BR Research: Tell us a little bit about UNCTAD and its activities in Pakistan? How is it helping promote trade/investment in the region?
Jan Hoffman: UNCTAD collaborates with a number of countries, including Pakistan, in the assessment of Trade Facilitation requirements. Most recently, in cooperation with the International Trade Centre and the World Customs Organization, we jointly held a workshop to assess pending issues for Pakistan's compliance with the Trade Facilitation Agreement (TFA) of the World Trade Organization.
The TFA is about to enter into force, and Pakistan as a WTO member that has ratified the TFA will be bound by a number of obligations to put in place specific procedures and reforms at Customs and other Border Agencies.
BRR: Tell us about the TFA. How will it help Pakistan's situation, given Pakistan's dwindling exports and rising current account deficit? In the prevailing protectionist mindset, there are those that see Pakistan as a net loser as a result of such agreements. Case in point, the Pak-China FTA that has resulted in an unprecedented influx of Chinese goods. What is your take on this?
JH: The TFA will require almost the entire world to "streamline, standardize and simplify" passage of goods across borders. Estimates by the World Bank and WTO suggest that this could add $1 trillion to global trade output and helping end the sixth straight year of sluggish trade growth.
The TFA represents a great opportunity for Pakistan. Experience shows that trade facilitation reforms improve a country's trade competitiveness and enhance its revenue collection. What is more, they can help advance development goals such as strengthening governance and formalising the informal sector. In addition, since many trade facilitation-related challenges and solutions are regional, the implementation of such solutions can boost regional integration. Trade facilitation reforms should also be linked to investments in transport infrastructure and other trade-supporting services.
The measures included in the TFA are more important today than ever.
1) There is increased trade in manufactured goods, including imports and exports from developing countries, which are no longer merely providers of raw materials, but increasingly import raw materials and intermediate goods to produce manufactured goods for export. The share of developing countries in global imports has more than tripled since 1970. A trade facilitation measure such as advance rulings (article 3 of the TFA) is more important for manufactured goods than raw materials. For example, when a smart watch was first taken across a border and a customs officer had to decide whether it was jewellery or a watch, computer or toy, the importer would have appreciated having a binding advance ruling at hand.
2) Trade is increasingly a part of global value chains. Businesses trade more and more in intermediate goods, with a growing share of intra-company trade. In logistics expenditures, companies increasingly spend on transport and reduce expenditures on inventory holdings. This is because deliveries are increasingly planned to be just in time, and waiting times at borders need to be either non-existent or predictable, at least. In this context, any trade facilitation measure that helps in understanding and speeding up processes, such as pre-arrival processing or publication of average release times, is increasingly important for a country's participation in global value chains.
3) Regional integration crucially depends on facilitation of cross-border trade and, at the same time, many cross-border operations depend on cooperation between neighbouring countries. One advantage of the multilateral TFA is that it can help regional integration without requiring a spaghetti bowl of regional trade agreements.
4) In parallel to growing intraregional trade, there is also diversification in trading partners, including intensifying South-South trade. The more that businesses want to sell and source abroad, the more they benefit from trade facilitation measures such as publication on the Internet or the use of international standards. The TFA helps on the following three counts: measures such as publication on the Internet (article 1.2) help businesses to obtain information globally; article 10.3 stipulates that countries should use international standards; and the TFA in itself helps to standardize terminologies and expectations with regard to border procedures.
5) Available technologies: Points 1) to 4) illustrate the growing demand for trade facilitation; such facilitation also benefits from the supply of new tools. Measures such as customs automation, electronic documents and single window are all easier to implement today than when trade facilitation negotiations started at WTO a decade ago. One technology deserves special mention: the container. Recent studies have shown that the introduction of containerization has had a greater impact on trade growth than trade liberalisation. Incorporating a country's position in the container-shipping network significantly improves the predictive power of trade models. Yet the benefits of containerization are lost if a lack of trade facilitation interrupts their movement, through the breaking of seals or reloading of content.
BRR: What benefits will TFA bring for SMEs, if any?
JH: Trade facilitation reforms are positive steps towards human and institutional development. They help small traders to enter the formal sector, make economic activities more transparent and accountable, promote legal reforms, strengthen information technology capabilities and generally help modernize societies. Specific trade facilitation measures such as inter-agency coordination, right of appeal and establishment of enquiry points often form a part of national reforms not only in the context of international trade, but also in broader public sector modernization programmes that aim at, for example, e-governance or reforms of the legal system.
BRR: What are some of the development goals that the TFA could help Pakistan meet?
JH: Many measures in the TFA have a direct link with the recently adopted SDGs. For example, article 1 covers the publication and availability of information on import, export and transit procedures; a country that complies with article 1 may thus be closer to achieving SDG target 16.10, which, inter alia, aims at ensuring public access to information. Another example is article 5 of the TFA, which, inter alia, requires governments to publish certain announcements in a non-discriminatory and easily accessible manner; this is more easily achieved if traders have access to the Internet, as stipulated in SDG target 9.c. In addition, article 6 of the TFA includes the requirement to avoid conflicts of interest in the assessment and collection of penalties and duties, which can help to reduce corruption and bribery, covered by SDG target 16.5. Finally, many trade facilitation measures directly help informal businesses to better participate in foreign trade, thus supporting SDG target 8.3 on the formalisation and growth of micro, small and medium-sized enterprises.
BRR: Are Pakistan's commitments mostly in Category A (provisions that the member will implement by the time the Agreement enters into force), B (provisions that the member will implement after a transitional period following the entry into force of the Agreement), or C (provisions that the member will implement on a date after a transitional period following the entry into force of the Agreement and requiring assistance and support for capacity building)? How do you see Pakistan rolling out these measures?
JH: Pakistan was among the first countries to notify its Category A commitments. At the same time, if we consider the potential of Pakistan, its human and institutional capacities, I personally feel that the notifications were perhaps more cautious than necessary. Compared to other similar countries, the number of measures that Pakistan notified as "category A," i.e. ready to implement, is effectively relatively low.
BRR: Is TIR part of TFA? What about Afghan Transit Trade Agreement? Where do these regional agreements fit in?
JH: TIR is not part of the TFA. However, at UNCTAD we are convinced that Trade and Transport Facilitation should go beyond the WTO TFA. In this context, we encourage more ambitious reforms, including TIR implementation.
BRR: What happens if Pakistan fails to implement any of the articles?
JH: For us, the importance is not so much the legal aspect, but the missed opportunity. Trade facilitation and protection of the public from lost revenues or health hazards are complementary policy objectives. A large number of specific trade facilitation measures help both the ease of doing business and the fight against counterfeit trade, smuggling and undervaluation (which costs revenue). Measures such as advance information, post-clearance audits, authorised economic operators and risk assessments not only reduce the need for physical inspections but also increase the likelihood of detecting fraud.
Copyright Business Recorder, 2017