WORLD TRADE
ORGANIZATIONG/C/W/397
17 July 2002
(02-3975)
Council for Trade in Goods Original:  English
TRADE FACILITATION: ARTICLE VIII OF  GATT 1994 ON FEES AND FORMALITIES
CONNECTED WITH IMPORTATION AND EXPORTATION
Communication from Canada
The following communication, dated 17 July 2002, has been received from the Permanent
Mission of Canada.
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Introduction
This paper, Canada’s second contribution to the 2002 work programme on Trade Facilitation,
provides a number of Canadian ideas on how GATT Article VIII on Fees and Formalities connected
with Importation and Exportation could be clarifie d and improved.  In our proposals we focus in
particular on the potential to address improvements in Article VIII:1(c) and those of a broader nature
to Article VIII recognizing that Article VIII:1(a) in particular has benefited from legal clarifications
from various past GATT and WTO panels.  We believ e that the addition of business and user-friendly
improvements to the core international trade procedures reflected in GATT Article VIII are vital keys
to enhancing a country’s capacity to trade and to in tegrate fully into the international trading system.
As in Canada’s earlier paper on GATT Article X on the Publication and Administration of
Trade Regulations submitted to the Council for Trade in Goods in May 2002, we have again flagged
some possible areas for technical assistance in support of our proposals.  Canada continues to support
fully the integrated approach of developing WTO commitments and ensuring technical assistance and
capacity building where required to assist in impl ementing such commitments.  We believe this is best
pursued through Member discussion on how best to identify, coordinate and deliver technicalassistance in the context of implementing future commitments in trade facilitation.
Considerations
Article VIII of the GATT is often viewed from the perspective that its predominate role is to
restrict the imposition of fees or charges relative to the administrative processing of imported goods to
that of the approximate value of services rendered.  This reflects a concern by the original drafters that
a further levying of fees or charges might simply serve as an additional means of protection for
domestic products or as an alternate taxation method for fiscal purposes, thereby circumventing the
overall intent and benefit of tariff reductions.  However, notwithstanding this preoccupation with feesand charges, the drafters of Article VIII, particularly in paragraph 1(c) as well as paragraph 3, also
envisage the “incidence and complexity of import and export formalities” by raising references to
“decreasing and simplifying import and export documentation requirements”.  In addition there is a
concern about the inappropriate use of penalties.  GATT Article VIII is therefore a key article since its
scope and coverage is quite broad.G/C/W/397
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Although the Article acknowledges there is a need for reducing the number and diversity of such fees
and charges it does not specify how such reduction is to be accomplished.  The Article also recognizes
the need for reducing the incidence and complexity of import and export formalities to the minimum,
but it is silent as to methodology.  However, we know that trade facilitation is all about efficiencies
and reducing transaction costs in cross-border trade, without compromising the need for consumerprotection, health and safety and public security.  We also know that in order to be effective, trade
facilitation initiatives need to be cost efficient in the context of this Article, i.e., they should minimize
the incidence and complexity of border formalities and procedures.
Possibilities for Clarifying and Improving GATT Article VIII
In consideration of the existing and significant technology gap that currently exists in the
trading environment, the proposals for simplification and for effective procedures should be
applicable and useable in either a non-automated or a technology based environment.  In both cases,
these can serve to promote efficiencies, enhance transparency and minimize procedural delays with
the primary difference being the degree of change that is achieved.
Canada would suggest the following clarifications and improvements to GATT Article VIII.
In many cases, these ideas draw from a number of current WTO Agreements, such as the Agreement
on Rules of Origin and the Agreement on Implementation of Article VII of the GATT.  Our ideas also
draw upon the National Experience papers on trade facilitation submitted to the Council for Trade in
Goods by various Members.
These suggestions, which reflect the trade facilitation principles of consistency; efficiency
and simplification; harmonization; consultation and cooperation; transparency and, effective
compliance, fall under the following categories:
A. Simplifying border-related documentation and increasing compatibility/standardizing data
required for release of merchandise
1. Using existing international standards where appropriate, develop common data sets to be
requested in the process of clearance.  The objective would be to create standard, international
compatible data sets that will meet government and trade requirements for international cross-
border trade.
2. Increased compatibility and standardization of data sets would facilitate the increased use of
information and communication technologies (i .e., EDI or electronic data interchange).
