WORLD TRADE
ORGANIZATIONG/C/W/427
8 October 2002
(02-5407)
Council for Trade in Goods Original:  English/
French/Spanish
FREEDOM OF TRANSIT: OBLIGATIONS AND IMPLICATIONS OF
ARTICLE V OF THE GENERAL AGREEMENT ON TARIFFS AND TRADE
The following communication, dated 4 October, has been received from UNCTAD.
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Inadequate infrastructure and a weak regulator y, institutional and managerial environment,
among other constraints, undermine the efficiency of transit systems in many developing countries,
especially least developed and landlocked developing countries.  In spite of what has been achieved to
facilitate transit, greater national and international efforts and resources would be required to
achieve the objective of freedom of transit as espoused under Article V of GATT.
As world trade continues to increase at a rapid rate, so does the need for efficient economic
and environmentally sound national and international transport.  With increased competition in
major markets forcing business to adapt to just-in-time production and management systems, the
commercial success of any export-oriented industry in developing countries depends more and more
on its ability to satisfy customers in terms of speed, reliability and flexibility regarding the delivery of
goods:  speed, because the speed with which transport operations are carried out reduces the tying up
of products – and therefore capital; reliability , because it reduces the risks of breakdown in the
supply or distribution of goods, and therefore reduces the need for safety/buffer stock and flexibility ,
because transport logistics must be capable of adapting to variations in consumer demand and
unforeseen circumstances.
This document briefly describes how WTO Contracting Parties have responded to the
requirement of Article V of GATT.  It highlights th e notable achievements made in Europe with regard
to transit facilitation  and freedom of transit  but also notes the fact that development of adequate
infrastructure, including upgrading of existing assets, requires a degree of financing exceeding the
means of many developing countries, notably the least developed and landlocked countries.  It also
points out that the decline in official developm ent assistance and inadequate private financing has
negatively affected many transit systems, and recommends that this trend be reversed.  Furthermore,it recommends greater attention to project design to ensure that projects being implemented in
developing countries, particularly in the least developed countries, are tailor-made and take into
account those countries' low level of economic development.
A.  Background
1. Article V of the General Agreement on Tariff s and Trade (GATT) provides for freedom of
transit.  It states , inter alia,  that “There shall be freedom of transit through the territory of
each Contracting Party, via the routes most convenient for international transit, for traffic in
transit to or from the territory of other Contracting Parties”.  It states further that “ except incases of failure to comply with applicable customs laws and regulations, such traffic coming
from or going to the territory of Contracting Parties shall not be subject to any unnecessaryG/C/W/427
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delays or restrictions and shall be exempt from customs duties and from all transit duties or
other charges imposed in respect of transit, except charges for transportation or those
commensurate with administrative expenses. It establishes most-favoured-nation treatment for
such transit with respect to all ch arges, regulations and formalities.
2. The obligation arising from Article V of GATT to facilitate transit traffic, and more
specifically, to ensure that such traffic is not subject to unnecessary delays or restrictions,
commits Contracting Parties to providing transport infrastructure, i.e. “routes most convenient
for international transit”, and also ensuring that customs and administrative regulations do not
restrain transit traffic.  In other words, Article V of GATT calls on the Contracting Parties on
the one hand to provide adequate transport and related infrastructure for transit and on the
other hand to provide a conducive regulatory environment in terms of streamlined customsand administrative regulations.
B. Regional or subregional approach to transit cooperation
3. Although Article V of GATT commits the Contracting Parties to facilitating transit traffic
individually, in practice, and since a large volume of goods in transit cross more than one
national border, regional or subregional cooperation has become the main vehicle for
achieving the aims set forth in Article V of GATT.
C. The European model
4. The European countries, for example, acting under the auspices of the United Nations
Commission for Europe, have adopted no fewer than 50 international conventions covering a
broad range of transport and related issues, such as coordination of transport infrastructure,
road traffic regulations, dimensions and weights of vehicles permitted to travel on certainroads, taxation of road vehicles, carriers’ liabilities, customs formalities, and special
regulations relating to transport of dangerous goods.
5. Can the European model, in terms of development and maintenance of adequate
infrastructures, reform of regulatory, institutional and managerial systems and commitment to
international, regional and subregional cooperation, be replicated in developing countries?
Not so easily. Transit facilitation in Europe is the fruit of many years of cooperation. Themomentum for peace after the Second World War created tremendous political will, and in
turn the rapid expansion of regional trade provided the incentive and justification for massive
investment in national and coordinated regional systems of transport and communications.
