Improving business environment and export competitiveness through trade facilitation

The competitiveness of exports of goods and services are attributed to many factors. Among the predominant factors which determine the level and the intensity of competitiveness of export products and services in the international market are resource endowment, cost of production, labour productivity, technological advancement, innovative products, design and packaging, skills of marketing and promotions, macroeconomic policy framework and tariff and non tariff barriers.

Empirical research and studies now reveal the cost of compiling procedures and controls governing the movement of goods across national borders also represent a significant portion, negatively affecting towards the competitiveness of the export products and services. It is in this context that significance of the application of trade facilitation measures assumes high priority.

Trade facilitation

Trade facilitation is largely used to improve the regulatory interface between government bodies and traders at national borders. According to the WTO, trade facilitation is defined as “the simplification and harmonisation of international trade procedures” where trade procedures are the “activities, practices and formalities involved in collecting, presenting, communicating and processing data required for the movement of goods in international trade”.

In a broader sense, trade facilitation includes measures aimed at reducing or eliminating transaction cost that affect the international exchange and movement of goods, services, investment and people.

In this context, trade facilitation measures include a wide range of issues such as, technical standards, sanitary and phytosanitary and all types of transportation modes, custom valuation, infrastructure, intellectual property, rules of origin, custom procedures and formalities and electronic commerce, payment of insurance and even tariff and non tariff measures.

The ‘July 2004 Package’

In the sphere of multilateral trade negotiations, trade facilitation emerged first as a component of the package of what is now known as ‘four Singapore issues’ during the WTO Ministerial meeting in Singapore.

Although three issues in the package – namely, trade related investment, trade related competitive measures and government procurement – have been left out due to the pressure from the developing countries, the negotiations on trade facilitation was able to reach consensus under the framework of what is now known as the ‘July 2004 Package’ with limited scope.

As per Annex D of the July Package, negotiations are aimed to improve relevant aspects of Article v (Freedom of Transit) Article viii (Fees and Formalities connected with importation and exportation) and Article x (Publication and Administration of Trade Regulation) of the GATT 1994 with the view to further expediting the movement, release and clearance of goods including goods in transit.

The mandate also included the principle of special and differential treatment for developing and least developed countries and technical assistance and support for capacity development.

Sri Lanka’s global competitiveness

Sri Lanka’s global competitiveness has been lagging in global ranking despite Sri Lanka’s strategic location. It is believed that with the undertaking of large infrastructure development programmes in the port and navigation, airport and aviation and improvement of the domestic road network coupled with noteworthy reforms in the domestic taxation and tariff structure, the competitiveness ranking of Sri Lanka is likely to increase in time to come.

At present Sri Lanka ranks at the 102nd position among 183 countries in the Doing Business Survey of 2010 conducted by the World Bank. The intention of the Government, as pronounced in the Annual Report of the Central Bank 2010, is to improve the ranking to the position of 30 by 2014.

The subsection of Doing Business Survey has a ranking for “Trading Across Borders” which has a strong co-relation with the trade facilitation measures. According to the Trading Across Boarders benchmark, Sri Lanka has slipped from the 62nd position in 2009 to the 72nd position in 2010, despite the fact that Sri Lanka was able to streamline Customs documentation, introduction of advance ruling and risk assessment procedures and operation of Asycuda clearance system.

This may be partly due to improving of the ranking of other countries due to the rapid enhancement of trade facilitation measures by the other countries. This scenario called for urgent reform and measures to be applied in the arena of trade facilitation in Sri Lanka.

Priority ranking

A study conducted by the UN-SCAP under the title ‘An exploration of the need for and cost of selected trade facilitation measures in the Asia and the Pacific in the context of the WTO negotiations’ in 2006 compiled a list of private sector priority ranking of selected trade facilitation measures as follows,

1.    Elimination of bribery and other corrupt practices of officials involved in the clearance and release of imported goods.

2.    Improvement of coordination between relevant agencies, particularly on the document requirements, e.g. through the establishment of a single window for one-time submission and collection of all trade documents.

3.    Timely and comprehensive publication and dissemination of trade rules and regulation, e.g. through the internet.

4.    Computerisation and automation of trade procedures, e.g. online submission and approval of customs declaration, cargo manifest, including electronic payment of fees and customs duties.

