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Freedom of Transit: Opportunities for
WTO Acceding Countries
Benefits and Challenges for Afghanistan
By: Angela Strachan, Chief Business Environment
Date: 18 April 2013
A presentation to the 2nd Technical Capacity Building Workshop on Afghanistan’s Accession to the WTO New Delhi, India
Freedom of Transit in the Agreement on Trade
Facilitation at the WTO
State of Play - WTO discussions in Geneva to
improve and clarify GATT Article V
Rules and Principles of GATT Article V -
Freedom of Transit
International and Regional Transit Instruments
An Action Plan for Afghanistan – Maximising the
benefits of WTO membership
2
3
Where are we?
WTO Negotiations on Trade
Facilitation
Pascal Lamy, Director-General WTO 1 Feb 2013
4
‘Globally, removing these barriers to trade and
cutting red tape in half, which is what a
multilateral Trade Facilitation Agreement could
deliver, could stimulate the US 22 Trillion dollar
world economy by more than US 1 trillion
dollars! ‘
State of Play – WTO Agreement on Trade Facilitation
WTO DG briefed Members of the Informal Trade Negotiations
Committee (11 April 2013)
Chair ITNC has restructured the negotiating process with the
support of his four ‘Friends of the Chair’
Two ongoing parallel tasks (March– May 2013)
a. Negotiations on the Text of the Draft Agreement continues
b. ‘Many’ developing countries and LDCs are conducting new
needs assessments
Expected to yield more up to date documentary basis to start
developing partnerships with donor Members and
development partners
7
State of Play – WTO Agreement on Trade Facilitation
Negotiating Group on Trade Facilitation (NGTF) meets –
May 2013
Recipients and donors ‘Trade Fair’ – May 2013
WTO members to coordinate cross -agency collaboration
to ensure that members are prepared to bring closure to
the negotiations - ?
Next Steps? – May December, 2013 onwards
WTO Ministerial – Bali, Indonesia, Dec 3-6, 2013
8
WTO Agreement on Trade Facilitation
• Mandate for negotiations set out in Annex D of the July
package (2004)
• Negotiations are member driven – that is, all proposals
and final outcome are from WTO members
• Trade Facilitation is part of DDA Single Undertaking ……
• WTO Members have narrowed the definition to 3 GATT
Articles: – GATT Article V – Freedom of Transit
– GATT Article VIII – Fees and Formalities
– GATT Article X - Transparency
Existing WTO Legal Framework
10
GATT Article VIII – Fees and Formalities
• Fees reflect cost of services rendered
• Reduce the number and kind of fees
• Simplify formalities and documents
• Minor penalties for minor errors
GATT Article V – Freedom of Transit
• Most convenient route
• No discrimination
• No unnecessary delays or
restrictions
• No duties
GATT Article X – Transparency
• Publication
• Administration of laws
• Right to appeal
Mandate for Negotiations WT/L/579 –Annex D
Clarify and improve V, VIII, X
Special and Differential Treatment - go beyond traditional transition periods
Identify needs and priorities
Enhance techncial assistance
No obligation for infrastructure
Timing and extent of commitments linked to capacity
11
WTO Trade Facilitation Mandate
12
Scope
• Transparency and appeals
• Import/export fees and formalities
• Freedom of transit
• Customs cooperation
• SDT
• Technical Assistance
Objectives
• Expedite movement, release and clearance of goods
• Improve co-operation between customs and other border
agencies
• Enhance technical assistance
and build capacity
13
Freedom of Transit
Rules and Principles of GATT
Article V
Rules and Principles of GATT Article V - Freedom of
Transit Article V of the GATT 1994 (http://www.wto.org/english/docs_e/legal_e/gatt47_01_e.htm#articleV)
Freedom of Transit - provides for freedom of transit
of goods, vessels and other means of transport
across the territory of WTO members via the routes
most convenient for international transit.
14
Source:TFIG (http://tfig.unece.org).
Rules and Principles of GATT Article V - Freedom of Transit
It specifies:
equal treatment independent of a vessel's flag, origin,
departure, entry, exit, destination or ownership of the goods or vessels;
prohibition of unnecessary delays or restrictions to traffic in
transit;
prohibition to levy Customs duties, transit duties and other
transit-related charges (except for charges for transportation
or those commensurate with administrative expenses entailed
by transit, or with the costs of services rendered);
level of charges levied should be reasonable for the conditions
of traffic;
most favoured nation (MFN) treatment with regard to charges,
regulations and formalities.
15
Rules and Principles of GATT Article V - Freedom
of Transit Why is GATT Article V so important?