D. The challenges of transit facilitation in developing countries
6. Although efforts are being made to emulate th e European model, the level of infrastructure
development needed to facilitate transit and the reforms required to modernize and harmonize
regulatory, institutional and managerial systems are generally beyond the financial and
technical capacity of many developing countries, particularly the least developed andlandlocked developing countries.
7. Current budget allocations to infrastructure development and maintenance in many
developing countries, particularly the least developed and landlocked developing countries,
are low and are likely to remain so because higher  investment is difficult to justify, given the
low volume of regional trade and the need to finance other national economic and social
sectors. Moreover, implementation of projects involving high standards and sophisticated
systems originally designed for application in Europe poses immense difficulties owing to
lack of adequate trained manpower.G/C/W/427
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8. To help developing countries, notably the least developed and landlocked developing
countries, to implement their obligations arising from Article V of GATT, financial and
technical assistance is needed.
9. Essentially, the call for technical support is not a new one.  However, there is a need to
improve the way in which technical assistance is delivered.  The level of project failure in
developing countries should be reduced.
1.  Project design and project under funding
10. Project failure can be attributed to many factors, with some of the main ones relating to
project underfunding and project design.
11. Project underfunding is quite common. Projects have frequently been abandoned in
midstream because commitments to fund subsequent phases were not honoured.  A project to
promote a legal framework for transit at a regional or subregional level, for example, to be
successful, normally requires the completion of four distinct phases:
• Negotiation and adoption of the legal instruments;
• Legislative work to translate and internalize the legal instrument into national legislation;
• Mobilization of financial and human resources in support of implementation of the intended
reforms;
• Management of change on a sustainable basis.
12. Typical project design failures relate to attempts to introduce complex transit facilitation
schemes which end up as “white elephant” projects. Lessons from past experience show thatany transit facilitation instrument or scheme, to be successfully implemented, requires the
existence of a strong supportive environment, including the involvement and participation of
both public and private stakeholders.  This is especially true if the private sector is expected to
play a major role in project implementation. Many donor-driven projects in the past did not
involve the private sector during the design phase, even when the private sector was expectedto play an important role in project implementation. Public–private sector consultation can
improve project design and ensure effective implementation.
13. One example of a good system which works well in Europe but which it has not been possible
to implement in West Africa since 1982 is a regional customs transit system based on theCustoms Convention on the International Transp ort of Goods Under Cover of TIR Carnets
(The TIR Convention).  If public–private sector consultations had been carried out in West
Africa in 1982 to implement a regional custom s transit system, they would have shown
clearly that implementation would not be feasible  because of lack of key institutions, notably
road transport associations at both the regional and national levels, and weak banking andinsurance firms, which were not capable of providing the necessary financial guarantees.  The
institutional support system has not changed much over the years.
14. The Convention relating to Inter-State Road Transit of Goods adopted by States members of
the Economic Community of West African States in 1982, but not implemented, like its TIR
Convention counterpart, sought to establish standards which were too difficult for the poor
West African countries to comply with.  Both conventions seek to provide a customs transitsystem based on the principle that (a) goods must travel in secure vehicles or containers; (b)
duties and taxes at risk throughout the journey are covered by an internationally valid
guarantee; (c) the goods are accompanied by an internationally accepted carnet taken in use in
the country of departure and accepted in the countries of transit and destination; and (d)G/C/W/427
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customs control measures taken in the country of departure are accepted by transit and
destination countries.
15. None of these four pillars of the TIR Convention could be established in West Africa.   In the
first place, 70 per cent of vehicles available for transit operations were ordinary open-toplorries which could not satisfy the technical requirements set out in the Annex to the
Convention, under which load compartments of transit vehicles ought to be constructed in
such a way that access to the interior is not possible once vehicles have been locked and
secured by customs seal.  Since most vehicles in West Africa are technically inappropriate for
transit operations in West Africa, they are subject to very strict and cumbersome customs
controls, including customs escorts.
16. Similarly, for a variety of reasons, the West African States have failed to introduce both the
internationally valid guarantee system and the international customs declaration document,
the “Carnet”, and as a consequence, the full range of customs control measures taken in the
country of departure are repeated in each of the countries of transit, as well as in the country
of destination.  These procedures result in enormous delays and avoidable costs.
17. The failure to implement the TIR Convention in West Africa demonstrates that systems
developed for application in industrialized countries may be inappropriate in the developing
country context.   However, such systems could become viable if adjusted appropriately.  In
this context, consultations with all the stakeholders, including the private sector, are vital.
18. Proper project design, public–private sector consultations, adequate project funding and
management of change on a sustainable basis are thus critical factors in transit facilitation
programmes.  Such factors apply to both physical infrastructure and non-physical
infrastructure projects.
