Background to Trade Facilitation
This webpage has been set up to keep stakeholders informed of changes that take place under the Customs Trade Facilitation.
The facilitation of legitimate trade has always been a key outcome for Customs administrations, the World Trade Organisation (WTO) and the World Customs Organisation (WCO). The private sector on the other hand is more interested in practical and measurable progress as a result of implementing interventions aimed at enhancing the seamless flow of legitimate trade. There is increased pressure on governments to demonstrate that not only are they using internationally recognised practices in managing cross border trade but also that there is measurable and demonstrable progress in reducing red tape and cost.
What is the Trade Facilitation Agreement?
Trade Facilitation Agreement (TFA) was developed by the WTO with the aim of improving trade efficiency worldwide, encouraging economic growth, and taking advantage of new technologies. The purpose of the agreement is to protect Customs and trade facilitation formalities in order to speed up movement, release, and clearance of goods at the border and ensure transparency in procedures and policies that are about to be published by allowing traders comments on them and increase possibilities for countries to participate in regional and global value chains and reduce the scope for corruption. The successful conclusion and entry into force of the WTO, TFA has seen enhanced focus from various quarters of the global society in not only enabling countries to implement the agreement but to also hold border agencies and governments to their commitments.
Eliminating barriers and red tape
According to the WTO, it has found that modern logistics concepts and the growth of just-in-time (JIT) production systems and delivery methods resulted in spectacular growth in the field of global trade that has brought complexities and challenges for border agencies. Such complexities trigger excessive delays and add to the costs of complying with border formalities. It’s apparent that those costs go far beyond Customs duties and taxes. It’s been found that the reform of national procedures to ease the flow of trade by eliminating barriers and bureaucratic red tape brings extended economic benefits in terms of export potential, increased foreign direct investments and access to a wider range of goods for consumers.
Benefits of Trade Facilitation
Trade facilitation generally refers to the ease with which a country’s cross border processes enable the seamless flow of legitimate trade in a way that reduces unnecessary and warranted delays. This concept however recognises the important role that regulatory border agency plays in ensuring compliance with various laws and requirements that keep the country, its industry, and citizens safe from harm that can be introduced by the movement of goods and people across borders. Given that Customs processes are central to cross border movement of goods, it is not surprising that when trade facilitation is discussed, the role that Customs administration play in the supply becomes central to such discussions. This in turn means that the more responsive and modernised the Customs process and approach to control, the more benefits can be reaped by supply chain participants. There are benefits associated with trade facilitation. The businesses benefit from trade facilitation by gaining market competitiveness nationally and internationally as it reduces costs and delays in movement of goods across borders. Government use standard procedures and policies that are set for trade facilitation to collect revenues as there will be movement of goods entering or leaving the country and these will contribute to the development of the economy as it will encourage foreign investment in the country.
The Trade Facilitation Indicators
The WTO developed 12 global Trade Facilitation Indicators (TFI) based on the world trade agreement. International multilateral bodies such as the Organisation for Economic Co-operation and Development (OECD), International Monetary Fund (IMF), World Bank and the WCO adopted the WTO 12 global TFI with the purpose of assisting all their members to improve their border procedures, reduce trade costs, boost trade flows, and reap greater benefits from international trade. Customs plays a critical role in international trade as it provides expedited clearing processes and implements effective controls that secure revenue, ensure compliance with national laws, and ensure security and protection of society. The efficiency and effectiveness of Customs procedures has a significant influence on the economic competitiveness of nations and in the growth of international trade and the development of the global marketplace.
Role of SARS in Trade Facilitation
SARS has been mandated amongst others to collect revenue, facilitate trade, and the protection of the country’s borders. SARS has resolved as its strategic intent 2020-2025 to “develop and administer a Tax and Customs systems based on voluntary compliance and where appropriate, enforce responsibly and decisively”. Our strategic intent is to develop a tax, customs and excise administration based on voluntary compliance underpinned by nine (9) clear strategic objectives. To this end, SARS has an obligation and responsibility to provide clarity and certainty (strategic objective 1), to make it easier for taxpayers and traders to comply with their Tax and Customs obligations (strategic objective 2) and inform them about the implications or consequences of non-compliance through awareness and education. Through the latter, SARS has identified a need to develop a trade facilitation index for the organisation based on international best practice. To this end, SARS committed to develop the Trade Facilitation Index, determine the baseline, and set future milestone targets during the 2022/23 Financial Year (FY).
Development of the Trade Facilitation Index (TFI)
Trade facilitation indicators of the country should be developed to measure port efficiency, customs environment, regulatory environment, and service sector infrastructure. SARS has conducted a study to develop a methodology to monitor the performance of the SARS’s Trade Facilitation Index, develop a baseline index and to use the insights of the study to develop an improvement plan for SARS based on the 11 trade facilitation indicators assessed. The international multilateral bodies such as OECD, IMF, World Bank, and WCO adopted the TFIs that were developed by WTO and conducted surveys with their member to measure countries’ performance. It is for this reason SARS has adopted the TFI’s that have been developed by international bodies such as the WTO and adopted by OECD, IMF and the WCO. The trade facilitation index for South Africa was developed to measure the efficiency and effectiveness of SARS, Customs and Excise with its mandate.
The following 11 TFIs were adopted by SARS, namely:
- Information availability
- Involvement of the Trade Community (Consultations)
- Advanced rulings
- Appeal procedures
- Fees and charges
- Formalities (documents, automation & procedures)
- Internal and External co-operation, Governance, and Impartiality.
The 12th indicator namely Freedom of transit was not included as an indicator for this study consistent with international multilateral practice. Freedom of transit measures is already covered in Information Availability, Involvement of the trade Community, Fees and Charges, Formalities- Automation, Internal & External Cooperation, and Formalities- Procedures Indicators.
The 12 Global Trade Facilitation Indicators, measures and source:
The TFI pilot study
Following a set of focus group discussions between SARS and its critical stakeholders, a pilot study was developed and administered. The pilot study adopted a quantitative approach whereby a survey was conducted with 15 Customs & Excise intermediaries who volunteered as respondents. The pilot study was the first step in the practical application for the development of the trade facilitation index. The OECD survey methodology was followed when designing the questionnaire. The study adopted a quantitative methodology. The survey focused on eleven WTO indicators that are within SARS control. The development of the Trade Facilitation Index has allowed SARS to adopt and use internationally recognised and accepted methodologies when building trade facilitation indicators. An electronic survey questionnaire was administered as an instrument to collect primary data.
A TFI score of 1.06 or 52.8% was determined from the survey and it will be used as a baseline and set SARS’ future performance as well as to monitor improvement. The SARS 2023 TFI score result of 53% is higher compared to the Sub-Saharan African average scores of 44%, however lower than the OECD global average of 83%. Only 2 out of the 11 TFI dimensions scored below average score of 50%.
Q4 2022/23 FYE Trade Facilitation Index survey results at a glance:
The journey ahead
While there is sufficient evidence that SARS, Customs and Excise has advanced and implemented the WTO trade facilitation agreements, the study findings make certain observations based on the trader’s experience and perception which necessitate interventions from SARS. The insights from the study resulted in the development of an action plan and shared with Customs Leadership. To this end, SARS has invested in awareness campaigns, education, and training program for Customs officers and traders on the trade facilitation products and services available for traders in order to improve the TFI performance scores in the future. The successful implementation and execution of trade facilitation will result in improved service, increased voluntary compliance and improved revenue collection.
Long Term Trade Facilitation Index Beyond 2024: