An efficient border will boost exports and FDI
Sri Lanka can grow its exports and attract foreign investments by improving processes at ports to quickly clear goods, says Eric Miller, an advisor to the Global Alliance for Trade Facilitation (GATF), a multilateral organisation specializing in trade reforms.
The government has requested the alliance to develop a trade reforms programme to comply with the new trade facilitation rules of the World Trade Organisation (WTO)—of which Sri Lanka is a member—that became effective in 2017. The WTO rules aim to fast-track movement, inspection and clearance of goods across borders. It also aims to establish cooperation between Customs agencies the world over.
Miller visited Sri Lanka in April 2017 to explore opportunities for the alliance to engage in a trade facilitation reforms programme here. Trade facilitation reforms typically aim to fix three challenges. First, delays in clearing cargo at ports lead to huge costs, forcing traders to circumvent the system and bribe Customs officials. Second, exports won’t reach markets fast enough, losing competitiveness in a world where speed is everything. Third, Sri Lanka’s export bias discourages imports, and is therefore counterproductive.
Excerpts from the interview are as follows:
Why is trade facilitation important?
● Miller: Trade facilitation is the plumbing of the global economy. It determines whether a country is competitive or not. The promise of a free trade agreement between two countries hinges on what happens at the border.
According to studies, delaying cargo at ports amounts to a cost equal to a 0.8% duty per day. So, if a good is stuck at the port for 10 days, it is equal to adding an 8% tariff. This is a huge cost, tempting traders to circumvent the system. This risks breeding corruption. The goal of the WTO Trade Facilitation Agreement is to end these problems, but developing countries don’t have the resources to make the necessary changes.Global trade is forecast to grow by $1 trillion each year, and trading costs decline by 14.3%, all due to the Trade Facilitation Agreement. It’s forecast to create over 20 million new jobs.
The WTO adopted the Trade Facility Agreement in 2013. Soon after, the governments of Australia, Canada, Germany, the UK and the US established the alliance. Its mandate was to help developing countries adopt the new WTO convention. Its management comprises representatives from the World Economic Forum, International Chamber of Commerce and the Centre for International Private Enterprise. The board includes representatives from DHL, Maersk, Fiat Chrysler and Walmart. This reflects the private sector’s critical role in trade facilitation reforms. The alliance co-creates strategies with developing countries in a collaborative effort. This requires building consensus among public officials, think tanks and businesses. Vietnam is implementing a trade facilitation strategy developed by the alliance. Projects in Columbia, Ghana and Kenya are in various stages of development. We are selecting the next group of countries to engage, and Sri Lanka is at the top of this list.
How successful will the Trade Facilitation Agreement be in a world that’s embracing protectionism?
● Miller: Countries may renegotiate, revoke or avoid trade agreements. But, trade facilitation will grow in importance despite rising protectionism. Despite even Trump and Brexit, the Trade Facilitation Agreement came into force in early 2017. Sri Lanka ratified the agreement in 2016. Clearly, many countries are concerned about improving conditions at the border, as it enhances market access for their exports in a competitive, protectionist world.
What can you say about Sri Lanka’s trade regime?
● Miller: Sri Lanka’s internal market complexities are well documented. There are delays at ports, and Customs procedures are complex and opaque. There is a need for technology, where traders can submit documentation online in advance. Currently, they are running around with tons of paperwork to different border agencies. Protectionism is another issue. Sri Lanka has a certain structural preference for exports. Every politician loves exports, but you can’t grow exports without imports. The global market tends to work through supply chains, so imports are a crucial component. An estimated one-third of world trade is intra-firm: companies selling within the group. Without efficient borders, few multinationals will invest here.
Yet, I’m optimistic about Sri Lanka’s ability to improve trade facilitation. The government seems committed to improving the competitiveness of the economy. Sri Lanka is home to some competitive businesses and a skilled, educated workforce. They will understand and support the reforms.
How will the alliance assist Sri Lanka?
● Miller: We don’t have a one-size-fits-all programme. Nor is the alliance interested in introducing unproven concepts and impossible targets. Each country’s unique political and economic reality gets due consideration. What the alliance does here will depend on what Sri Lanka wants to achieve. We’re still in the first crucial stage, trying to identify what’ll work in Sri Lanka. Once the governing board makes a decision to engage Sri Lanka with a reforms programme, the alliance can help by consulting stakeholders here to develop a workable reforms strategy. The alliance will also plug knowledge and technical gaps here.
Will there be conditions?
● Miller: The alliance will have no conditions, except to work on an agreed pathway. In this regard, we’re not like the IMF. The alliance does not provide loans, nor are the costs of our programmes recovered.
Influential customs unions are blocking the passage of the new Customs bill. They’re also making it difficult to deploy surveillance technology. Unions will likely oppose any reforms.
● Miller: I’m familiar with Customs unions. Even in the United States, Customs unions do make reforms difficult. The key is listening to what people have to say.
However, it’s important to articulate what the reforms aim to achieve. Speed is a fact of life in the global supply chain. Moving goods into and out of a country fast enough is critical. Sri Lanka is not going to reach a higher level of ambition without that. I’m sure everybody can appreciate this fact, even the unions.
Fixing problems at the border is a good thing. It stamps out corruption, inefficiency and opaque policy making. It also removes complex and archaic systems that breed corruption.
Political realism has to be at the core of any programme the alliance designs. If special interest groups stonewall the reforms, the alliance will find alternative solutions. There will always be diverse and opposing views. The alliance aims to work around them towards a solution most people can agree with. We strive to always deliver significant results with this approach.