Use of agreed international standards would ensure a common basis for the measures applied
by different WTO Members, which in turn would improve transparency and predictability, and lower
costs for traders, in particular in the preparation of trade documents and data.  Simplifying and
improving customs and border-related documentation that is based on and takes into account
international standards and instruments represents one of the most important ways of achieving early
gains in facilitating trade.  Cumbersome and repetitive border crossing procedures and relateddocumentation are frequently cited by business as a major deterrent to entering into certain markets.
Procedural delays in border controls and haphazard documentation requirements not only have the
effect of impeding the movement of traded goods, but can also ensure that such goods, which may be
urgently required, stagnate in clearance depots or warehouses instead of being used productively and
in a timely way.
With the objective of facilitating internationa l trade in goods on a multilateral basis, WTO
Members might consider agreeing to administer their import and export processes on the basis of
efficient procedures designed to reduce costs for importers and exporters.  These processes andG/C/W/397
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procedures, including the applicable documentation, should be simplified where appropriate to enable
the achievement of such efficiencies.  Such procedures, based on international trade instruments or
standards and entry procedures, should be transparent to ensure predictability for importers and
exporters.  Increased compatibility and standardization of the applicable data requirements for import
and export processes would situate WTO Members on a common path of up-to-date, modern andsimplified procedures and would facilitate the use of existing standards where appropriate.  The
development of common data sets of information requirements for the process of goods clearance
would in turn facilitate the increased use of in formation and communication technologies (i.e., EDI or
electronic data interchange).  Such a development would lead to crucial gains, particularly for smaller
countries and small and medium-sized enterprises (SMEs) by enabling them to trade more efficiently.
In addition to reducing costs for importers/exporters, the use of such measures would produce cost
savings for customs and other border-related administration as well.
B. Border Agency Coordination
3. Members might want to consider ways and means to ensure that the activities and
requirements of all agencies present at borders are coordinated in a manner designed tofacilitate trade.  This might include increas ing the compatibility of, or standardizing the
import/export data requirements of such agencies with the objective of allowing importers
and exporters to present all required data to only one border agency.  Such a “single window”
approach could be designed to take into account, where possible, the use of relevant
electronic technology.
4. It could also include the coordination of procedures and formalities.  Agreements to ensure
cooperation between customs authorities on coordinating border controls and to establish
technical and operational measures to regulate the functioning of integrated border controls
could be considered (e.g., controls through a single, shared physical infrastructure in whichthe neighbouring countries’ customs services operate side by side).
In many member countries, the customs function already coincides with, or involves
interaction with, other domestic agencies or depart ments who have an interest in the cross-border
movement of goods.  As an example, some goods may be subject to other government department
requirements and may require special permits, certificates and/or examination.  In some instances,
customs authorities may administer the import and export interests of a number of relevantdepartments and agencies involved in border-processes and procedures.  In others, these departments
or agencies may play a formal role in the import process by administering their acts and/or regulations
independently at the border, or in cooperation with the customs agency.
We suggest that measures be considered to promote a more open and cooperative relationship
between the customs and other interested agencies or departments so as to better promote and
facilitate border crossings for the trading commun ity and for governments.  The focus would be to
streamline the import process for goods subject to re view by agencies outside of customs by better
exchanging and sharing information amongst those agencies and by streamlining and reducing
duplicative requirements thereby reducing the workload involved in the clearance of shipments.  Theobjective is to enable goods to be released more efficiently and quickly by reducing unnecessary
duplication with respect to the commercial reporting and release requirements for imported goods.
Where applicable, this may include the use of technology to allow the use of relevant release
information amongst interested parties involved.
Canada has taken a number of steps to streamline the import and export process and benefit
the importing and exporting community through the expedited clearance of goods.  In partnership
with a number of other government departments and agencies, Canada has developed and
implemented a “single-window” interface as a step  towards border agency coordination.  AlthoughG/C/W/397
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the Canadian system has evolved to work extensively on the basis of electronic transmission of data,
when appropriate or necessary it can also employ a more hands-on approach, for example, using
facsimile to transmit documentation.  Canada is open to discussing and sharing its experience on its
efforts to coordinate the activities and requirements of all agencies present at borders in order to
explore the possibility for developing specific technical assistance and training in this area.
C. Streamlined or special procedures
5. Streamlined special procedures could be developed for authorized persons, i.e., frequent
importer/exporter who satisfies criteria such as having an appropriate record of compliance
with official import/export requirements and a satisfactory system for managing their
commercial records in exchange for authority to have goods released quickly.
6. This could be based on the development and implementation of a risk management program
to determine which goods and traders are generally compliant with official border procedures
and posing low risk for control purposes.
