Trade facilitation loses at "Battle of Seattle"

December's World Trade Organization meeting was disappointing, but further progress toward global trade facilitation is inevitable.

By Matthew T. McGrath -- Logistics Management, 3/1/2000

I went to a riot and a trade negotiation broke out. At least that's the way it seemed. The widely publicized demonstrations and street drama that played a role in the collapse of the World Trade Organization's Ministerial Conference in Seattle last December often overshadowed the purpose of holding that meeting, at least in the eyes of the general public.

Although generally billed as a meeting to kick off the "Millennium Round" of WTO negotiations covering tariffs, agriculture, international dispute resolution, investment standards, and other "big" topics, the Seattle trade conference was also expected to address trade facilitation. "Trade facilitation" has become a catch-all term describing efforts to achieve international consistency in customs clearance, regulatory transparency, documentary harmonization, simplification of transport data requirements, and reduction of cargo-clearance cycle time--all issues of interest to logistics and inventory-management professionals. Improved trade processes are no less critical to the company controller, because customs and clearance costs account for up to 15 percent of the landed value of all merchandise, according to estimates by the Organization for Economic Cooperation and Development (OECD). But alas, the goal of the seamless international transaction was destined to recede, at least temporarily, into the clouds of tear gas on Seattle's Sixth Avenue and the haze of rhetoric on the Convention Center's sixth floor.

Slight Progress in Trade Facilitation

To be sure, trade facilitation was never the top priority for any of the participating countries. A number of other, highly contentious trade-policy issues took center stage instead. These included the extent to which agricultural subsidies would be eliminated, whether and how environmental concerns would be addressed in trade agreements, whether international labor standards should or could be recognized in WTO agreements, application of intellectual property rights and phytosanitary standards to traded products, and other weighty policy matters. Nor did the mundane matter of whether customs authorities should apply uniform risk-assessment standards for cargo inspections appear to be foremost in the minds of the colorful curbside collection of defenders of redwood trees, monarch butterflies, laborers, hormone-free beef, genetic non-intervention, Chinese religious freedom, and anarchism. (The anarchists, paradoxically, seemed to me to be the best organized of the protesters.) Indeed, most of them were hard-pressed even to explain what the WTO did; yet the summit became a flash point for Internet-organized grievances in search of an outlet.

Nevertheless, WTO members had followed up on a modest pledge made at the Singapore Ministerial in 1996, which directed the group's Council on Trade in Goods to "undertake exploratory and analytical work ... on the simplification of trade procedures in order to assess the scope for WTO rules in this area." Encouraged by private global trading interests, the major trading countries took up that challenge. Prior to Seattle, the United States proposed to negotiate specific measures that "provide enhanced transparency in procedures related to trade transactions and enhanced efficiency in the physical movement of goods by allowing the rapid release of such goods from government authorities to traders." The European Union (EU) went even further, proposing that WTO rules be established that would eliminate "multiple proofs of value, repeated demands for the same forms by different agencies of both the importing and exporting administrations, [and promote] harmonization between countries in the data-entry inputs. ..."

Although negotiators in Seattle did not move very far down that road, one cannot say that no progress was made. The EU, for example, laid down a "consensus" draft proclamation, supported by Switzerland, Japan, and Korea, that was slowly attracting support from a broad coalition of developed and less-developed countries. Among the many mandates included in that draft was a directive to negotiate customs rules aimed at "maximising transparency, expediting the release of goods, and ... modernising and harmonising border-crossing requirements," as well as to provide technical assistance and consideration to less-developed countries lacking in customs administrative infrastructure. The proponents' aim was to convert general principles of customs simplification into global rules with full WTO endorsement.

In the end, however, the only trade-facilitation measures agreed upon (in draft form) were:

- An understanding that exporting countries would provide information and investigative assistance to importing countries when the latter had reason to challenge the declared value of imported merchandise;

- Acceptance of requests by countries for delays in implementing the Customs Valuation Code, a WTO agreement that member countries will use a uniform method for defining value for the purpose of calculating tariffs (thus avoiding the Jan. 1, 2000, deadline); and

- Unofficial acknowledgment that the harmonization of customs rules of origin by the World Customs Organization would take a lot longer than scheduled.

These results don't seem very supportive of the concept of "facilitation," but as the saying goes, if customs administrators did not already exist, they would probably not be invented for the purpose of facilitating trade.

Maintaining Forward Momentum

Just as customs modernization was not a driving force in the effort to kick off the Millennium Round, neither was the disparate collection of protesters the main reason for the Seattle talks' collapse. The bigger reason, in my view, was the participation of so many private business interests seeking primarily to protect gains from earlier WTO agreements, rather than to expand them. Growing global awareness of the existence of the World Trade Organization and its grudging willingness to be more accessible to business, labor, consumer, and other interests led to a veritable explosion of self-expression. That, combined with President Clinton's poorly timed suggestion that WTO sanctions could be used to enforce international labor standards, gave many countries the cover they needed to accept an impasse and beat a hasty retreat to Geneva, where they probably will try again after the U.S. elections.

Where does this leave multilateral customs improvements? Although the Seattle meeting made little progress in that area, forward momentum will certainly be maintained through ratification of recently approved amendments to the Kyoto Convention on Simplification and Harmonization of Customs Procedures. Many of the same concerns about procedural harmonization that were discussed at the WTO summit are spelled out in the Kyoto document. These include procedural transparency, use of electronic means of processing cargo, acceptance of duty-drawback and in-transit procedures, and due process with respect to alleged violations of national customs laws.

Ratification of the Kyoto Convention's amendments is likely because that group has 61 parties to the convention and just 41 of them must ratify it for it to go into force. The WTO, by contrast, has 135 members and ratification must be unanimous.

Although it may prove more difficult to achieve ratification of a customs-harmonization agreement by the WTO, some observers believe that would be preferable to ratification of the Kyoto Convention. That's because there are no provisions for enforcement in the Kyoto Convention, while the WTO has effective deadlines and sanctions. A WTO agreement, moreover, would be implemented in 135 countries, more than twice as many as there would be under the Kyoto Convention.

Individual countries will continue their efforts toward customs modernization. The United States is undertaking a long-promised move toward an account-based system of entry processing. The objective of this "Entry Revision Project" is to move progressively toward a system that is similar to income-tax assessments, in which entry information, corrections by the importer, collection of tariffs, and post-entry compliance audits are handled like annual tax returns rather than as a series of individual transactions. There also will doubtless be more bilateral and multilateral efforts, such as the United States/United Kingdom pilot program to transmit import and export data directly between customs services, rather than imposing dual customs-clearance burdens on shippers and redundant enforcement burdens on the respective customs administrations.

These activities, however, will largely be driven by developed countries' interests in modernization. The spread of basic harmonization to the less-developed world--where antiquated and inconsistent customs procedures not only slow cargo movement but also discourage new investment capital--suffered a temporary setback in Seattle.

In hindsight, the dark characterization offered by WTO Director General Mike Moore at the start of the Seattle meeting--that the summit was "doomed to succeed"--was an accurate view of a work in progress. The meeting itself was probably doomed, in a sense, by resistance to compromise long before the protesters hit the streets. But success in streamlining customs procedures and bringing improved trading access to the world is inevitable as WTO members, individually and multilaterally, seek to make the global marketplace an engine of prosperity.

International trade attorney Matthew T. McGrath is a partner in the Washington law firm of Barnes, Richardson & Colburn. He attended the WTO meeting in Seattle as a representative of pharmaceutical and agricultural interests.