RESTRICTEDWORLD TRADE
ORGANIZATIONG/C/W/143
WT/COMTD/W/60
10 March 1999
(99-0958)
Council for Trade in Goods Original:  English
TRADE FACILITATION
Trade Facilitation in relation to Development
Communication from the European Communities
I. SUMMARY
Trade facilitation constitutes an important component of development policy.  To succeed,
however it requires political commitment, the se tting of clear policy goals, partnership between
private and public sectors, and cooperation between international organisations.  The creation in WTO
of basic rules on trade facilitation will underline and secure the political commitment of WTO
Members, and set the international policy framework needed to guide it in a consistent direction.  A
framework of rules will in turn help harness private sector support.  An integral part of any WTO
agreement on trade facilitation should be concrete commitments on capacity building supported by
WTO Members in partnership with international institutions and the private sector.
II. THE DEVELOPMENT BENEFITS OF SIMPLIFIED TRADE PROCEDURES
It is largely accepted that development is effectively promoted through the creation of an
open market economy which allows optimal allocation of resources.  Progressive trade liberalisation
and rule making under the GATT and the GATS has proven the most effective way of establishing
such open markets.  But open markets can only function properly if, among other things, procedures
designed to facilitate the flow of trade are put in place and a country’s capacity to regulate economic
activity on its territory is made effective.  If not, then some of the economic and welfare gains of
liberalisation remain more theoretical than actua l, since they do not lead to increased economic
activity.  More concretely, developing countries risk getting left behind in a process of rapid
technology change unless both private and public sector embrace new forms of business
communication and organisation.  Trade facilitation strategies become, in such circumstances, an
integral part of any liberalisation, and overall development policy, since they facilitate trade flows
and increase a country’s regulatory capacity.
Specifically, trade facilitation supports countries’ development goals in several ways:
(a) Participation in international trade
Greater trade efficiency will allow traders who would previously be excluded from
international markets access to those markets.  Traders may be excluded or inhibited by inter alia  high
overhead costs of exporting or of importing inputs, overly complicated/bureaucratic export and importprocedures, inadequate trade and transport infrastructure, and inefficient or untransparent procedures
in overseas markets.  Problems are particularly acute for SME’s, which are generally seen as one of
the most effective means of promoting growth, but  which suffer from economy of scale weaknesses
or may lack modern information technology.  The costs of unsimplified procedures fall
disproportionately on SMEs and companies in developing countries.G/C/W/143
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UNCTAD’s Columbus declaration makes this point forcefully1: "Ensuring that no potential
trader is excluded from international trade is a prio rity objective for the international community as a
whole.  In all countries, potential traders, especially SME's, are confined to the margins of
international trade because of lack of efficien t procedures, lack of access to information and
information networks, or inadequate support services  or trade logistics.  Although the needs to be
addressed vary considerably from one country to the next, enterprises of all countries can greatly
benefit from higher awareness of efficient business practices and trade facilitation measures".
(b) Lowering the costs of trade transactions
Numerous estimates have been made that trade facilitation measures could lower costs on
export transactions by 6 to 10 %.  This on its own justifies to both developing and developed countries
the effort in working in this field.  UNCTAD has suggested that transaction costs can account for 2-
3% of the arrived cost of goods.  Simplifying pr ocedures enables increased profits where exports
already take place, and allows exports where traders have been discouraged from trading due to
complicated procedures2.
(c) Improving the Climate for Investment in Developing Countries
The bulk of FDI flows remain to, and between, de veloped countries.  When asked to identify
the reasons for investing in particular countries, co mpanies frequently point to administration of trade
as a key component in any successful investment régime.  In an era of outsourcing and just-in-time
production techniques, the need for an efficient cargo infrastructure, the rapid passage of inputs and
finished goods through customs controls, and streamlined transaction procedures, speaks for itself.
Their absence is a clear disincentive to investment.  Establishment in the WTO of a framework ofbasic rules on trade facilitation will help improve the investment environment in developing countries,
which can help both the standard of living per se  and disseminate advanced industrial/manufacturing
knowledge.
Similarly, the introduction of simple and transparent procedures, and the progressive
improvement of transport and communications support for trade will also encourage the development
of service industries - from freight forwarding and haulage to express carriers and information
technology.  Simplified trade procedures, and future GATS liberalisation in sectors such as transport,
distribution and telecommunications will thus be mutually reinforcing.
(d) Strengthening the Tax and Revenue Base
Trade facilitation, notably customs reform, directly improves tax returns by enabling effective
collection of import duties.  Customs revenue is still often the major contributor to national budgets in
several countries, but as studies and national experiences have shown there is a correlation betweenthose countries with the greatest dependence on (high) import duties as a source of revenue, and
systematic tax evasion, fraud and under-collection.  Developing countries with a combination of high
import duties and unmodernised customs thus face the greatest haemorrhaging of revenues.
