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SIA of Mercosur Negotiations – Trade Facilitation Final Report page ii

This Report was commissioned and financed by the Commission of the European Communities. The views expressed herein are those of the Consultant, and do not represent

any official view of the Commission.

This Report has been prepared for the European Commission under Contract No: Trade 05-G3-01 - Specific Contract No 2

Trade SIA EU-Mercosur Partners IARC, Institute for Development Policy and Management (IDPM), University of Manchester

Chaire Mercosur Copenhagen Economics

ECOSTRAT Consultants, Brazil GRET (Groupe de Recherche et d’Echanges Technologiques)

Land Use Consultants Natural Resources Institute, University of Greenwich

WISE Development (Women in Sustainable Enterprise Development)

Project website: http://www.sia-trade.org/mercosur

Project email address: [email protected]

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CONTENTS

ABBREVIATIONS ................................................................................................................. iv

EXECUTIVE SUMMARY...................................................................................................... v

1. INTRODUCTION................................................................................................................ 1

2. METHODOLOGY............................................................................................................... 2 2.1. Methodological framework ............................................................................................. 2 2.2. Indicators......................................................................................................................... 3 2.3. Impact significance ......................................................................................................... 4 2.4. Scenarios ......................................................................................................................... 4 2.5. Assessment of impacts .................................................................................................... 4 2.6. Mitigation and Enhancement .......................................................................................... 5 2.7. Consultation .................................................................................................................... 5

3. TRADE AND NEGOTIATION ISSUES ........................................................................... 6 3.1. The contribution of trade facilitation to trade and growth .............................................. 6 3.2. The Trade Facilitation environment in the EU and Mercosur ........................................7 3.3. Progress in implementing the Mercosur Customs Union..............................................10 3.4. Negotiation issues ......................................................................................................... 12

4. CASE STUDIES................................................................................................................. 15 4.1. Stakeholder survey of trade facilitation issues in Mercosur ......................................... 15 4.2. The animal products sub-sector in the EU .................................................................... 18 4.3. Trade facilitation issues in Paraguay............................................................................. 22

5. IMPACT ASSESSMENT .................................................................................................. 27 5.1. Economic modelling results .......................................................................................... 27 5.2. Effects on Small and Medium Sized Enterprises .......................................................... 28 5.3. Economic benefits and costs of typical trade facilitation measures.............................. 29 5.4. Impacts of a potential trade agreement ......................................................................... 33 5.5. Impacts on core sustainable development indicators .................................................... 34 5.6. Summary of principal impacts on sustainable development......................................... 37

6. MITIGATION AND ENHANCEMENT MEASURES ............. ..................................... 39 6.1. Summary of impacts...................................................................................................... 39 6.2. Enhancement measures ................................................................................................. 39 6.3. Mitigation measures ...................................................................................................... 41

7. CONCLUSIONS................................................................................................................. 44

REFERENCES....................................................................................................................... 45

ANNEX 1. MERCOSUR EXPORTERS’ PERSPECTIVE.................................................. 1

ANNEX 2. THE ANIMAL PRODUCTS SUB-SECTOR IN THE EU.. ............................ 31

ANNEX 3. TRADE FACILITATION IN PARAGUAY............ ......................................... 66

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ABBREVIATIONS ANNP National Administration of Navigation and Ports (Paraguay) CAP Common Agriculture Policy CCA Causal Chain Analysis CET Common External Tariff CGE Computable General Equilibrium DNA National Customs Management (Paraguay) EC European Commission EU European Union FAO Food and Agriculture Organization HR Human Resources ICT Information and Communication Technologies IDB Inter-American Development Bank M&E Mitigation and Enhancement RTA Regional Trade Agreement SIA Sustainability Impact Assessment SME Small and Medium Sized Enterprises TF Trade Facilitation REACH Registration, Valuation, Authorisation and Restriction of Chemicals UNCTAD United Nations Conference on Trade and Development VUE Single Export Window (Paraguay) VUI Single Window for Import (Paraguay) WCO World Customs Organisation WTO World Trade Organisation

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EXECUTIVE SUMMARY This report presents the results of a sustainability impact assessment (SIA) study undertaken for the European Commission to assess the economic, social and environmental impacts of the Trade Facilitation component of the proposed trade agreement between the EU and the Mercosur trade area, composed of Argentina, Brazil, Paraguay and Uruguay (with the inclusion of Venezuela since 2006). It expands on the findings of the project Inception Report and Mid-Term Report, presents proposals for mitigation and enhancement measures, and summarises the overall conclusions from the study. The results are intended to provide information for the trade negotiations and for the development of parallel policy measures to enhance the beneficial impacts of the trade agreement and to avoid or mitigate adverse ones. The principal findings of the study are presented in this Executive Summary, together with recommendations for negotiators and policy-makers in the EU and Mercosur countries. The methodology used in the SIA is summarised in the second section of the report, after an introduction to the background and objectives of the study. The trade and negotiation issues covered by the study are described in the third section. The fourth section summarises three case studies on which much of the detailed analysis and recommendations are based. These are presented in full as annexes to the report. The sections which follow describe the impact assessment analysis and the proposals for mitigation and enhancement measures. The overall conclusions are presented in the last section and are reproduced below. Principal findings The static efficiency effects of the proposed trade facilitation measures on economic welfare are small, but the longer term dynamic effects are potentially much larger. These gains are available primarily in the Mercosur countries, which have made less progress than the EU in implementing efficient border procedures. The EU will also benefit economically, mainly through improved performance of specific export industries and reduced costs of its own border procedures. The long term gain will be smaller than in Mercosur, since EU-Mercosur trade is a smaller proportion of its total trade. These benefits and the actions needed to deliver them are those which would apply to unilateral action by both parties, primarily in Mercosur. The additional benefits that would accrue from including trade facilitation measures within the trade agreement are dependent on the negotiation of reciprocal commitments and on the magnitude and effectiveness of technical assistance. The principal impact on poverty is expected to come in the longer term in Mercosur, from accelerated economic growth, and is likely to be significantly beneficial. In the shorter term the Mercosur countries are expected to gain a significant increase in tax revenues, enabling increased expenditure on issues such as health and education. The acceleration of economic growth to which a full trade facilitation programme would contribute may have significantly adverse distributional effects, similar in magnitude to those discussed in the Overview SIA for agricultural liberalisation. These arise from increased agricultural exports from Mercosur to the EU, and include potential conflicts over land and adverse gender effects.