7. Approval of traders for special or “fast-track” procedures requiring minimum official
intervention at the border might be considered appropriate for traders who regularly
import/export goods, e.g., -
• Provision of minimal information at time of release of goods
• Clearance at the declarant’s premises or other inland locations
• Ability to submit a goods declaration covering multiple transactions over a certain specified
period
• Self-assessment and accounting of duties and taxes by an authorized person
• Ability to make a goods declaration by a bookkeeping entry in the commercial records of an
authorized person.
Such action should be seen as:
(a) Promoting a modern concept of partnership between customs, traders and third
parties within international trade.
(b) Acknowledging a good record of compliance with border requirements, including all
the elements associated with accurate and correct goods declarations, adequate
security provided to meet obligations, timely duty and tax payments, proper methods
for tariff classification and country of origin claims and, no history of recurring errorsor violations.
Streamlined or special procedures are founded on the principle of providing the incentive of
better services and choices to those traders that comply voluntarily with customs and other border-
related laws and regulations.  This is made possible through a risk management system which betterallows the identification of higher-risk areas among clients, industry sectors, and trade chains, thereby
allowing customs to deliver better service options that will minimize intervention and inconvenience
for low-risk clients.  A risk management system  screens for high and low risk factors by using
information such as client demographics, customs examinations, audits, client profiles, pre-arrival
data analysis and other risk assessment techniques.  This way, customs can determine the level and
location of non-compliance - potential and real – and identify what is required optimally to help
clients meet their obligations.
Risk assessment techniques can include those based on technology or with a technological
application as well as those based on more traditional approaches.  Both can be effective.  Over theG/C/W/397
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years, the Canadian system has developed a number of streamlined or special procedures, based on
risk assessment principles to facilitate “fast-track” clearance.  Canada is ready to discuss with WTO
Members the possibility for developing specific technical assistance/training in the matter of such
procedures.
D. Provision of collateral or monetary security – enhanced clearance provisions
8. WTO Members could consider an enhanced clearance system that includes security
provisions (bonds, financial guarantees, surety bonds) or other forms of collateral to ensure
the obligations to customs of importers, exporters, warehouse operators or international
transporters of goods, are properly discharged.  For example, such a system could be used to
secure payment of duties and taxes where payment is deferred or where goods areprovisionally released pending completion of final clearance procedures (i.e., such as in cases
awaiting a decision on the correct tariff classification).  A similar relevant process is already
reflected in Article 13 of the Agreement on Customs Valuation.  Such a provision would
allow for quicker release of goods by separating the accounting (payment) process from the
movement/importation of the goods.
9. In addition, it would also be useful in ensu ring goods that are imported to fulfil a specific
purpose are subsequently duty-paid or exported after use, e.g., authorization to import goods
for “inward processing” without payment of dut ies and taxes, providing the finished goods
are subsequently exported.
The use of security provisions (e.g., surety bonds) would provide added flexibility to traders
in the import process and give certainty to the government that trader obligations will be met and the
revenue owed to the government is secured.  A surety bond can be used to cover imports on either a
single transaction or on a continuous basis.  When a bond is completed for single transactions, it maybe limited to a single importation.  When executed as a continuous bond, it will normally cover a
variety of transactions, including importations across the customs territory.  A surety bond may also
be employed for an expanded range of uses to meet a variety of import circumstances.  As an
example, surety bonds may include such uses as immediate clearance/delivery.  The bond simply
ensures that the trader/user complies with  the requirements of the applicable law.
The use of surety bonds presents an added option for traders in addition to the more usual
cash equivalent required to pay duties, taxes and other import-related charges connected to the
importation process.  A surety bond provides a guarantee that the importer will faithfully, and in a
timely manner, abide by all laws and regulations governing the importation of goods into the country.
In this manner, the bond is not designed nor intended to protect the importer, nor does it relieve the
importer of any obligations, rather it protects the government and can clear the way for faster releaseof goods, thus benefiting the trader.  The surety company by “bonding” the trader, assumes the duties
and responsibilities of the importer/trader and may be called upon for payment when the importer
cannot or will not fulfil its obligations.  In undert aking this commitment, the surety company then has
the right of full recovery from the trader for any loss incurred.  Thus, traders benefit from improved
cash flow management and have the ability to reduce unnecessary paper and cash managementburdens.  The government benefits from the security that bonds represent by securing revenue owed
and by having a means to ensure that trader obligations are satisfied.
Canada is open to discussing and sharing its experience on such surety systems with WTO
Members.G/C/W/397
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E. Use of risk assessment principles
10. Members might consider the development of disciplines covering the use of risk assessment
principles and post-entry audits as a step forward in addressing the trade facilitation principles
of efficiency and effective compliance.