Reforming customs procedures, notably through automation, harmonisation of information
                                                     
1 Columbus Declaration, United Nations International Symposium on Trade Efficiency, 1996.
Preamble paragraph 4.
2  Columbus Declaration, preamble paragraph 8. reads "Adoption of Trade Efficiency measures can
significantly lower the costs of trade transactions. Estima tes place the costs of trade transactions at 7 to 10 % of
the total value of world trade. We believe that promotion and implementation of these measures by all will
contribute to greater participation in world trade, thus  allowing the creation of new international trade flows.
Trade efficiency measures would also result in reduction of trade transaction costs by a quarter, or by up to 100billion dollars annually by the year 2000. We shall st rive to reach these objectives through national and
collective efforts".G/C/W/143
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requirements, and risk-assessment methods, reduces levels of evasion, under declaration, fraud, and
collusion with customs officials, and allows comprehensive, correct and prompt duty calculation and
tax collection, with obvious benefits for the public purse.
(e) Improved Controls and other governmental functions
Modern, simplified trade procedures enable governments to better enforce other regulations
and policies more effectively, through the more efficient management of goods moving across
borders.  Apart from the combating of customs fraud, this helps to prevent illegal movement of
restricted goods, the dumping of unsafe products on developing country markets, the proper
protection of intellectual property rights and other public welfare goals.  This improved regulatory
capacity is a vital concomitant of trade liberalisation, since it helps prevent some negative effects of
liberalisation and helps ensure its social acceptability.
The capacity to collect statistics is also part of an effective government machinery.  It is a
capacity which many developing countries lack, including those who rely heavily on preshipment
inspection companies.  As the UN Statistical Office and others have pointed out, effective customs
procedures are a key to accurate statistics, gathering, and thus to the ability of countries to carry out
accurate economic forecasting and make policy choices based on that information.
(f) Reducing Corruption
Some customs authorities are at present underfunded or lack strategic management, with
implications for efficiency and integrity.  Simplif ication and automation combined with training and
better pay for a smaller number of customs officials provides part of the solution to corruption and
related problems, but is not in itself enough.  A more radical political commitment to change, and theresources and expertise to carry out that change is essential: this is examined more closely later.
(g) Reducing Administrative Costs
Simplification measures by customs and other agencies allow significant reductions in
administrative costs.  Introduction of electronic cu stoms clearance systems, EDI-based coordination
with other agencies, risk assessment techniques (r ather than inspection of individual consignments),
and pre-arrival processing and post-release audit all reduce time, resources and levels of error.  As
trade flows increase greater than public resources, trade facilitation measures of this type are
necessary. Chile, at the March 1998 WTO Symposium estimated savings of US$ 1 million each
month through automation and a greater use of risk assessment: experience with UNCTAD’s Asycuda
programmes for customs automation shows that such outcomes are not unusual.  This improvement in
efficiency also benefits traders: more rapid release and more predictable procedures around which
they can fashion their transport and logistical planning.
Some countries are concerned over the start up costs involved in introducing e.g.
computerisation and associated training in use of  risk assessment and so on. However, the experience
of Chile and others showed that costs are recovered over time through greater operating efficiency and
increased tax collection.
(h) Overcoming Technical Constraints
The current move towards open EDI systems can permit developing countries to overcome
current technical and infrastructural constraints through the use of relatively simple forms of
information technology.  Provided that capacity building support is given, means exist to automate
customs, cargo handling and other activities at virtually any required level of sophistication and,
increasingly, using internet based software that co mpanies can use for both business transactions andG/C/W/143
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interfaces with government.  Developing countries can benefit from the availability of cheaper and
more modern technologies, and in some cases avoid the technology-expensive learning curve that
many industrialised countries have gone through.  If, for example, through automation the processing
time of a consignment in a port can be halved, this amounts to an effective doubling of port handlingcapacity without having to build new facilities.  The EC has noted elsewhere that use of IT is a tool in
trade facilitation policy that can work only in conjunction with prior simplification and harmonisation
of procedures.
(i) Developing a culture of cooperation between government and business
Traders will have more confidence in their dealings with customs etc if they find authorities
competent and efficient, and exporting trade-friendly. Equally important, any serious initiative to
facilitate trade and simplify procedures must be done in partnership with the trading community, toensure maximum compatibility between systems and operating methods.  Following such a train of
thought the UNCTAD Columbus Declaration paragra ph. 5 reads "Close co-operation among national
and local government authorities and enterprise sectors strengthens the ability of…firms to participate
fully in international trade" This cooperation, combined with measures that reward compliant and
efficient traders, enables the necessary cultural change: the trading community and customs see each
other no longer as obstacles or opponents but partners.