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Similarly, the increase in agricultural exports from Mercosur to the EU that would be stimulated by an effective trade facilitation programme would have environmental impacts that are similar in magnitude to those arising from agricultural trade liberalisation. The impacts in Mercosur on biodiversity and natural resource stocks are assessed as having potentially major adverse significance, in both the short term and the long term. The effects of trade facilitation measures on sustainable development principles are assessed as being neutral, except in so far as they influence long term economic growth. Growth is in principle highly consistent with goals of socio-economic transformation and poverty reduction, but will at the same time intensify the need for change in unsustainable patterns of consumption and production in both Mercosur and the EU. Recommendations for negotiators and policy-makers The SIA study is not intended to make specific recommendations for the negotiating positions of the EU or Mercosur countries. However, negotiators are encouraged to take account of the impacts discussed above, in developing their positions and throughout the ongoing negotiations. In particular, they should note the potentially adverse effects of an effective trade facilitation programme on rural communities in Mercosur and on the region’s biodiversity and natural resource stocks. The recommendations for enhancing the potentially beneficial impacts of the trade agreement are presented in three categories:

1. modification of the trade agreement 2. action by national governments to enhance positive effects or mitigate negative ones 3. complementary mechanisms to accompany the trade agreement

These are followed by recommendations for mitigating the potentially adverse effects. Modification of the trade agreement There are expected to be specific trade facilitation measures in both the EU and Mercosur for which the costs of making commitments in the trade agreement are outweighed by the benefits of reciprocal commitments. The following potential candidates are suggested for particular consideration. Joint commitments

1. establish EU-Mercosur Customs and Trade Facilitation Committee 2. cooperate on the development of electronic exchange for all documents 3. adopt international standards for customs procedures and electronic systems

Commitments in both EU and Mercosur

4. extend and improve single window systems for both export and import, with particular attention to countries with less developed systems

5. extend the use of risk management techniques 6. simplify all procedures 7. provide up-to-date information on all trade and customs procedures from a single

source

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Mercosur commitments 8. adopt Kyoto Customs Convention 9. streamline systems for preparation and movement of export documentation

(particularly Argentina and Uruguay) 10. simplify documentation for alcoholic beverages (particularly Paraguay) 11. develop simplified procedures that are fully accessible to SMEs that import or export

directly 12. relax requirements for pre-authorisations (particularly Brazil) 13. improve transfer port logistics (Argentina and Uruguay) 14. strengthen transparency and professionalism of customs and regulatory environments

EU commitments

15. greater harmonisation of trade related procedures between EU countries (including, for example, registration requirements, data requirements, electronic systems, VAT systems)

16. simplify veterinary and phytosanitary procedures (particularly for animal product imports). See, for example, the recommendations in the LACORS report to the UK Cabinet Office Review

17. strengthen compatibility between veterinary controls and customs procedures. See, for example, the recommendations in the LACORS report

18. strengthen systems to help Mercosur exporters comply with REACH requirements, particularly by improving the provision of information and technical assistance through the WTO enquiry point and the European Chemicals Agency

Additional action by national governments

19. detailed research in both regions into the barriers to trade facilitation reforms beyond those to which commitments are made in the trade agreement

Complementary mechanisms

20. joint research into the effectiveness of previous technical assistance provided by the EC and other donors in contributing to the trade facilitation objectives of Mercosur countries

21. jointly planned and managed technical assistance targeted at specific trade facilitation objectives of the Mercosur countries

22. joint EU-Mercosur review of transport infrastructure needs in Mercosur countries and of the potential contribution of EU companies.

Mitigation measures

23. the priority given to the actions identified in the Overview SIA to mitigate the potentially adverse impacts of tariff reductions on social and environmental issues in Mercosur countries should be doubled in order to address the additional impacts of an effective trade facilitation programme.

The relevant actions recommended in the Final Report of the Overview SIA are: • inclusion of a Trade and Sustainable Development Chapter in the Trade Pillar of the

Association Agreement. Possible clauses in the chapter are suggested in the report.

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• provision of EU support for regulatory policy capacity building in Mercosur, particularly in environmental regulation. The Mercosur countries should be pro-active in identifying their technical assistance and expertise needs that can be best met through the EC Mercsosur cooperation programme.

Overall conclusions of the Trade Facilitation SIA study Five broad conclusions are drawn from the study: 1. Trade facilitation measures offer potentially significant economic benefits in both the EU

and Mercosur, for the countries undertaking the reforms and their trading partners. The static efficiency effects on economic welfare are small, but longer term dynamic effects and gains to individual export industries are potentially much larger.

2. Both regions are engaged in unilateral actions to avail themselves of these benefits. Additional economic benefits may be obtained through the negotiation of specific commitments within the trade agreement whose costs are outweighed by the benefits of reciprocal commitments.

3. There is considerable scope for reducing trade transaction costs in many EU countries as well as in Mercosur, but the EU in general has made greater progress in trade facilitation measures than the Mercosur countries. Technical assistance from the EU to Mercosur can make a significant contribution to improvements in Mercosur to the benefit of both parties. Such assistance should be based on detailed research into the effectiveness of previous assistance from the EU and other donors.

4. The social and environmental impacts of specific trade facilitation commitments made in the trade agreement are expected to be small.

5. If the agreement were to succeed in its aim of stimulating deeper trade facilitation reforms, an overall long term social benefit would be accompanied by potentially adverse distributional impacts on rural communities in Mercosur, particularly for women, and potentially major adverse impacts on biodiversity and natural resource stocks. Measures to mitigate similar impacts from agricultural liberalisation will need to be doubled in order to counter the additional impact of fully effective trade facilitation reforms.