In this regard, we would suggest promoting common approaches for risk management so as to
facilitate the efficient clearance of low-risk g oods with minimal or no physical examination and to
enable a move to use of post-entry audits to create a climate for more effective documentary
verification.
In a marketplace that, for the most part, demands multi-sourcing and just-in-time inventories,
traders need smooth, uninterrupted processes for getting goods to their domestic customers.  The use
of risk assessment principles is based on the simple premise that businesses or individuals with good
track records should benefit from their history of compliance by having access to options that will
make border-related processes and procedures easier and more convenient for all concerned, including
customs departments, agencies.  A risk management system is focussed on identifying higher-riskareas among clients, industry sectors, and trade chains.  Using tools such as links with international
enforcement agencies, data from carrier reservations systems, client profiles, and customs audits,
customs officials will be able to focus resources on identifying and effectively attending to areas of
higher and unknown risk thereby freeing up time and resources for other purposes.  This allows the
customs authority to offer better service and choices that will minimize intervention andinconvenience for low-risk clients.
The use of risk management techniques can be supplemented by post-entry audits (or
compliance verifications) under which customs can initiate a systems audit and or a periodic
verification of importers’ and carriers’ books and records.  This could range from a single programreview (e.g., valuation, origin, tariff classification) to a comprehensive review of all customs
programs.  The overall objective in using risk management techniques and post-entry audits is to
allow customs to be able to identify and effectively attend to areas of higher and unknown risk while
allowing the optimal use of resources to facilitate legitimate trade.
Canada uses risk assessment extensively to facilitate the efficient clearance of goods.  We
would be pleased to discuss with  WTO Members where technical assistance might be provided in
developing appropriate, similar and relevant processes.
F. Express clearance or immediate release of consignments
11. To reflect the trade facilitation principles of efficiency and simplification Members might
consider devising a series of expedited, differentiated, simplified procedures for speedy
clearance through customs of large volumes of small consignments requiring immediate
release.
The importance of such a process and its potential application to the increasing number of
small consignments moving across borders is of considerable interest to traders.  This can be said to
apply in particular to those that are involved with goods requiring immediate release in support of
global integrated supply, production and distribution networks.  Clear, coherent and useful guidelines
in the movement and handling of such consignments is particularly important, given that the
originating sources of much of the production of such goods can frequently be located in developingmarkets.  The idea is to facilitate trade while addr essing the need of increased information to enable
governments to deal with higher levels of risk that can be associated with such shipments in the
current environment.G/C/W/397
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Such procedures/guidelines should provide for immediate release to all such consignments,
provided that conditions stipulated are met and the necessary information is communicated at a
specified time before the consignments arrive at destination.  Procedures should take into account the
different categories of goods involved and varying trade patterns and compliance requirements.
In developing such a system, goods could be grouped into certain categories as noted below.
However, with the exception of restricted goods under suggested category 4, it should be clearly noted
that prohibited or restricted goods would not be included under such an expedited system.
1. Correspondence (personal letters, post cards) and documents (i.e., printed matter in non-
commercial quantities, securities, bank documents and statements, other legal documents,
airline tickets and business correspondence).
2. No value, or low value, non-dutiable and/or non-taxable consignments, e.g., transplant
organs, human remains, pets, etc; material for mass distribution in commercial quantities;
literature for the blind; unsolicited gifts below a specified value and trade samples.
3. Low value dutiable consignments (i.e., above the value and/or duty and tax limits of category
2 or those not qualifying for remission or waiver).
4. High value consignments (consignments not falling under other three categories above) that
could include restricted goods.  Consignments in this category could be granted immediaterelease with subsequent clearance if a provisional or a simplified goods declaration or invoice
with the minimum information required by customs to grant release is provided and there are
adequate financial guarantees to customs to secure the payment of duties and taxes.  Any
required permits, certificates, etc. may be furnished at the time of release or prior to clearance.
For restricted goods, any permits, certificates, etc., would be required at time of release.
Summary
In summary, simplification measures by customs and other agencies can make an important
contribution to realizing development objectives and in establishing a framework for technical
assistance and capacity building by allowing for sign ificant reductions in administrative costs.  The
introduction of simplified and relevant electronic customs clearance systems, risk assessmenttechniques (as opposed to physical inspections of individual shipments and consignments), pre-arrival
processing and post-release audit all minimize the time spent, make better use of resources and reduce
levels of error.  As trade flows continue to increase, trade facilitation measures of this type become
more and more necessary.
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