Several countries depend on international transit, i.e. crossing
the territory of another state as part of the transport journey, to have access to the sea and reach markets. Land-locked
countries depend on transit to have access to seaports.
Two issues are of key interest to land-locked countries like
Afghanistan:
the right for, and conditions of the transit passage;
the efficiency of formalities that have to be undertaken
for the Customs transit procedure or transit transport
operations.
16
Rules and Principles of GATT Article V - Freedom
of Transit GATT Article V reiterates the principle of freedom of transit.
This is a principle of law that has been the subject of various international conferences and conventions:
the Barcelona Statute on Freedom of Transit;
the New York Convention on Transit Trade of Land-locked Countries;
UNCLOS III.
It was also included in 1949 in the GATT.
The principle, calling for granting access to the sea, or passage across the territory, is not itself sufficient to ensure that countries enjoy freedom of transit. .
17
Rules and Principles of GATT Article V - Freedom
of Transit Transit traffic, in particular by road transport, faces obstacles
due to the regulatory framework for domestic and
international traffic and treatment at and behind borders.
For this reason, transit traffic is subject to multiple controls,
restrictions, and a complex regulatory environment
In fact, the right to cross the territory of a transit country and the
conditions for this transit traffic have been agreed in bilateral
or multilateral agreements. These agreements typically define the # of vehicles authorized for transit traffic, and the types of
services that they can offer, as well as license requirements.
18
Rules and Principles of GATT Article V - Freedom
of Transit However, delays at borders are caused through lengthy
procedures and security measures put in place to monitor and
control transit traffic. These security measures are put in place to
ensure that goods in transit are not diverted to the market of the
transit country, without paying the duties and taxes applicable. Security measures commonly include escorts by Customs, as
well GPS tracking of the truck and/or container.
It is also common for Customs authorities of the transit country
to ask for the deposit of a financial guarantee (in cash or as a
bond), covering the amount of duties and taxes the transit goods
to be paid if put for consumption on its territory.
19
Rules and Principles of GATT Article V - Freedom
of Transit Transit traffic may also suffer from discretionary treatment, frequent en-route controls and checkpoints, and requests for payments to individual officials, and sudden changes in regulations covering transit traffic.
The data gathered from a a USAID-funded project on transport corridors in West Africa on checkpoints and bribes on six main corridors which are updated and published regularly illustrates this problem.
The findings of the 17th report, covering the period July-September 2011, are shown in the next slide.
20
Source:TFIG (http://tfig.unece.org).
Rules and Principles of GATT Article V - Freedom of
Transit
Source:TFIG (http://tfig.unece.org).
USAID-funded project on transport corridors in West Africa: July – Sept 2011
Rules and Principles of GATT Article V - Freedom
of Transit
Transit traffic is mainly regulated through cross-border agreements: multilateral or bilateral transit and transport agreements
These agreements cover market access issues, as well as treatment of goods and means of transport at and behind borders. They have the potential to facilitate transit traffic through, inter alia, the use of a common transit document, mutually recognized controls and seals, and a cross-border guarantee scheme.
The most widely known regional transit agreement is the TIR Convention.
22
23
Applications for Afghanistan
International and Regional Transit
Instruments
International Instruments on Transit
3 Conventions protect the interests of transiting States:
The 1921 Barcelona Convention on Transit
The 1965 New York Convention on Transit Trade of Landlocked Countries
UNCLOS III
plus
The 1947 General Agreement on Tariffs and Trade (GATT) Article V
24
International Transit Instruments (1): TIR Convention
67 countries have signed the TIR Convention
25
Int’l Transit instruments for Afghanistan : TIR Convention
26
Source: www.legacarta.net
International Transit Instruments for Afghanistan (1):
TIR Convention
Customs Convention on the International Transport of
Goods under Cover of International Transport Road (TIR)
Carnets ratified by Afghanistan on 23 Sept 1982.
Provides for:
• Multimodal
• Goods carried under the TIR procedure in approved and sealed road
vehicles,(combination of vehicles or containers) is not subject to
Customs examination, unless irregularities are suspected
• TIR reduces regular requirements of national transit procedures and
physical inspections in transit countries
• Uses a single standardized document (TIR) Carnet
27
The Revised Kyoto Convention: WCO (2)
28
Source: www.legacarta.net
The Revised Kyoto Convention - WCO (2)
Convention on the temporary admission ratified by Afghanistan on 18
May 2004
The 1990 Convention remedies the deficiency caused by the multiplication
of Conventions concerning temporary admission. The recourse on optional
annexes does not resolve the risk of legal fragmentation related to those
matters, as the annex provisions bind only Contracting Parties that
have accepted the same annexes.