Further consultation The results of the SIA will contribute to refining the EU’s position in the ongoing negotiations and in the design of its development assistance programmes. They are also expected to be taken into account by policy-makers in the Mercosur countries. Comments and suggestions on all aspects of the SIA report will be greatly appreciated. They should be sent to the project email address:

[email protected]

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1. INTRODUCTION This Sustainability Impact Assessment (SIA) for Trade Facilitation is part of the second phase of a series of studies being undertaken for the European Commission to assess the impacts on sustainable development of a proposed trade agreement between the EU and the Mercosur trade area, composed of Argentina, Brazil, Paraguay and Uruguay (with the inclusion of Venezuela since 2006). The EU-Mercosur studies are themselves part of an ongoing programme of Sustainability Impact Assessment (SIA) studies of all EU trade negotiations that has been undertaken by the European Commission since 1999. The first phase of the EU-Mercosur SIA programme consisted of a Preliminary Overview SIA together with three sectoral studies (for Agriculture, Automobiles and Forests). The Preliminary Overview SIA identified a number of other sectors and issues worthy of further study in the final phase of the programme. Following consultation on the findings of Phase One, Financial Services and Trade Facilitation were selected for two further sectoral studies in the final phase, alongside a Final Overview SIA. The Trade SIA programme applies a standard approach in conducting impact assessments. This framework has two complementary elements:

• a balanced and integrated analysis of potential economic, social and environmental impacts;

• consultation with and dissemination of results to partners and key stakeholders as an integral part of the assessment process.

The sectoral SIA for Trade Facilitation assesses the potential economic, social and environmental impacts of the proposed trade agreement in Mercosur and EU countries, and identifies measures for avoiding, preventing or mitigating adverse impacts and enhancing beneficial ones. This Final Report presents the results of the study and its conclusions. An overview of Trade Facilitation issues in the EU and Mercosur was presented in the Inception Report for the final phase of the EU-Mercosur SIA programme1, along with a review of the status of the negotiations, and a discussion of the issues to be addressed in the sectoral study. This provided the basis for an initial assessment presented in the Mid-Term Report for Trade Facilitation2. Three case studies providing more detailed analysis have been undertaken in the final stage of the study, along with further analysis of potential impacts and the development of proposals for mitigation and enhancement measures. There are six sections in the report, including this introduction. Section 2 describes the SIA methodology, with particular reference to refinements and adaptations for the assessment of trade facilitation measures. Section 3 gives an outline of trade facilitation issues in the EU and Mercosur, and summarises the current status of the EU Mercosur negotiations. Section 4 summarises the three case studies, which are presented in full as Annexes. Section 5 presents the impact assessment analysis, and Section 6 describes proposals for measures to enhance beneficial impacts and avoid or mitigate adverse ones. Section 7 presents overall conclusions.

1 IARC (2008a) 2 IARC (2008b)


The inclusion of process indicators allows for the assessment of impacts on the key procedures, processes and practices that are needed for longer-term advancement of sustainable development. 2.3. Impact significance The methodology defines the significance of an impact in terms of greater or lesser significance:

• lesser significant impact – marginally significant to the negotiation decision, and if negative, a potential candidate for mitigation

• greater significant impact – significant to the negotiation decision, and if negative, merits serious consideration for mitigation.

In evaluating the significance of impacts the trade facilitation SIA takes account of the following factors as defined in the SIA methodology:

• The extent of existing economic, social and environmental stress in affected areas; • The direction of changes to base-line conditions; • The nature, order of magnitude, geographic extent, duration and reversibility of

changes; • The regulatory and institutional capacity to implement mitigation and enhancement

measures. 2.4. Scenarios Two scenarios are used in assessing the potential impact on sustainable development of the trade facilitation negotiations:

• Base scenario: no change in the current situation, including no agreement on the trade facilitation measures being discussed within the WTO Doha Development Agenda negotiations. The baseline scenario assumes, therefore, no change to the commitments on trade facilitation that have been made by each of the partners within existing WTO agreements, and a continuation of existing trends in voluntary trade facilitation activities.

• Further liberalisation scenario: this represents the strongest probable implementation of the trade negotiations. Negotiating options for the actual trade agreement cover a range of intermediate scenarios, involving different commitments for each component of the trade facilitation agenda.

2.5. Assessment of impacts The assessment of the further liberalisation scenario includes quantitative estimates of the impact on economic welfare associated with trade facilitation measures, obtained from an integrated CGE model5. Further quantitative information on the potential magnitude of impacts is derived from the causal chain analysis using baseline data and from other studies reported in the literature. However, the qualitative nature of trade facilitation measures is such that much of the assessment of economic, social and environmental impacts is based on qualitative analysis.

5 The EU-Mercosur CGE model is described in the Final Report for the Final Overview SIA.


The main focus of the SIA is on the potential impacts at the regional level (EU and Mercosur). However, the SIA also provides information on potential impacts at the individual country level, where it appears that a particular country may be disproportionately affected (positively or negatively), or where countries are likely to respond in different ways. Equally, social and environmental impacts may vary significantly at the country or intra-country level. Factors taken into account include:

• The level of economic development in each of the countries; • The specific trade facilitation measures proposed; • The timescale over which these measures would be implemented; • The nature of existing barriers in each country; • Institutional capacity to implement the proposed trade facilitation measures.

The potential positive and/or negative impacts identified in the assessment are highlighted in an impact summary table using the following symbols:

- Impact assessed to be non-significant compared to the base situation � Positive greater significant impact � Negative greater significant impact

�� Greater positive and negative impacts likely to be experienced according to context

� Positive lesser significant impact � Negative lesser significant impact �� Lesser positive and negative impacts likely to be experienced

according to context ? or ? Impacts uncertain

2.6. Mitigation and Enhancement The SIA methodology includes a mitigation and enhancement analysis to identify potential measures that may enhance the proposed trade agreement’s overall impact on sustainable development. The aim of these measures is to maximise positive impacts of the trade negotiations and avoid or reduce any negative impacts. Such measures are categorised in three main groups:

• modification of the trade agreement • action by national governments to enhance positive effects and mitigate negative

impacts • complementary mechanisms to accompany the trade agreement

2.7. Consultation Consultation is a key part of the SIA methodology, and has been conducted as described in the Final Report for the Final Overview SIA. Consultees on trade facilitation have been targeted as part of the overall consultation programme. Their contributions have been taken into account in the preparation of this report, as described in the final report on the Overview SIA.


