What do we know about good practice in trade facilitation and capacity building? Matthias Meyer, PRAXIMONDO/Geneva 21 February 2007

Table of contents I. Adopting international standards II. The reform map III. How much does capacity building cost? IV. Thorough preparation is key for success V. Other conditions of success VI. A concrete test: WTO negotiations The focus of the presentation is on border passage of goods which is only part of the transport chain but is the scope of WTO negotiations.

I. Countries move to accepted international standards TF is about administrative process, flow of data and management of a complex network of relations having at its center Customs. It is also about services that should lower transaction costs for traders, including the cost of time. Basically, there is only one integration process of national systems: efficient country models exist in every region, international guidelines are available and used. Some differences exist among countries in sequencing of technical steps and, more importantly, in management modes (Customs is integrated in civil service, is an autonomous public agency, or is managed by a public-private partnership). How to order the many individual steps and standards (60 to 70 provisions listed in WTO documents)?

a.Basic international norms like the harmonized system of tariffs, the UN data formatting and transmission norms (leading to unified forms and signatures), and the allowed level of fees and charges. Policy decisions and administrative changes; no investments or need for external cooperation. b.Transparent management respecting accepted rights of users: publication of all relevant documents and guidelines for users, and timely answers to their questions, at best in a single website (single enquiry point). Also, an appeal’s process that is fair and timely. Some investment and capacity building required. c.A gradual passage to higher efficiency. Central enabling factors are adequate risk management and an advanced use of modern telecommunications and automated data management techniques. This is the passage from a single office to an automated single window. A long and difficult road including efficient links with traders, between all border offices, banks and insurance companies, and with port authorities and transport companies. Often a lot of investment and major management changes required.

II. The reform map in the developing world  A notable acceleration of TF reforms in the last ten years. Why? TF reform is usually highly profitable (revenues and transaction costs) for dynamic trading countries, regional and preferential trade agreements include TF measures and capacity building, corridor development has been succesful in some regions, and, finally, the WTO negotiations have given – already - a new push to reforms and associated external support.  Roughly 3 groups: a)maybe 20 countries, mostly poor and often politically instable, are in the starting blocks (many documents and signatures, inefficient use of automation if at all), b)a broad group of developing countries that still has to complete some elementary reforms but is also at different stages of risk management, use of TF software, and modernization of border agencies; c)a number of champions, in all regions, practising efficient risk management and establishing single windows.

III. How much does capacity building cost? The extent of external support, if required, is closely related to these country differences but also to the specific management mode, local budget availability, and initiatives of the private sector. External aid is a last resort. If basic reforms, no financial but sometimes political cost or limited and short-term need for assistance (a few months to three years depending on the starting point of the country). A range from USD 200’000 to USD 1 million per year. Higher efficiency reforms, with ambitious goals, cost anywhere from a few million USD and USD 30 to 50 million, for smaller developing countries, depending on whether the reforms are gradual and internally-driven or correspond to “shock therapy” (meaning e.g. that Customs are restructured by a massive transitional infusion of external experts as in the case of Mozambique). If WTO TF agreement includes best practice obligations, already high levels of external aid will have to increase because of the considerable number of aid recipients.

IV. Thorough preparation is key for success Reforms of basic standards or establishing a transparent and easily accessible facilitation process is straightforward and can be quickly implemented. Any other reforms will require a thourough needs assessment followed by a capacity building plan (a “feasibility study” in project parlance). The needs’ assessment is a “check up of Customs’ health”. It has to explore the reasons for inefficient processes and identify options to overcome weaknesses. These will then be evaluated in a capacity-building plan which e.g. has to include cost-benefit analysis of automation options and management modes with a long- term horizon. The study of successful and failed reforms in neighboring or other developing countries is essential at this stage. The needs’ assessment should set goals not only to meet future WTO obligations but take into account bilateral and regional obligations (e.g. regional customs rules or TF elements in trade agreements).

It should also evaluate the record of past reform attempts and of past and ongoing external assistance (many countries have had intense aid relations). Finally, the needs’ assessment should define specific terms of reference for establishing reform options and choose among them in a “capacity building plan”. If assistance is required, this is the time when independent advice from one of the few TF expert agencies (UNECE, UNCTAD, WCO, WB, IMF and some regional integration secretariats) is called for. Yet, the crucial features of a successful start of TF reform are three:  TF constitutes a central priority of government and this is confirmed by concrete action;  The main private and public stakeholders of reform participate in the process (e.g. in a pro-active advisory body);  A capable policy and management planning unit is being established, usually in Customs, able to analyze reform options and to make concrete proposals. This will be the technical counterpart of external assistance and the motor of reform.

V. Other conditions of success There are, of course, other enabling factors for sustainable reform which we will merely list here: External assistance should be harmonized and aligned to national priorities (Paris Declaration 2005) Expected outputs and outcomes should be operationally defined and benchmarks prepared (for process and results), and then monitored during implementation; A management mode will have to be identified that will provide a stable basis for a modern and efficient trade facilitation by ensuring adequate human resources and financial stability to its operations; Customs reform has to be embedded in broader TF reform concerning international trade logistics, infrastructure development and flexible internal transport policy (discussed e.g. in service negotiations at WTO). TF efficiency should be harmonized among neighbouring countries and at the regional level. This is crucial for land-locked countries who depend on transport corridors (e.g. common border points and clearance procedures)

VI. A concrete test: WTO negotiations The ongoing negotiations on a TF agreement at WTO are a concrete test for the good practices discussed just now. We hope that they will be heeded and included in the mechanisms set up by the agreement. This would become an example of how trade policy can become excellent development policy. Thank you for listening!