For example:
Annex E on Transit
Annex G on Temporary Importation
29
The Revised Kyoto Convention: WCO (2)
Convention on the temporary admission ratified by Afghanistan on 18
May 2004
The 1990 Convention remedies the deficiency caused by the multiplication
of Conventions concerning temporary admission. The recourse on optional
annexes does not resolve the risk of legal fragmentation related to those
matters, as the annex provisions bind only Contracting Parties that
have accepted the same annexes.
For example:
Annex E on Transit
Annex G on Temporary Importation
30
The Istanbul
Convention (3)
Istanbul Convention: Temporary
Admission(3)
• Convention on Temporary Admission (entered
into force in 1993)
• Temporary Admission
For certain imports that are known to be
re-exported in the same state (e.g., goods for
exhibition, professional equipment, containers, pallets,
etc.), Customs allows
duty-free access with simplified formalities supported
by the security (guarantee)
Istanbul Convention: Overview
Simplifies and harmonizes Customs formalities in connection
with temporary admission, in particular, by making the
acceptance of ATA carnets obligatory
It gathers all existing temporary admission facilities under a
single instrument
Guaranteeing chain/association is a key
Reservation is not recommended but it is permitted on provisions in Annexes subject to certain conditions
50 Contracting Parties
Istanbul Convention -Overview
India, Iran and Pakistan are using the ATA carnets, but not based on the same
conventions.
There are two conventions which apply.
The new one (1990 Istanbul) which incorporates not only the ATA system
but other temporary admission possibilities.
This has been ratified by PAKISTAN in 2004.
- The older one (1961 ATA temporary admission Convention) exclusively
dedicated to ATA Carnets, was ratified by INDIA in 1989 and IRAN in 1968.
N.B. Afghanistan is not a signatory to either Convention.
Customs Container Convention 1972
• Temporary admission of containers Free from duty/tax/prohibition/restriction, no Customs documents,
no security (guarantee), Containers can be re-exported from any Customs office (does not matter whether or not they are loaded)
• Containers and Customs seals Marking, technical specification of containers under the Customs seals and conformity procedure, recognition of Customs seals of other Contracting Parties
• Reservation Reservation is not encouraged but permitted on some articles subject to certain procedural conditions
• 32 Contracting Parties
Container Convention: Overview
37
Role of Bilateral and Regional Trade and
Transit Agreements…
Maximising benefits of Bilateral and Régional
Trade and Transit Agreements
Bilateral Agreements :
Pakistan, Iran, Uzbekistan, Tajikstan,
Turkmenistan, Kazakstan, India, China, EU, US
APTTA (2010) replacing ATTA (1965)
Access to Karachi, Port Qasim and Gwadar seaports
Afghan cargo transportation using Afghan trucks
Use of biometric system
Prevention of smuggling
Coordination authority
Private sector involvement in negotiations…
38
Maximising benefits of Bilateral and
Régional Trade and Transit Agreements
Regional Economic Cooperation
ECO – Transit Transport Framework Agreement
(TTFA)
CAREC – Transport Corridors
SAARC
SAFTA
SATIS
39
40
Importance of ( Article V) Freedom of Transit for LLDCs
Multilateral rules on transit
41
Speed to market…
Export competitivness …
As a driver for foreign direct
investments
Relevance of Multilateral Rules on Freedom of
Transit for LLDCs
42
1
1.5
2
2.5
3
3.5
LPI 2007 LPI 2010 LPI 2012
India 3.08 (46)
Pakistan 2.83 (71)
Iran 2.49 (112)
regional average 2.59
Afghanistan 2.3 (135)
Tajikistan 2.28 (136)
Score in 2012 (Rank in 2012)
World Bank - Logistics Performance Index - LPI
(over the last three surveys in 2007, 2010 and 2012)
(Scores from 1: worst to 5: best possible)
Relevance of Multilateral Rules on Freedom of
Transit for LLDCs
43
OECD highincome
India PakistanIran, Islamic
Rep.Tajikistan Afghanistan Uzbekistan
Series1 10 16 21 25 71 74 80
0
10
20
30
40
50
60
70
80
90
Nu
mb
er
of
day
s
Time it takes to export (in nb of days)
Trading Across Border indicator (Source: World Bank Doing Business)
44
Importance of a binding framework for Freedom of Transit
Multilateral rules on transit
Article V – Freedom of Transit
‘’Goods (including baggage), and also vessels and
other means of transport, shall be deemed to be in
transit across the territory of a contracting party
when the passage across such territory, with or
without trans‐shipment, warehousing, breaking
bulk, or change in the mode of transport, is only a
portion of a complete journey beginning and
terminating beyond the frontier of the contracting
party across whose territory the traffic passes.
Traffic of this nature is termed in this article “traffic
in transit’’
45
Proposals to improve Article V
[Goods subject to the provisions on Freedom of
Transit of GATT 1994 and of this Agreement include
those moved via fixed infrastructure, inter alia
pipelines and electricity grids.]
46
Article V- Treatment of Transit
Goods and transport means crossing territory
• Non‐discriminatory treatment of vehicles in transit and
of goods transported by them
Routes most convenient for international transit
Prohibition to:
• Make transit traffic subject to unnecessary delays or
restrictions
• Impose Customs duties, transit duties or other transit
charges, except for:
(i) charges for transportation,
(ii)charges commensurate with administrative expenses
entailed by transit or
(iii) with cost of services
47
Proposals to improve treatment of Article V
[Members shall not apply discriminatory measures
to goods in transit, or to vessels or other means of
transport of other Members, for non‐commercial
reasons. This does not exclude the right to resort to
the exceptions already laid down in WTO
Agreements, for valid reasons and provided that the
measure concerned does not constitute a disguised
restriction on international trade]
48
Article V - Charges
All charges and regulations imposed on transit shall be
reasonable, having regard to the conditions of traffic.
MFN treatment with respect to all charges, regulations and
formalities.
Interpretative note: With respect to transportation charges,
MFN requirement refers to like products being transported on
the same route under like conditions
Problems: Members felt 1.Not specific enough 2. not
operational 3. not fully enforceable 4.lack of transparency 5.
too much room for discretion 6. lacking cooperative approach
49
Suggested language for Charges
Any charges, regulations or formalities taken in
accordance with GATT Article V imposed on or
affecting traffic in transit;
shall not be more restrictive on traffic in transit than
necessary.
shall not be maintained if the circumstances or policy
objectives giving rise to its adoption no longer exist or if
the changed circumstances or objectives can be
addressed in a less restrictive manner.
shall not be applied in a manner that would constitute a
disguised restriction on transit traffic.
50
National treatment for charges and
regulations
With respect to all regulations and formalities in connection with
transit, including charges for transportation, traffic regulations,
safety regulations and environmental regulations, Members shall
accord to traffic in transit treatment no less favorable than
that accorded to [export or import traffic / domestic traffic /
traffic which is not intransit].
This principle refers to like products being transported under
like conditions.
51
Proposals addressing customs duties
Members shall exempt traffic in transit from customs duties
and from all transit duties[1] and other charges imposed in
respect of transit, except:
Reasonable charges for transportation (such as tolls, road
charges and similar), having regard to the conditions of the
traffic, or
Transit charges commensurate with the administrative
expenses entailed by transit or with the cost of the service
rendered. Any transit charge shall:
Only be imposed for the administrative procedures entailed or
transit services provided in connection with the transit
movement in question;
Not exceed the approximate administrative expenses entailed
or cost of the transit service rendered; and
Not be calculated on an ad valorem basis.
52
Proposals addressing border infrastructure and
formalities
Members shall endeavour to make available physically
separate infrastructure (such as lanes, berths and similar)
for traffic in transit at border crossings.
Transit formalities, documentation requirements and
customs controls, including physical inspections, shall not
be more burdensome than necessary to
identify the goods and
assure that transit requirements have been met and
goods have exited the Member’s territory or disposition
has occurred
and anyhow not be more burdensome than those
imposed on imports.
53
Proposals on controls and formalities
Members shall not apply quality controls or controls of
compliance with technical standards on goods in transit.
Members shall allow and provide for advance filing and
processing of transit documentation and data prior to the
arrival of goods.
Members shall accept any commercial or transport
document setting out clearly the necessary particulars as the
descriptive part of the goods declaration for customs transit
and this acceptance shall be noted on the document.
54
Proposals on controls and formalities
Once traffic in transit has been cleared by Customs, it shall
not be subject to further charges, customs inspections,
delays or restrictions until the passage across the Member’s
territory is complete.
Once traffic in transit has reached the customs office where
it exits the territory of the Member, that office shall
terminate the transit operation without delay if transit
requirements have been met.
55
Proposals for coordination and cooperation
Members shall cooperate and coordinate with one another
with a view to reducing trade barriers and enhance freedom
of transit
To this end, Members shall, as far as necessary, meet
periodically to discuss and come to an understanding on the
fees and charges, formalities, legal requirements and
practical operation of transit regimes relating to goods
moving in transit between them
Each Member shall appoint a national transit coordinator to
which all enquiries and proposals by other Members relating
to the good functioning of transit operations can be
addressed
56
Article V - Streamlining the Text
Goods subject to the provisions on Freedom of Transit of
GATT 1994 and of this Agreement include those moved via
fixed infrastructure, inter alia pipelines and electricity grids.]