From the above the advantages of simplified trade procedures for developing countries (as
well as developed countries) is clear. An open trade régime reinforced by transparent and efficient
trade administration and simplified processes for border crossing trade is key to the trade performance
of SME’s and larger companies alike, and to accelerating economic development.  Costs ofmodernisation and reform can be recouped through savings in administration, increased tax collection
and improved economic performance.
III. HOW WTO CAN ACT AS A CATALYST FOR DEVELOPMENT
If the benefits of trade facilitation are widely ag reed, then it is also recognised that some of
the reforms needed cannot be implemented overnight, or at no cost, but require time, resources, butfirst of all political commitment to build capacity and foster longer term change.  WTO can help
deliver in all these areas.
Securing Political Commitment
The EC has in several submissions
3 to the WTO proposed that we develop a framework of
rules on the simplification of trade procedures, bu ilding out from the principle of GATT Article VIII
on reducing import and export formalities to the minimum.  The EC believes that WTO rules are the
surest way to ensure the political commitment needed to turn trade fa cilitation into reality. By setting
a framework of rules one ensures, at the highest political level, that the importance to development of
trade facilitation is recognised, and the necessary reforms begun.  Given that simplifying trade
procedures involves many agencies of governments and the participation of the private sector, a top
down approach to the setting of overall strategy goals is needed. Experience shows that a purely
bottom up approach e.g. within an individual cu stoms or trade administration cannot work without
clear political support.
                                                     
3 Notably in document G/C/W/122 dated 22.9.98: "Assessment of the Scope for WTO Rules in the Field of
Import, Export and Customs Procedures". Canada in document G/C/W/126 has set out a comparable frameworkof possible principles and WTO measures.G/C/W/143
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Harnessing Private Sector Investment and Support
Making trade facilitation a clear national priority, and setting clear international rules are
almost prerequisites for private sector support and participation.  First, no trade facilitation initiative,
however modest, can be really successful unless designed and implemented in cooperation with theprivate sector.  At the most simple level, change s to customs procedures introduced without reference
to commercial trading patterns and the operating me thods of importers, freight forwarders, customs
brokers etc are not going to be supported or used, and thus their benefits will be limited.  More
advanced or comprehensive policies aimed at integrating of private and public sector information,
transport and communication systems need that cooperation even more.
Secondly, considerable resources are available within the private sector, from provision of IT
hardware and software to training of officials, to investment in port, transport and communications
infrastructure, to the sharing of information systems.  But these resources will only be provided if the
private sector is confident that the investment will  not be wasted.  The EC’s consultations with the
private sector suggest that a framework of WTO rules, setting the broad policies and standards for
individual trade facilitation strategies, can give the private sector more confidence to invest.  In the
absence of a WTO framework to guide efforts, and ensure political commitment, private sectorcommitment will be less apparent.  A WTO framework of rules will also enable developing countries,
in the next phase of liberalisation in services, to in crease inward investment in services sectors such as
transport, distribution, banking and telecommunications, all of which have an important role to play in
providing the support and technology for successfully simplifying trade procedures.
Capacity Building at the International Level
Adherence to rules on simplified procedures requires not just a political decision or the
introduction of regulations (though these are needed), but for some developing countries would imply
capacity building and resources.  Any WTO agreement must address this squarely. It would not be
sufficient to demand WTO commitments, however desirable in themselves, if the means were lacking
to implement them.  Nor is it enough to establish rules and then confine assistance to training officialsto understand what they mean.
Several international organisations and donors have developed good tools and instruments for
e.g. customs reform, harmonisation of procedures, cargo tracking, automation, longer term
management change.  Notable for example are the UNCTAD Asycuda (electronic customs clearance),
ACIS (cargo tracking) and Trainmar (port management) programmes, the WCO’s excellent Customs
Reform and Modernisation Programme, and programmes carried out under World Bank or IMF
auspices, as well as the major development and project financing carried out by the EuropeanCommunity bilaterally or through the international organisations.
These programmes have however three key limitations.
First, they are only specific tools  to help implement what has to be designed as a much wider
process of reform and innovation in managing trad e both at enterprise and administration level. Each
addresses only specific parts of what needs to be conceived of as a whole set of related tradeprocedures.  This means that individual programmes carried out in isolation rather than in a holistic
framework will have correspondingly limited results
4.  To take a crude example, automation of
customs release will not bring major benefits unless done in conjunction with broader reform and
                                                     
4 The UNCTAD review of technical activities for 1997 reports that Asycuda has been successful,
although it registered some problems where there was significant resistance within individual customsauthorities
.G/C/W/143
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modernisation of customs, integration of other agencies, and prior rationalisation of documentary and
data requirements.