19. As many developing countries, notably the least developed, face serious economic problems,
including a lack of adequate infrastructure, financial and technical assistance continues to
play a central role in promoting transit facilitation.  In this connection, it is regrettable that
external support, instead of strengthening, has been weakening.
2.  Infrastructure development:  lack of adequate investments
20. In the 1990s, official development assistance (ODA) commitments to developing countries
were $59 billion.
1  Although these financial flow figures were significant, they represented a
50 per cent drop compared with the previous decade.  In a few large developing countries
during the 1990s2, and particularly as regards the telecommunication and energy sectors,
private capital flows more than compensated for the loss of ODA, but for the majority of
landlocked and transit developing countries the decline in ODA was not offset by private
capital flows. Consequently, there is still a substantial deficit for these countries particularly
when projected population growth and accelerating urbanization are taken into account.  In
these countries, a substantial increase in investme nt is required just to maintain the status quo.
The World Bank has estimated that Africa alone needs $18 billion to be invested in
infrastructure on an annual basis.  There is therefore a need to reverse the decline in external
finance, especially ODA.3
                                                     
1  J.I. Stone, Infrastructure Development in Landlocked and Transit Developing Countries:  Foreign
Aid, Private Investment and the Transport Cost Burden of Landlocked Developing Countries,
UNCTAD/LDC/112.
2 Brazil, Argentina, Mexico, Republic of Korea and Malaysia
3   "Transit Systems of Landlocked and Transit Developing Countries: Recent Developments and Proposals for
the Future", TD/B/LDC/AC.1/17.G/C/W/427
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3.  Aid pattern and orientation
21. In addition to the decline in aid, the current aid pattern has been oriented towards improving
national infrastructure rather than promoting regional or subregional transport networks.  Thisaid pattern leads to serious inefficiencies.  Those countries that are lucky enough to receive
aid maintain their infrastructure, while those that do not fail to do so, with the consequence
that most transit systems remain inefficient because there are always some bottlenecks
somewhere along the line. It is important to remember that the strength of a chain, as the
maxim says, is determined by its weakest link.
4.  Increased external financing to promote transit facilitation
22. While developing countries have made some progress in enhancing their transit transport
cooperation, and the international community has contributed significantly to this
achievement, much remains to be done. Additiona l investment, notably to construct missing
links, and maintenance funds to meet recurrent costs are urgently needed. Technicalassistance is also required in order to consolidate earlier gains related to the harmonization,
simplification and standardization of transit procedures and documentation. Ongoing
regulatory, institutional and managerial reforms must be sustained, and public–private sector
dialogue and consultations need to be strengthened.
23. If adequate external support can be ensured, the chances of success for project
implementation will benefit from emerging forces, notably (a) the expanding role of the
private sector as a service provider; (b) the opportunities which new technologies now offer in
increasing both business efficiency and official control functions; (c) better-trained manpower
in both the public and private sectors; and (d) greater public/private dialogue and cooperation.
24. UNCTAD estimates that a comprehensive transit facilitation programme package for each
least developed country could cost around $3 to $5 million.  For the 49 LDCs, the total
technical assistance requirement would then be in the order of $240 million. In addition,
significantly greater resources are required for the construction, maintenance and
improvement of their transport, storage and other transit-related facilities, including
alternative routes and improved communications.
E.  The role of UNCTAD
25. UNCTAD has played a pioneering role in the development of the international transport
policies of developing countries through its work in the fields of trade facilitation, land-locked developing countries, multimodal transpor t, trade efficiency and transport information
systems.  Priority areas of work which have achieved some success include:
• Assistance in negotiating and/or implementing bilateral and regional agreements and
arrangements;
• Streamlining and harmonization of documentation and customs procedures;
• Assistance in implementing policies and procedures to reduce transit costs;
• Assistance in institution building and human resource development in the transit sector;
• Reducing the administration costs of external trade control activities;G/C/W/427
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• Helping Governments to secure a more effective application of external trade regulations,
leading in most cases to an increase in revenue;
• Accelerating the clearance of goods while maintaining effective control of the flow of
goods; producing timely and reliable data as a basis for external trade statistics andmanagement reports;
• Better use of transport equipment (for example, locating equipment, quicker turnaround
times enabling wagon fleets to generate higher revenue if traffic increases, and simplifiedmaintenance monitoring);
• Reduction in transit times of goods (through the facilitation of traffic flows at border
crossings and interchange of rolling stock between networks) and simplified wagon hire
compensation formalities;
• Improved quality of transport services offered to the customer (shipper, forwarder) and
of data on cargo whereabouts, thereby facilitating takeoff and delivery, and reduction of
insurance costs.
26. UNCTAD therefore has an important role to play in the future, but it needs resources from
bilateral donors and financial and development institutions.
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