Grainger, A (2008) Trade Facilitation and Import-Export Procedures in the EU: Striking the Right Balance for International Trade, BRIEFING PAPER, European Parliament's Committee on International Trade [PDF: Download, 682KB]

Index
ii. Executive Summary
iv. Specifications
1. Introduction
2. The Regulatory Environment at the EU’s Borders and New Initiatives
2.1. Trade and Security
2.2. A EU Paperless Trade and Customs Environment
2.3. WTO
3. International Supply Chains and Trade Procedures
3.1. Trade Documents and Systems
3.2. Trade Transaction Costs
3.3. Economies of Scale
4. Trade Facilitation
4.1. Trade Facilitation Recommendations
5. Striking the Right Balance
5.1. Conflicting Interests
5.2. Business Stakeholder Concerns Specific to the Electronic Customs Initiative
5.3. Institutional challenges
6. Conclusion
Annex I
Annex II
References

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Executive Summary
The trade environment is complex. It is easy to count 60 or more trade procedures in any of the EU’s member states. These include regulations specific to revenue collection, safety and security, environment and health, consumer protection and trade policy. Over the last few years traders have suffered an avalanche of new, security focused controls. These add to their regulatory burden. This regulatory burden has been acknowledged by policy makers. The EU is currently rolling out its “electronic customs initiative”. Multilateral trade negotiations on trade facilitation within the WTO are beginning to take substance. The topic of trade facilitation is also a significant feature within many aid-for-trade donor projects, where large funds are being invested.

Trade operations tend to rely on the services of many intermediaries, including: shipping lines, airlines, express carrier and postal services, trucking and haulage companies, railway companies, logistics service providers, freight forwarders, customs brokers, banks and finance companies, insurance companies,  seaport and airport operators, international rail-terminal operators, inland container port operators, stevedores, cargo handlers and handling agents, warehouse operators, transit-shed operators, independent testing and inspection companies, port community system providers and specialist IT service providers.

Import and export procedures currently depend on the submission of multiple documents or their electronic equivalents. This information is required by customs authorities as well as many different executive agencies operating under the customs umbrella or independently. Compliance will usually require the many operators involved in moving the goods to exchange and consolidate information.

Trade procedures have transaction costs. Costs can be direct (e.g. compliance costs, charges and fees) or indirect (e.g. delay at the border, additional storage charges, missed business opportunities). The concept of trade facilitation recognises that trade transaction costs are undesirable. Trade facilitation seeks the simplification, harmonisation, standardisation and modernisation of trade procedures. A long catalogue of trade facilitation recommendations has been produced by international organisations, like the World Customs Organisation (WCO) and United Nations Economic Commission for Europe (UNECE), to help improve trade procedures. Proponents of trade facilitation tend to propagate 18 generic ideas that help reduce transaction costs whilst meeting control objective.

The desire to strike a balance between trade facilitation and controls is misguided. Facilitation and control are not exclusive and benefits through trade facilitation can be found for both government and business. In terms of control, best trade facilitation practice frees-up regulatory resources and improves control efficiency. In terms of compliance, it reduces the considerable regulatory burden suffered by traders.

Successful implementation of trade facilitation concepts is not easy. There are a lot of different stakeholders to contend with and their interests are not necessarily aligned. Sources of conflict may be found between: government and business stakeholders; local, national and international interests; government departments (e.g. customs and veterinary inspectors); policy priorities; industries (e.g. freight forwarders and transport operators); countries (e.g. who have different legacy arrangements or IT system suppliers); and between liberal and protectionist trade policy tendencies.

The EU’s electronic customs initiative began as a very ambitions programme with trade facilitation at its core. However, much of the original ambition has been eroded in the name of compromise and search for consensus. While new security controls are being implemented, wider regulatory reform aimed at reducing the overall trade transaction cost burden is yet to materialise in any meaningful way. Examples of concern are many, and include: insufficient benefits for Authorised Economic Operators; a disbelief that member states will be able to achieve interoperability and overcome national differences; concern in how implementation has been split into separate projects despite obvious dependencies; the apparent exclusion of VAT from centralised clearance; and the failure to progress in substance with regards to a fully fledged, EU wide single window system.

As the example of the EU’s electronic customs initiative shows, reaching compromises does not necessary yield the most desirable overall outcome, especially if there are significant external pressures – like for instance from China and India with their low-cost labour advantages, or from those economies which are beginning to significantly step-up their efforts in removing wasteful trade transaction costs (e.g. within the APEC region). In contrast, an ambitious trade facilitation programme at home and internationally (e.g. via WTO negotiations) will reduce waste, free-up economic resources, create opportunities for EU based businesses as well as help tighten control.

The EU’s institutions currently do not have a dedicated home for trade facilitation. This paper recommends the creation of a trade facilitation body which would be able to consolidate knowledge and expertise, help overcome conflicting interests and institutional limitations, help hold the Commission and member states accountable to delivering on trade facilitation promises as well as help coordinate a stronger EU position at international organisations where the subject matter relates to trade procedures (e.g. WCO, WTO and UNECE).

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