Any charges, regulations or formalities taken in accordance
with GATT Article V imposed on or affecting traffic in transit,
• shall not be more restrictive on traffic in transit than necessary.
• shall not be maintained if the circumstances or policy objectives
giving rise to its adoption no longer exist or if
• the changed circumstances or objectives can be addressed in a less restrictive manner
• shall not be applied in a manner that would constitute a disguised
restriction on transit traffic
57
Article V - Streamlining the Text
‘’Goods (including baggage), and also vessels and
other means of transport, shall be deemed to be in
transit across the territory of a contracting party
when the passage across such territory, with or
without trans‐shipment, warehousing, breaking
bulk, or change in the mode of transport, is only a
portion of a complete journey beginning and
terminating beyond the frontier of the contracting
party across whose territory the traffic passes.
Traffic of this nature is termed in this article “traffic
in transit”.
58
Summary of Proposals
Proposals to improve Article V (GATT) are now presented
under Article 11 of the consolidated text. They look at:
1. Scope and definition (Para 1-2)
2. Transit charges, Regulations and Formalities (Para 3)
3. Strengthened non-discrimination (Para 4-6)
4. Transit procedures and controls (Para 7-12)
5. Guarantees (Para 13-16)
6. Cooperation and coordination (Para 17-18)
59
What WTO rules say also…
Special and Differential Treatment (SDT) for developing
countries and LDCs in particular:
Entering into commitments related to their implementation
capacities (CB and TA, investment in infrastructures...)
Extended SDT beyond traditional transition periods
Large flexibility for LDCs
Beyond traditional SDT (pure exemptions, transition periods,
differentiated non-reciprocity)
Custom cooperation:
Multilateral Mechanism for Exchange and Handling of information
amongst WTO Members.
60
61
Defining Trade Facilitation Needs
An action plan for Afghanistan
Defining needs as a WTO member – How?
WTO Negotiations on Trade Facilitation Self -
Assesment Guide:
Detailed guidlines on structuring proposals,
requests for TACB to meet obligations
Assistance available for policy, regulatory work
Assistance available for soft infrastructure
support
Assistance to upgrade administrative windows
etc
Other
62
Defining needs as a WTO member – How?
Situation /Gap Analysis
• Describe your current situation- (a)Policy/Legal
Framework, (b) Procedures, (c) Institutional
Framework,(d) Human Resources/ Training, (e)
Communications/ICT (f) Equipment /Infrastructure (g)
Other issues
• Barriers – reason for non-compliance
• Actions – Resources required, Cost, Number the
actions
• TACB Resources Needed – Be specific!!!!!
63
Categories of TF Commitments A, B, C
Developing and LDC countries may notify
measures:
Category A: measures one can implement at
time Agreement enters into force
(i.e.immediately)
Category B: can implement after additional
time
Category C: implement after TACB
64
65
A- Implement right
away B – Time needed C – Time and TA
needed
A.1 Publication
B.1 Interval between
Publication/Entry into
Force
B.2 Prior Publication
D.1 Right of Appeal
E. 1 Import/Rapid
Alert
F.1 Disciplines on
Fees
G.2 Separation of
Release
A.2 Internet Publication
A.3 Enquiry Point
A.4 Notification
G.3 Risk Management
G.6 Authorized Traders
G.7 Expedited
Shipment
J.1 Periodic review of
Formalities
L.6 Bonded Transport
C.1 Advance Rulings
G.1 Pre-Arrival
Processing
G.4 Post-Clearance
Audit
J.2 Reduction of
Formalities
J.5 Single Window
J.6 Eliminate PSI
L.7 Regional Transit
Agreements
Schedule of Trade Facilitation Commitments for WTO Member Country (Indicative)
WTO Trade Facilitation Negotiating Group
GATT Article V
Proposed trade facilitation measures to
improve Article V:
1. Pre-arrival processing
2. Risk-management/analysis
3. Expedited shipments
4. Authorized traders
5. Post-clearance audit
6. Separating release from clearance procedures
7. Reduction/limitation/ simplification/ adjustment
8. Single window/one-time submission
9. Elimination of pre-shipment inspection
GATT Article V
10. Import alerts/rapid alerts
11. Detention
12. Test procedures
13. Acceptance of commercially available
information and copies for transit
14. Phasing out mandatory use of customs
brokers
15. Prohibition of consular transaction
requirement
16. Coordination of activities and requirements of
all border agencies
17. Promotion of regional transit agreements or
arrangements