1973, revised in 1999, and the regularly updated ones: ISO standards, the Harmonized System, the WCO SAFE Framework.
The common denominator in trade facilitation: standardization
If we pay attention, in almost everything related to trade facilitation the common denominator is standardization. The commodity designation and coding system (Harmonized System convention) is one of the pillars of trade facilitation as it is a globally accepted framework for classifying commodities and provides a standardized and consistent system for identifying, classifying and coding products.
Conclusion
Taking everything into consideration, trade facilitation has become a crucial issue for the global economy, intending to reduce obstacles to international trade. Several methods are used to promote trade facilitation, such as international agreements, standardization, harmonization and investment in logistics infrastructure. International organizations such as the UN, WTO, and WCO play a significant role in the creation, negotiation, and update of conventions, agreements and standards related to customs and international trade. Standardization and Harmonization are essential aspects of trade facilitation, with these methods it is possible to enable equivalence of truths, mutual recognition and interoperability between different systems and countries. Therefore, it is crucial to continue promoting trade facilitation through the implementation of these methods to further enhance regulatory' convergence and coherence towards sustainable international trade.
__________
[1] United Nations Economic Commission for Europe - UNECE, International Maritime Organization - IMO, International Civil Aviation Organization - ICAO, United Nations Commission on International Trade Law - UNCITRAL, Economic and Social Commission for Asia and the Pacific - ESCAP.
[2] International Convention on the Harmonized Commodity Description and Coding System.
[3] General Agreement on Tariffs and Trade (GATT) - 1947/1994 and Trade Facilitation Agreement - 2013.
[4] General Agreement on Tariffs and Trade (GATT) 1994 and the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade.
[5] Revised Kyoto Convention - 1999.
[6] Trade Facilitation Agreement - 2013.
[7] The full list and status of agreements can be viewed on the WTO website: https://www.wto.org/english/docs_e/legal_e/legal_e.htm
[8] The broad concept of standards is described in the UNECE document ECE/TRADE/C/WP.6/2012/6: “standard - document, established by consensus and approved by a recognized body, that provides, for common and repeated use, rules, guidelines or characteristics for activities or their results, aimed at the achievement of the optimum degree of order in a given context". In this definition there is no statement that the standard is a document or that its application is exclusively voluntary, so this term allows that the standards can be either voluntary or mandatory, depending on the decisions of the relevant national standardization systems in different countries.
[9] Trade barriers: picking the good from the bad and the ugly.
[10] WCO: https://www.wcoomd.org/en/topics/facilitation/instrument-and-tools/tools/trader-identification-number.aspx
[11] UN/UNECE: https://unece.org/trade/wp6/using-standards#accordion_0