Second, there is overlap and little co-ordination  between different programmes.  Resources
are finite, and unlikely to grow significantly.  If one cannot increase funding significantly, then moreeffective use of existing resources of different major capacity builders – such as UNCTAD, the WCO,
the World Bank, the IMF and the European Community – is needed.  This is clearly possible: we have
come across many cases of duplication of efforts by different agencies, with wastage of resources, and
little attempt to coordinate or achieve economies of scale.  Even in straightforward areas like
diagnosis and need assessment there seems to be a great deal of overlap, with almost every agency
having developed a means to assess the particular needs of any potential beneficiary, and the same
country having been assessed in the same areas by multiple agencies.
The WCO has itself recently remarked that in the area of customs reform "human, financial
and technical assistance is being provided by differe nt international donors with little co-ordination or
strategic approach.  This is leading to duplication, confusion and endless provision with little transfer
of skills, management development or sustainability on the part of the beneficiary"
5.  The same is true
for trade facilitation writ large.  The Community for it s part is unlikely to be able to continue its
present level of funding6 to international organisations without an improvement in coordination, and
exploitation of the synergies that can exist if only the different initiatives could be marshalled together
within an overall strategic plan.
There are at least three reasons for this duplication.  One is that there is a degree of rivalry
between different organisations.  Second, no integrated  structure exists for them to work together:
cooperation is often on an ad hoc basis and relies on personal contacts between individuals.  Third, in
the absence of internationally adopted standards and rules for trade facilitation there are no global
objectives to which different organisations can work.  Instead, different and possibly competing
approaches and standards are developed and offered.
Finally, it needs to be borne in mind that while, deservingly, much existing cooperation and
development assistance is currently focused on least developed countries, needs are also apparent in
other developing countries and should not be forgotten.  In some such cases, the private sector may
well have an important contribution to make.
Specific Proposals
The EC believes that through a WTO agreement major advances can be made to coordinate
and more effectively build capacity in developing countries. In particular a framework of WTO rules
which set overall policies should include provisions that will encourage both information sharing andlonger term coordination between different international organisations carrying out capacity building.
The template would be that of the "Integrated Framework for Trade-Related Technical Assistance,
including for Human and Institutional Capacity-B uilding, to Support  LDCs in the Trade and
Trade-Related Activities" but on a bigger scale which, while focusing on LDC’s, would also provide
                                                     
5 WCO Customs Reform and Modernisation Programme, WCO 1996, p.6.
6 An example of current funding is instructive.  LDCs enjoyed 40% of a total UNCTAD expenditure on
trade efficiency of $US 23.3 million in 1997, which was an increase of 29% on 1996.  This upward trend isexpected to continue.  UNCTAD's general funding is channelled through three paths; trust funds, UNDP andUN Regular programme for technical funding.  Contributions for 1997 to the Trust Funds. (in 000's US Dollars):
Developed Countries 5991 (of which Japan, Luxembourg, the Netherlands, Norway and Switzerland = 63%);
Developing Countries (general contributions): 1996; Developing Countries (self-sustained): 1092; EuropeanCommission: 3821; Multilateral 905; Foundations/misc. 464.  Total: 13270.  The EC is the biggest singleprovider of funds, and two EU Member States are also significant individual contributors to the Trust Funds.G/C/W/143
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funds for other developing countries (which could be designed to encourage private sector
investment).
The main actors for cooperation in this kind of capacity building and assistance for trade
facilitation would appear to be UNCTAD, WCO, th e IMF and the World Bank, with WTO setting the
basic trade policy framework and providing the platform for cooperation.  Such an approach would
serve two main objectives – both increasing the profile of and ensuring lasting commitment to
implement trade facilitation measures but also making the technical assistance that is granted more
effective through better co-ordination.  A co-ordinated system working to achieve objectives laid
down in WTO rules, with commonly agreed performance benchmarks and timeframes would also be
more effective in attracting additional public and private sector finance.  This is very much in thespirit of the "Partnerships for Development" approach to capacity building launched by UNCTAD last
year.
Within such a coordinated approach the first element would be to identify what activities are
already being carried out in individual countries or regional groups and where action is required, and
then to design the specific trade facilitation strate gy best suited for the country in question, with its
agreement and commitment.  Such a strategy would involve a rational division of labour between
different organisations and the private sector, whos e participation would be sought as part of any
national strategy.  Implementation of WTO rules to simplify trade procedures would thus be backed
up by capacity building.  This is a concrete example of the EC’s interest, in many areas of the WTO’s
future work, to working with partners to help build the domestic capacity to take full advantage ofprogressive multilateral liberalisation.
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