BOTTLENECKS AT THE BORDERS ARE LIKE SITTING IN TRAFFIC JAMS
Customs Delays Can Add Hours, Days, and Weeks to the Time it Takes for Goods to Get From Ports to Consumers
We’ve all spent too much time in traffic jams. Commuters in Los Angeles spent over 100 hours in traffic in 2016. Collectively, Americans spent eight billion hours in 2015 sitting in traffic. Our individual productivity takes a hit, but so does the productivity of our businesses and the overall economy.
INRIX, a traffic data firm, estimates the expenses from congestion will rise to nearly $300 billion in just the UK, France, Germany, and U.S. economies by 2030. Bogota, Colombia, Sao Paulo, Brazil, Bangkok, Thailand, and Mexico City, Mexico are among some of the most congested cities in the world alongside New York, London, and Paris.
Headaches at the Borders
Individuals and businesses frequently experience the same frustrations of seemingly senseless losses of time, money, and other resources due to bottlenecks clearing customs at international borders. Delays for customs inspections and paperwork can add hours, days and weeks to the time it takes for goods to get from the port to the consumer, imposing unpredictable costs like warehousing fees, time and money diverted from productive uses to preparing documentation and paying financing charges. Products held up at the borders can disrupt business plans and supplier relationships, causing businesses to get behind in their ability to collect payments from customers. They might even lose orders with customers altogether or, more fundamentally, choose to forgo doing business in a particular country altogether.
The direct costs of border procedures can cause pain as well; government fees and charges for customs processing can add up. Sometimes the fees aren’t published, have changed without notice, or amount to officials’ requests for bribes. These kinds of practical barriers can prevent traders from growing their exports, drive up costs for consumers, and stifle investment and economic growth.
Start With the “Local Commute”
Governments around the world have attempted to deal with these problems through customs and border reforms intended to cut down the time and expense of moving goods through borders and across countries on their way to their final destination. And while many governments have been trying to reform on their own, they have also pursued collective action through trade agreement commitments to help spur on the domestic reform process and to ensure that their neighbors are reforming as well.
East Africa provides a good example of the benefits of regional cooperation to facilitate trade. Kenya, Rwanda, and Uganda have been working to integrate their customs operations. As part of this process, they reduced customs documentation, implemented an electronic “single window” for filing and clearing customs documentation, and offered use of a regional bond that guarantees an importer’s customs obligations while allowing the importer’s goods to be released from customs control.
Rwanda is seeing impressive results. In 2014, it took 21 days for goods to reach Kigali in land-locked Rwanda from the port of Mombasa in Kenya. By 2016, Rwanda reduced that transit time to six days, while reducing the associated cost of moving goods by 20 percent. Customs integration and cooperation between Rwanda and neighboring Tanzania produced equally important benefits. Goods travelling between Rwanda and the port of Dar-es-Salaam in Tanzania could expect to be stopped more than 50 times in 2010. As of 2014, the same goods might be stopped 10 times. It’s going in the right direction.
Fix the “Global Commute”
National customs authorities working at the World Customs Organization have sought to encourage reforms and standardize procedures. Free trade agreements typically include customs chapters reflecting best practices. But the effort that has received the most attention in recent years is the World Trade Organization’s Trade Facilitation Agreement (TFA). Concluded in 2013 and entered into force in February 2017, the TFA is the first agreement among all 164 WTO Members since the WTO’s establishment in 1995, attesting to its strong support among countries at every level of development.
The TFA includes commitments designed to speed goods through the border by cutting red tape, reducing fees and charges, helping goods transit through third countries, and encouraging cooperation among customs authorities. For example, the agreement includes a commitment to give binding advice to traders through so-called “advance rulings” on the customs rates that will be applied to their goods, so that this does not become a source of time-consuming debate with border officials. Likewise, the agreement requires customs authorities to accept and process customs paperwork before the goods arrive at the port, and to release goods even before the final determination of customs duties, further reducing delays. To help traders plan, the agreement requires publication of customs requirements on the Internet, as well as opportunities to comment on proposed rules.
The WTO has explained that full implementation of the TFA could reduce trade costs by an average of 14.3 percent and boost global trade by up to $1 trillion per year, with the biggest gains in the poorest countries. Trade in perishable agricultural goods would be promoted and new opportunities created for countries to participate in global value chains that demand reliable delivery schedules. Small and medium-sized enterprises in particular would benefit from reduced costs and a more predictable trading environment. Governments would benefit from greater revenue collection and reduced corruption.
While the TFA will help establish a new global baseline for customs reforms, countries continue to pursue further progress through FTAs. Under NAFTA, for example, most trade between the United States, Canada and Mexico is already duty-free. Therefore, trade facilitation offers one of the few opportunities for further reducing trade costs and promoting exports. Mexico, for example, could further reform its procedures to provide greater transparency and predictability in its regulations and fees. Likewise, Canada could increase its de minimis level below which customs would not assess duties and taxes. As described in the TradeVistas article “De Mininis” Thresholds Are Not Trivial, raising the de minimis level can significantly speed up shipment times for small businesses and would be a particular boon to Internet retailers shipping through express carriers. These efforts would help eliminate bottlenecks to steadily growing trade within our own region, reducing the “commute time” for North American products.
Bruce Hirsh is principal with Tailwind Global Strategies LLC. Over an 18-year government career, he served as Assistant U.S. Trade Representative for Japan, Korea and APEC, Chief International Trade Counsel on the Senate Finance Committee, lead U.S. negotiator for the WTO Trade Facilitation Agreement, and supervisor on dispute settlement matters in Washington and Geneva.
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