3. TRADE AND NEGOTIATION ISSUES 3.1. The contribution of trade facilitation to trade and growth Trade facilitation is generally understood to involve reducing the transaction costs associated with the enforcement, regulation and administration of trade policies. Reforms in this area are designed to reduce the costs involved in the cross border movement of goods and services6. In a narrow sense, the definition of trade facilitation reform measures is limited to the logistics of moving goods through ports, and the preparation and movement of documentation associated with cross border trade. A broader definition includes the environment in which transactions take place, including the transparency and professionalism of customs and regulatory environments, and the harmonisation of standards and conformance with international or regional regulations7. This broader definition will be used in the study. The reductions of tariff barriers in successive rounds of international trade negotiations, the continued expansion of world trade, and the growth in global supply chain management practices have resulted in a heightened interest in the impact of on-the-border and inside-the-border trade transaction costs on international trade8. Estimates of the effect of directly incurred trade transaction costs range from 2 to 15 percent of total trade9. As the pace of global integration continues, developing countries’ ability to link with global and regional markets is increasingly affected by the costs that the private sector incurs in trade transactions. Several research studies have confirmed that a better trade facilitation environment increases import and export volumes. Wilson et. al. estimated the impact of trade facilitation on trade flows using a gravity model methodology10. Their results indicate large potential increases in trade and growth rates from trade facilitation reform in countries that have above average trade transaction costs. Djankov et al. find that on average, each additional day that a product is delayed prior to being shipped reduces trade by at least 1 percent11. As well as the effect on trade volumes it has been shown that a reduction in customs clearance times can have a significant influence on attracting foreign investment12. Nordas et al. analyse the relation between time for exports and imports, logistics services and international trade and find that time delays result in lower trade volumes and reduce the probability that firms will enter export markets for time sensitive products13. Clarke has studied factors that affect the export performance of manufacturing enterprises in African countries using a cross country manufacturing survey and finds that manufacturing enterprises are less likely to export in countries with poor customs administrations and restrictive trade and customs regulations14. Landlocked countries such as Paraguay face particular problems with international transit arrangements, and have proposed changes to WTO rules which would help address their difficulties15.

6 Staples, 2002 7 Wilson et. al. 2004 8 Deardorff, 2001 9 OECD, 2005a 10 Wilson et. al. (2004) 11 Djankov et al. (2006) 12 OECD, 2005a 13 Nordas et al. (2006) 14 Clarke (2005) 15 ICTSD/IISD (2005)


3.3. Progress in implementing the Mercosur Customs Union The above analysis of trade facilitation for Argentina, Brazil, Uruguay and Paraguay does not take into account problems related to integration of each Mercosur member into a single trade entity. The treaty of Asuncion of 1991 envisaged a creation of a custom union with a Common External Tariff (CET) and Common Customs Code. Progress on these has so far been limited. Many exceptions to the CET were accepted, and at present the four countries still apply different external tariffs to some goods21. Exporters to Mercosur often pay double tariffs: once on entry into Mercosur and again at the border with the destination country within Mercosur. Indeed, Mercosur can be characterised as an imperfect custom union where four different custom territories coexist instead of a single one. This situation creates significant additional costs on exporters to and within Mercosur. Also, the Common External Tariff has several hundred exceptions, when the four countries are jointly considered. Paraguay leads in this respect, followed by Uruguay. Argentina and Brazil have lists of exceptions to the CET that have been successively reduced in number during the last eight years. Further reductions and the eventual removal of all exceptions, as well as the elimination of double imposition, remains an outstanding issue for the EU-Mercosur negotiations on tariffs. In respect of trade facilitation the principal concern relates to rules of origin. Failure to fully implement the CET necessitates certificates of origin to be prepared and validated for internal Mercosur trade in goods imported from the EU, imposing unnecessary additional costs on EU exporters, Mercosur importers and customs administrations. Due to both internal and external pressure, the core issues concerning Mercosur’s customs union and facilitation of trade within Mercosur have recently become an important topic in the Mercosur internal agenda. However, progress on these issues has to date been limited. Aware of the need to fine tune the Mercosur Common Tariff Policy the Common Market Council has highlighted 3 tasks in the framework of the 2004-2006 Work Program: (1) Defining a proposal to remove double levying of the CET that should bring a solution to the problem of custom revenue distribution between member countries; (2) Identifying priority sectors for establishing special common import regimes including Capital Goods and information technology and telecommunication goods (ITTG); (3) analyzing further the dispersion and consistencies of the CET. These policy priorities sparked Decision 54/04 of December 2004 of the Mercosur Ministerial Council, on the free circulation of goods and the elimination of double collection of the Common External Tariff on imported goods. The subsequent decision 37/05, which ruled the first stage of elimination of double levying of the CET, only applies to two categories of goods: (1) those whose CET was zero in all States Parties; and (2) those for which the four Mercosur members had granted a 100% tariff preference to the advantage of the third country. Excluded were tariff items under (1), included in national CET exception lists, and also excluded were such products under conditions (1) and (2) to which some trade protection measure such as antidumping, countervailing duties or safeguard measures were applied in one of the state parties22. For 2006-07, studies were planned to define how to implement the second stage envisaged in Decision 54/04 regarding the removal of double levying of the CET for other goods. Three 21 INTAL, 2006 22 INTAL, 2007


requirements were established for compliance with this stage: the entry into force of the Common Customs Code, the online interconnection of the computer system of the four partners’ customs administration, and the adoption of a customs revenue distribution mechanism23. Some of the phases of implementing Decision 54/04 have already been completed:

• Digital interconnection among Mercosur custom houses • Free circulation of goods with an External Common Tariff of zero • Free circulation of goods from third countries with trade agreements with Mercosur

that give 100 percent tariff preference, if this preference has been granted at the same level of rebate by each of four countries within the trade block.

