Originally published in Lloyd's List
In recent times, there has been extensive commentary on the benefits which would flow from enhancements in trade facilitation. Conversely, at the same time there has been similar commentary as to the need to enhance levels of compliance and supply chain security to ensure that trade is safe and reported correctly and that all necessary revenues are collected.
Trade facilitation, cargo security and trusted traders
Questions have also been raised as to how Governments and their agencies can reconcile these two aims which, on their face, may appear to be competing. Facilitation suggests expedited and efficient passage of goods through supply chains and across borders while a focus on security suggests careful review and assessment of the passage of such goods including a careful assessment and examination of the methods adopted to carry those goods. Those potentially competing interests were again addressed at the recent launch of the Trusted Trader Programme ("ATT") by the Department of Immigration and Border Protection (DIBP) in Melbourne on 8 July 2015, starting with a pilot programme involving four exporters. Some discussion at the launch regarding the ATT addressed its framework which includes both cargo security and compliance requirements in exchange for expedited movement along with other benefits which are yet to be confirmed.
The answer to the potential inconsistency between the two aims (as explained by DIBP and by others in different forums) is the ability of traders to provide a secure and compliant supply chain. That allows border agencies to place levels of trust in those traders to provide the benefits of the facilitated trade. Once the 'trusted' traders have been identified and engaged, the focus of border agencies turns to those who inadvertently, recklessly or deliberately breach regulations. Indeed, during the launch of the ATT, there was reference to an "80/20" concept adopted overseas where 80% of the trade is generally "trusted" and expedited with the majority of the attention of the border agencies given over to the remaining 20% of traders.
If readers are interested in a more detailed analysis of these concepts I would highly recommend the publication entitled "Global Value Chains, border management and Australian trade" published by the Lowy Institute in September 2014 and written by Nicholas Humphries of the DIBP while he was undertaking a Fellowship with Lowy Institute.
The benefits of trade facilitation
Before Government and business will undertake significant investment and changes to practice to establish a "trusted trader" arrangement they will usually require compelling evidence of the benefits, both in general and specifically to business.
Fortunately, in the context of trade facilitation there are significant evidence of such benefits. Some examples are as follows;
- The Trade Policy Recommendations of the Export Council of Australia for 2013/2014 and 2014/2015 included reference to research by a number of bodies which identified the financial benefits which could accrue to those engaged in enhanced trade facilitation. For example, research suggested that streamlining customs procedures and concluding the WTO Trade Facilitation agreement ("TFA") could add 2.8% to the US GDP and US $200 billion to its exports – 6 times the benefit of eliminating all world tariffs. It can reasonably be assumed that such benefits would accrue in a similar way in other jurisdictions with possibly even greater benefits to accrue in developing countries where trade facilitation has not advanced in the same manner as it has advanced in more developed economies.
- The Allen Report commissioned by the Australian Logistics Council in 2014 indicated that a 1% increase in logistics efficiency in Australia would boost GDP by $2 billion.
- In a recent report by the OECD, (OECD Trade Facilitation Indicators) the OECD estimated that full implementation of all measures being negotiated by the WTO's Doha Round would reduce total trade cost by 10% in advanced economies and by 13 to 15.5% in developing countries. The OECD also calculated that reducing global trade costs by 1% would increase worldwide income by more than US $40 billion most of which would accrue in developing countries. That analysis also suggests that the benefits would not merely accrue to importers as by reducing trade cost, facilitation would also help exporters allowing firms greater participation in the global value chains which are now embedded in international trade.
The international and local forums for trade facilitation
Trade facilitation is a regular topic of discussion and research in many local, regional and international forums. It is also the subject of work by Governments and agencies at all levels. Some examples can be found in the following forums.
- From a multi-lateral perspective, the new dedicated agreement is the TFA which is intended to set a new international benchmark. Australia has recently lodged papers confirming its intention to implement the TFA and it has established the National Committee on Trade Facilitation (NCTF) comprised by representatives of relevant Government agencies and representatives of relevant industry groups as required by the TFA to oversee implementation activity.
- The World Customs Organisation has, for some time, pursued the aims of trade facilitation (in conjunction with a safe supply chain) through its SAFE Framework. This includes the Authorised Economic Operator concept which underpins the ATT
- Most FTAs include chapters addressing the means to improve customs procedures and assist trade facilitation as do regional arrangements between countries such as under ASEAN and APEC.
- There are other bilateral arrangements which aim to facilitate and secure trade such as the "Approved Community" arrangements for trade in defence goods between the US and Australia.
- In Australia there are a number of programs being developed in addition to the ATT which support "trusted" traders. These include the "Known Consignor" program being developed by the Office of Transport Security for the export of goods by air bound for the US as well as a similar program being developed by the Department of Agriculture.
Further progress in trade facilitation
As can been seen from the commentary above, contemporary research indicates that there are significant benefits associated with improvements in trade facilitation. However, that research does assume a certain level of perfect development and implementation of programs. Presumably, as with the 'second best' world of economics, the benefits would be less if the programs are not developed rapidly, consistently and in a comprehensive manner and then fully implemented and supported by Government for all parties in the supply chain.
It is also clear that there are a number of national programs developed and being developed. Accordingly, there needs to be thought given to how all those programs can best be coordinated so that they operate in a complementary fashion rather than creating competing standards in the same areas.
Accordingly, on my "wish list" the following aims should be taken into consideration.
- Australia should continue its leadership in supporting the TFA and its global implementation. This should include continued funding for the World Trade Facilitation Agreement Facility established to help developing countries implement the TFA.
- In considering the parties to involve in trade facilitation discussions Government needs to cast the net widely to include all parties having an interest in the supply chain including those parties insuring and financing the supply chain.
- Programs should adopt a "whole of Government" approach to ensure engagement with all affected agencies.
- Programs should, so far as possible, for 'co-design' between Government, its affected agencies and affected industries. The engagement at ATT provides an example of this intended approach.
- The Programs should be developed in a way that they are available to all parties in the supply chain and to their service providers, regardless of size.
- The Programs should deliver clear and demonstrable benefits to the traders and service providers who Government wishes to join the programs.
- The Federal Government should commit to provide funding and other resources required to fully implement the ATT and other related programs advancing trade facilitation. That would include funding to assist industry to meet the US TSA's requirements for 100% screening of US bound air cargo.
- Programs should give include cargo and food security and compliance as much as expediting the flow of goods through the supply chain.
- Government should not neglect the complementary issues of ensuring that the appropriate levels of infrastructure (both physical and virtual) are provided to ensure that expedited passage of goods through the supply chain can actually be cleared from the places at which they arrive and are then delivered to the parties who have ordered those goods.
- Governments should ensure that relevant programs operate in an efficient and co-ordinated way. For these purposes, in my view the NCTF should be tasked to act as a national co-ordination and oversight body so that the various agencies developing trade facilitation programs should be required to report on the framework and progress of their work. The NCTF can then consider how the work can be properly compared, contrasted and perhaps revised to ensure appropriate and efficient trade facilitation by the Government agencies and minimise competing work. However, that would clearly require the Government to invest heavily in the NCTF and provide additional resources to the NCTF rather than seeking to extract additional work from members who are already heavily engaged in many other forums.
As always, I eagerly await the development and announcements regarding these programs.