5.    Harmonisation and standardisation of documentation requirements based on international standards.

6.    Reduction and simplification of the documentation requirements for import and export procedures.

7.    Improvement in customs inspection and control procedures, e.g. systematic use of risk analysis to determine which goods should be examined, clearer criteria for ‘GREEN’ and RED’ channels and special channels authorised traders and express shipments.

8.    Establishment (or improvement in the effectiveness) of an advance ruling system, which allows the importer, in advance of trade, to obtain rules in certain specific areas, e.g., tariff classification, customs valuation and origin.

9.    Beginning and if possible completing clearance of goods before they have arrived physically in the customs territory (based on advance submission of goods declaration and other documents).

10. Establishment (or improvement in the effectiveness) of a consultation mechanism through which traders can provide inputs on proposed new or amended rules and regulations.

11. Establishment (or improvement in the effectiveness) of enquiry points and/or call centre for up-to-date information on trade procedures.

12. Establishment (or improvement in the effectiveness) of an appeal mechanism outside of the authority of customs or related agencies for traders to dispute customs and other authorities’ decisions.

13. Separating release of cargo from clearance procedures, i. e. allowing goods to be released before all clearance formalities have been completed (this may be subject to providing a financial guarantee to customs and/or post- clearance audit).

14. Implementation of international and regional transit systems based on international standards and practices.

It could be observed that the trade facilitation measures indicated above could also be largely applicable to Sri Lanka as well. Having recognised the need for identification of trade facilitation benchmark, the Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL) requested the Commonwealth Secretariat to undertake a study and it is now published under the title of ‘Trade Facilitation Systems and Process Benchmarking Study for Sri Lanka’.

Following the publication of the report, two workshops were held in Sri Lanka in order to consult all the stakeholders in the public and private sector organisations and also to disseminate the findings of the study. Copies of the report are available at the FCCISL for interested parties.

Recommendations

The Commonwealth study made a number of recommendations to be implemented in the short, medium and long term.

The study identified five recommendations which could be implemented during a short period of time with minimum effort as follows:

• Establish at the highest level a Presidential Commission Government Business Trade Facilitation Committee.

• Eliminate paper submission and establish 100% online submission of CUSDEC.

• Extend entry receiving beyond 3 p.m. to facilitate Customs Declaration.

• Standardisation of tariff classification.

• Provide all Customs-related information readily available to all interested parties.

Another set of five recommendations have been made by the study which could be implemented in the medium term with medium level effort and those recommendations are as follows:

• Establish pre-arrival CUSDEC submission.

• Review the licensing procedures and reduce application on pre consignment basis.

• Conduct study for a public-private partnership model for trade facilitation system.

• Online application and approval of OGA (Other Government Agencies) license and permit.

• Establish port community system.

The study proposed three recommendations which could be implemented in the long term with high level of effort as follows:

• Eliminate duplication of sampling by customs and OGAs.

• Establishment of a national value-added network framework.

• Implementation of Single Electronic Window.

For effective implementation of above recommendations

(a) A necessary administrative mechanism (High Powered Government/Business/Trade Facilitation Committee) to coordinate with the public sector agencies and private sector business organisations

(b) enabling legal framework (electronic commerce) and

(c) required investment (the Commonwealth study estimates US $ 25.63 million) are prerequisite.

Donor assistance

The authorities may wish to seek donor assistance to complement the local resources. In fact the current WTO negotiations recognise the substantial investment involved, inability of developing countries to meet the heavy investment and the necessity for advance developed countries and international agencies to provide development assistance to implement the trade facilitation measures.

It is indeed a salutatory development that the Central Bank of Sri Lanka has recently released a revised edition of the publication title ‘A Step by Step Guide to Doing Business in Sri Lanka,’ which provides valuable information particularly for small and medium scale industries and exporters.

This Federation expects that the authorities would take a serious look at the issues discussed in the Commonwealth Secretariat Study to take measures for implementation. The Federation of Chambers of Commerce is keen in extending its assistants towards this effort. In this regard, the FCCISL has recently streamlined the issuance of Certificate of Origin (COO) to make the procedure user friendly, cost effective and time saving for the exporters.

Any exporter can obtain further information on the current user-friendly system by contacting Shazly or Wasana on 0112304253/4 or by email [email protected] or [email protected] .

(This paper was compiled by the Research and Policy Advocacy Unit of the Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL). Research papers of this nature could be accessed through the FCCISL Blog, www. blog.fccisl.lk. Comments are welcome via email to [email protected] )