The key remaining stages on which Mercosur countries are currently working are:

• Customs revenue distribution among the four countries • Common customs code for the Mercosur Block

In terms of the Customs Code, although a text had been approved in 1994 it was never incorporated in the members’ countries legislation. In July 2006, an Ad Hoc Group was set up to submit proposals on the issue. Some progress has been made but no consensus has yet been reached over several articles24. Another problem related to facilitation of trade between Mercosur members is the customs revenue distribution mechanism which is a prerequisite of full harmonisation of the CET. The main difficulty rests with the position of Paraguay. Paraguay is concerned with the need to guarantee a minimum customs revenue, since import duties represent approximately 18% of Paraguay’s total tax revenue25. This share is much lower in other Mercosur members as import duties represent approximately 2% of tax revenue in Brazil, 3% in Argentina and 5% in Uruguay. With regards to interconnection of customs houses this work is now completed. The Trade Commission has created a single web page for each State Party to access the other partners’ foreign trade operations26. Finally, a special group reporting to the CCM was formed to carry out technical analysis in this area. By mid 2007, the group reached consensus over national houses being responsible for carrying out collection, distribution and the destination of funds27. By early 2008 the text of a Mercosur Code had been agreed among members to a very large extent. The present goal aims at implementation by late 2008. An issue that will require negotiating and legal ingenuity is that of Argentina’s taxes on exports. If an answer to this issue can be negotiated, the target may actually be reached. As highlighted by Mercosur Report no. 1228, despite increased focus on harmonization of the CET, it seems unlikely that Mercosur will attain free circulation of a sample of goods by 2008, given both the existing technical difficulties in implementation, and the legal changes it would require in each of the Mercosur members (possibly even including constitutional

23 Intal, 2008 24 INTAL, 2008 25 INTAL, 2006 26 INTAL, 2007 27 INTAL, 2008 28 INTAL, 2008


amendments for some countries). In this respect it should be borne in mind that for Argentina the Mercosur Treaty has constitutional status, whereas in Brazil the highest level of Mercosur legislation cannot oppose the Brazilian Constitution if the ruling is to be applied within the country. Further issues related to trade facilitation arise with technical barriers to trade, which are not fully harmonised between the four Mercosur countries, such that multiple certification may be required. From the Mercosur perspective many EU standards (such as for the chemicals industry) impose heavy compliance costs on Mercosur exporters, which may be interpreted as technical barriers to trade. 3.4. Negotiation issues The trade facilitation measures under negotiation between the EU and Mercosur are similar to those included in its Regional Trade Agreements (RTA) with Mexico and Chile, which contain more detail in their trade facilitation measures than most other RTAs. Two issues stand out in the EU-Mexico provisions29:

• requirements for coordination between customs and other control agencies; • a requirement for import or export data to be submitted to a single agency, which

should also carry out official controls on importation or exportation. The EU-Chile RTA includes provisions for:

• the computerisation of customs procedures and the possible establishment of common standards;

• the application of modern customs techniques, including risk assessment, simplified procedures for entry and release of goods, post-release controls, and company audit methods;

• the establishment of common positions in international organisations such as the WTO, WCO and UNCTAD.

Further issues under discussion in the EU-Mercosur negotiations include:

• simplified procedures for express shipments; • the removal of double imposition of duties in Mercosur; • harmonisation of customs procedures within Mercosur; • mutual intra-Mercosur recognition of product legislation and conformity certification; • intra-Mercosur harmonisation of legislation, standards and procedures for key sectors; • intra-Mercosur administrative co-operation; • ensuring adequate levels of administrative capacity; • preferential treatment for EU goods by Mercosur and for Mercosur goods by the EU,

subject to WTO rules. Both parties in the EU-Mercosur negotiations recognise that reducing trade transaction costs and other trade facilitation measures would be in their own economic interest. Several other developing countries have made positive contributions to the WTO trade facilitation negotiations under the Doha agenda, although concerns remain over the details of the 29 Fasan O (2004)


potential commitments30. Many have introduced such measures of their own accord, often with development assistance from international financial institutions and donor agencies. Progress varies between countries, often related to resource constraints and institutional barriers. Progress at the multilateral level through the WTO or the World Customs Organisation (WCO) is inevitably slow, primarily because of the large disparities in the level of development among all the different countries. Stronger joint action is more practicable at the regional level of the EU-Mercosur negotiations because fewer countries are involved, and also offers extra benefits in terms of the economic competitiveness of the region as a whole. The EU itself is a prime example, having gone beyond a customs union to create a single borderless market. The creation of the Mercosur customs union has much the same aim as the EU, to increase the economic competitiveness of the region as a whole. As discussed in the previous section many issues have yet to be resolved before this aim can be achieved in full. Additional difficulties arise with the inclusion of trade facilitation measures in an inter-regional agreement such as that between Mercosur and the EU. A Regional Trade Agreement (RTA) between two distinct economic groups is of its nature less ambitious than the creation of a customs union or a single common market. The common external tariff of a customs union makes it possible to simplify internal border formalities considerably, which will have benefits for third country trade, but may still leave complex external controls in place. Simplification and harmonisation can be even deeper in a single market with a single external trade policy, but RTAs such as that between the EU and Mercosur do not have that goal31. Harmonisation of standards and conformity assessment procedures can be particularly problematic. Successful other regional initiatives are scarce, and have been undertaken primarily between high income countries engaged in a deep integration process, such as the EU. Nonetheless, the World Bank presents a strong case that inter-regional interventions on these issues can be useful if developed in a transparent way, particularly when targeted at a small number of key sectors and toward improving the quality of conformity assessment32. The trade facilitation provisions under negotiation in the WTO are more limited than those being discussed for EU-Mercosur, mainly covering transparency of applicable requirements, harmonisation of procedures and formalities, simplification of procedures and the avoidance of unnecessary restrictiveness. Other regional agreements tend to be more ambitious, and typically cover33:

• rules on transparency and due process; • harmonisation of procedures and formalities (restricted mainly to convergence of

modes of operation); • simplification and avoidance of unnecessary restrictiveness; • modernisation and the use of new technology.

Most of the trade facilitation measures included in other RTAs have limited preferential effect, and benefit all traders operating in the region. Exceptions include preferential

30 Zedillo et al, 2005 31 OECD (2002) 32 World Bank (2005) 33 OECD (2002)


agreements on the level of customs fees, origin marking requirements, and certification of conformity assessment . Even here care has to be taken to avoid breaching WTO rules. While generally being more ambitious than the WTO negotiations, the trade facilitation provisions of many other RTAs have been described as going little further than a framework for customs cooperation, often accompanied by detailed protocols dealing with the provision of mutual assistance between the respective administrative authorities34. However, some RTAs have gone further by adopting common approaches for the use of risk management techniques in customs clearance (which aim for minimal or no documentary verification and physical inspection, while minimising the risks of piracy, smuggling, or fraud in valuation, origin, sanitary and other requirements). Others have provided for the availability of common data sets, have elaborated simplified procedures for express shipments, and addressed the use of information and communication technologies and electronic data interchange35. For example, measures covering risk assessment techniques, information technology based systems and standardisation of data are included in the EU-Chile agreement36. Many of the more ambitious measures discussed above form part of Mercosur’s own objectives for full implementation of the customs union, and parallel similar initiatives being taken within the EU to reduce its own trade transaction costs. The potential benefits and risks of incorporating these internal objectives and associated actions into a formal agreement between the two parties are key factors in the negotiations.

34 Fasan O (2004) 35 OECD (2002) 36 European Commission (2002), Article 79


Tables 5 and 6 reveal similar concerns in Argentina, Brazil and Uruguay for some issues and divergence for others. Several of the issues that concern Paraguayan exporters are similar to those in the other three countries. General Trade Facilitation issues in Paraguay The following trade facilitation issues of concern to stakeholders in Paraguay were identified:

• River dredging; • Border delays; • Delays in pre-embarkation (particularly related to road transport and the need for

phytosanitary certificates); • Costs of complying with sanitary regulations for foodstuffs. • Bounding deposit rate; • Sundry expenses of customs agents; • Tips for services rendered by public entities; • Certificates of origin certificates (including when not requested by the country of

destination); • Customs transhipment rate.

Several of these are directly related to Paraguay’s land-locked geographical position. Most exports from Paraguay to the EU are transported on the Paraguay and Paraná rivers, and on through the Paraná to the Rio de la Plata, and the estuary ports of Buenos Aires and La Plata in Argentina and Montevideo in Uruguay. Transportation issues in Mercosur Buoying and dredging is a common concern of both Argentine and Uruguayan exporters. Many other obstacles to transportation in Argentina, Brazil and Uruguay are related to bureaucratic procedures. In Argentina the port of Buenos Aires suffers from severe road traffic problems that restrict access. This and other inefficiencies contribute to Buenos Aires being between 30 and 40 percent more expensive than Montevideo. One of the biggest logistical problems regarding transportation within Mercosur is the lack of railway capacity. There are two key aspects:

• the improvement of existing facilities without adding new rail; • the addition of new rail, but not before Mercosur as a block outlines an inter-

connection master plan. In view of the experience of the EU regarding railways, there appears to be ample room for Mercosur-EU cooperation. Opposition can be expected from lorry owners’ associations and lorry drivers’ unions in each of the Mercosur countries, particularly in Brazil. REACH The stakeholder responses summarised in Table 5 identify the new EU regulations on Registration, Valuation, Authorisation and Restriction of Chemicals (REACH) as one of the main concerns for importing into the EU for interviewees in all three countries (Argentina,


Brazil and Uruguay). It has been the subject of major concern in Chambers of Exporters and Chemical Chambers in Argentina and Brazil. REACH is a complex system of registration that covers not only chemicals but also chemical derivatives. It affects exports of many other products including footwear, textiles, leather goods, household appliances, pharmaceuticals, food additives, animal nutrition products, cosmetics, fuels and minerals as well as chemical products. The costs of registration are at present uncertain but are expected to be high, and particularly onerous for SMEs. Exporters and government officials consulted considered REACH to be a strong technical barrier to trade. Argentina, at the Governmental Level, has submitted a Communication to the WTO expressing serious concern over inadequacies in Europe’s registration systems for foreign suppliers, including the provision of information and technical assistance through the WTO enquiry point and the European Chemicals Agency38. The Communication considers that the current arrangements constitute a serious impediment to the continued presence of foreign companies in the European market, particularly SMEs. Update on implementation of the Common External Tariff Agreement is now close on the Mercosur Customs Code, although outstanding questions remain on the distribution of import revenues. Discussions continue on exactly how revenues will be shared among countries, and through which Mercosur body. Countries still have to define exactly which goods will be excluded, such as sugar and automobiles, which are still not incorporated into Mercosur after 13 years. Interconnection between customs houses has been complete for some time, but exporters and top customs officials see a need for improvement, particularly in updating electronic data processing systems to a level comparable with the EU. This is identified as an area for cooperation between the EU and Mercosur. 4.2. The animal products sub-sector in the EU39 Regulatory compliance operations Exports of meat and other products of animal origin from Mercosur to the EU are a major contributor to EU-Mercosur trade. As well as being subject to tariff barriers they are constrained by numerous regulatory controls and procedural requirements which entail significant transaction costs. The trade facilitation measures under negotiation aim to reduce the costs of EU-Mercosur trade by improving the efficiency of these procedures. Many of the issues which arise in the sub-sector are also relevant to other products exported from Mercosur to the EU. The regulatory compliance requirements for trade in products of animal origin between Mercosur and the EU are summarised below and shown schematically in Figure 2.

38 WTO (2008) 39 This section presents a summary of the case study by Andrew Grainger, Trade Facilitation Consulting Ltd., presented in Annex 2.


• Other Import Documents. Additional import documents required include those referred to above that are needed prior to export. The export documents are normally issued in the country of export but have to be checked and verified by the relevant EU authorities. For organic produce certificates of inspection are also required. Many products for human consumption are also subject to EU food safety and hygiene regulations, under which action may be taken at ports when a food safety or hygiene threat has been identified.

• The customs declaration. This normally requires the importer to use the Single Administrative Document or its electronic equivalent. Supporting documentation must be submitted with the customs declaration.

Figure 2 is a simplified version of Figure 9 in Annex 2, which maps out each of these steps in more detail. In particular it is noted that the EU has signed up to the Kyoto Customs Convention, through which many procedures follow internationally agreed principles. Although all Mercosur countries are members of the World Customs Organisation, none has yet ratified the Kyoto Customs Convention. The Annex also discusses the particular costs, administrative burdens and potential delays for the exporter or importer for each of these regulatory requirements. Most of the requirements also have cross-border dependencies, which can significantly add to the overall compliance burden and consequent transaction costs. Issues and scope for trade facilitation On the basis of these transaction costs and administrative burdens the following issues have been identified that provide scope for trade facilitation measures: 1. The many steps necessary to register as a trader can be prohibitive for the small or

occasional trader. 2. The overall complexity of procedures and frequent changes in procedures can result in

traders failing to provide a key document or producing the wrong document. 3. Where EU health or sanitary requirements change, authorities in exporting countries may

not always have the capacity to accommodate them. 4. The specific complexities associated with applying for import licences and managing

associated EU import quotas can be very complex. 5. Advance notification is an additional operational step that has a compliance cost. 6. EU rules mandating veterinary entry controls to take place at the first point of entry can be

in conflict with customs procedures, which allow for transit and inland clearance. 7. EU rules mandating inspection quotas for products of animal origin inhibits the use of risk

management control methods. 8. Physical sampling often requires importers to wait until results are returned from the

laboratories. 9. Perceived variances in the performance of health officials at different locations can

amount to several days. 10. Division of labour between health officials and customs can cause disruption where

traders have inadvertently used the wrong documents or made an error in their declarations.

11. Sending documents backwards and forwards between the exporter and importer severely delays shipment.

12. Document dependencies between export and import can lead to traders delaying physical shipment.

13. The availability of a vet to prepare health certificates can be an inhibiting factor when making transport arrangements.


14. Traders express concerns that they might inadvertently procure goods from a country whose veterinary authority has just lost its EU status, rendering the import illegal.

15. Complexities involved in obtaining export documents can frustrate larger EU importers, such as retailers and distributers, from leveraging their economies of scale when negotiating shipping rates.

16. The requirement to present Certificates of Origin for certain types of import licences can add to operational commercial difficulties.

17. Complications can arise in certification of the EU Import Licence when applying for the Certificate of Origin.

18. Mandatory requirements to use licensed customs brokers in Mercosur and some EU member states can drive up overall transport and shipping costs.

19. Complying with phytosanitary requirements for wood pallets and other packaging can be very costly, especially for Mercosur suppliers in the more rural areas.

20. While the EU has signed up to the Kyoto Customs Convention, Mercosur countries have not.

21. The time it takes to research issues and the many government agencies that traders and their intermediaries need to deal with appears to be excessive.

22. Inconsistencies in the use of common terms and definitions between different sets of documents can cause severe confusion.

Recommendations The following actions for governments in the EU and Mercosur are recommended in the case study report (Annex 2) in order to address these issues: 1. A genuine commitment to simplify procedures without losing sight of regulatory control

objectives 2. A commitment to ongoing consultation with all stakeholders concerned 3. A commitment to actively apply trade facilitation concepts 4. A commitment to reduce overall complexity in the administration and controls of EU and

Mercosur trade procedures 5. A commitment to align trade and customs procedures and reduce multiple reporting and

declaration requirements, for instance by creating a single window environment 6. A commitment to ensure that authorities have the capacity to implement and manage

procedures efficiently without disrupting trade 7. A commitment to reduce reliance on paper documents 8. A commitment to reduce the volume of paper documents that need to be shared between

country of export and country of import. Where absolutely necessary electronic alternatives should be considered.

9. A commitment to subscribe to international document and data standards. This would enable wider use of electronic systems and give scope for increased automation and rationalisation. Ambiguity on key terms amongst different control regimes should be avoided

10. Where feasible, to let traders engage licensed customs brokers on a voluntary instead of a mandatory basis

11. A commitment to provide sufficient advance notice whenever procedures change 12. A commitment to ensure that authorities process and clear goods as efficiently as possible.

This includes a commitment to measure and publish average and maximum processing times for customs declarations, CVEDs and other documents

13. A commitment to adopt a risk management based import control regime for products of animal origin instead of relying on the current practice of set inspection quotas.


14. A commitment to allow traders awaiting laboratory test results for products of animal origin to move their goods to authorised storage facilities that lie outside of the port.

15. A commitment to align the non-customs area with customs procedures; for example by allowing suitably authorised traders to clear products of animal origin away from the first point of entry

16. Improved electronic customs capabilities, for example in a single window environment, to reduce the burden of reconciliation and monitoring of EU import quota balances against import declarations

17. A commitment to publish administrative fees where applicable. 18. A commitment to ensure that up-to-date information necessary to comply with all EU

trade and customs procedures is available from a single source. 19. A commitment to ease and harmonise any trader registration procedures across the EU 20. A commitment to simplify proof of origin, for example by adopting the EUR1 procedures

and allowing suitably authorised traders to make invoice declarations 21. A commitment to ensure that traders can take advantage of tariff quotas and preferential

trade agreements with minimal difficulty 22. A commitment to ensure that Mercosur customs procedures match international norms

and conventions, such as the Kyoto Customs Convention. 23. The creation of a dedicated EU-Mercosur trade facilitation committee to help keep track

of stakeholder concerns on a continued basis. 4.3. Trade facilitation issues in Paraguay40 Background The Paraguayan economy is based on the export of agricultural commodities, the sale of hydroelectric energy to Brazil and Argentina and on commercial intermediation or re-exportation. The last has been the most important as the value of re-exporting trade, at certain times, has greatly overtaken the value of commodities exports and the sale of electrical energy. In 2007 re-exportation trade represented approximately 48% of imports. Export of locally produced goods demonstrates a productive integration into the world, where large, medium and small producers benefit. Trade intermediation represents integration only to a limited world, and the benefits, in terms of consumption and employment, are mainly reaped by neighbouring countries, particularly Brazil. Most of the profits are not invested back into the country Mercosur regained its position as a main destination market of Paraguay’s exports in 2007, when Argentina become the main recipient of agricultural commodities (soybean and cereal grains) to be processed as edible oils and shipped on to the Rest of the World. Exports to the European Union in 2007 were only 6.9% of the total Paraguayan exports, falling from 20% in 2005/6. More than 60% of Paraguay’s exports to the EU consist of agricultural commodities. China had the second biggest share of imports into Paraguay in 2007 after Mercosur, with 26.8% of total imports. Imports from the EU participates were 4.6 % of the total and the United States 4.5%. Since the inception of the Common External Tariff (CET) the Members States of Mercosur have been authorised to maintain mechanisms for adjustment of national tariffs, through 40 This section presents a summary of the case study by Fernando Masi and Maria Belen Servín of CADEP, Asunción, presented in Annex 3.


Exceptions Lists, with defined convergence to CET levels. Paraguay has a list of 100 exceptions until 2015, 150 current exceptions until 2010, and a list of basic exceptions of 399 items until 2010. Paraguay has also unilaterally adopted special import regimes, which imply total or partial exemption from the CET). Most of Paraguay’s imports from outside Mercosur are channelled through the exception lists and the use of special import regimes. Paraguay has the highest rate of economic openness in comparison to other Mercosur countries (67% compared with 22% for Brazil, 40% for Argentina and 53% for Uruguay). The customs process Particular attention is paid to alcoholic beverage imports (because of the large number of documents required) and soybean exports (Paraguay’s biggest export to the EU). A. Imports The importing company must be registered by the National Management of Customs, and should designate a Customs Broker. The basic documents required are:

• international embark acknowledgement • trade invoice • packing register • certificate of origin.

For alcoholic drinks the product must be registered at the National Institute of Food and Nutrition prior to importation, and additional documents are required:

• Bill of landing / Airway bill / Postage Card • Packing Register • Certificate of Origin • Health Certificate • Authorization for product registration • Brand Title • Samples of labels

It takes 15 days for the documentation to be admitted as legal, and 8 further days to obtain the product registration number. Once the documentation has been obtained the product is processed through one of three channels (green, orange or red) according to specified rules and risk profiles. If selected for the red channel the merchandise is subject to physical and documental verification in eleven steps. The orange channel has only seven steps and the green channel six, with shorter processing times. About 70% of alcoholic beverage imports from the EU go through the green channel and only 16% through the red channel (compared with 30% for perfumes, 38% for medicines and 42% for mechanical appliances). Final formalities include presenting a Declaration of Arrival and an Embarkation Acknowledgement, with photocopies of the corresponding trade invoices. B. Exports


Exporting companies and brokers must register with an Export Registration Office, through which access is obtained to the Single Export Window (VUE). An authorised customs broker must be designated. Processing all export documents is planned to be done through the computerised VUE system. The system is being introduced progressively, and is currently operational only for meat products and certificates of origin for other products. Exports of wood and vegetables are in the process of being included. For soybean exports to the EU the exporting company must obtain the following basic documents:

• international embarkation acknowledgement • trade invoice • packing register • certificate of origin • phytosanitary certificate • certificate of genetically modified organisms • weight certificate • fumigation certificate • maintenance of cleanliness certificate

Once the documentation has been obtained the product is processed through the green, orange or red channel. There are seven steps for the Green Channel, eight for the Orange Channel and eight for the Red Channel. Over 80% of soybean exports to the EU go through the green channel and only 8% through the red channel (compared with 7% for corn, 11% for sugar, 75% for wood and 82% for vegetable coal). Transport and Trade Facilitation Paraguay, like many other landlocked developing countries, is susceptible to high transport costs. In addition, Paraguay does not have adequate physical infrastructure for the promotion of its foreign trade. Increasing highway transportation costs for Paraguayan products over the last two decades have made waterways the most convenient option for trade operations. The higher costs in land transportation are exacerbated by continuing restrictions imposed by Brazil to land transportation of Paraguay’s soybean to the free port of Paranaguá on the Atlantic Coast. Up to 90% of soybean transport has now shifted to waterway. Currently 72% of all foreign trade flows are conducted through the two principal rivers that connect the country to its neighbours: the Paraguay River and the Parana River. However, waterway transportation means dependence on the ports of neighbouring countries on the Parana River and the River Plate: Rosario, San Lorenzo and Buenos Aires in Argentina, and Montevideo and Nueva Palmira in Uruguay. Hence, export competitiveness and import costs depend strongly on the transit procedures applied by Argentina and Uruguay. There are two types of market transportation depending on the depth of the river: bulk cargo mainly consisting of soybean and fuels, which requires a 12-feet-depth minimum in the Paraguay River and 10-feet-depth minimum in the Parana River; and container, which needs a depth of 14 feet in the Paraguay River. In certain periods the depth of the Paraguay River diminishes to 6 and 8 feet in some sections. The maintenance of the navigability of the Paraguay and Paraná rivers is therefore of great importance. Support services for the


navigability of both rivers are performed by the National Administration of Navigation and Ports (ANNP). The average time of transporting goods to the European ports is approximately from 32 to 35 days, of which 22 to 24 days are for maritime transport, 7 days for fluvial transport to the transfer ports and 4 days in transfer. Private ports have emerged in the nineties after the enactment of Law No. 419/94. They have proved to be much more efficient than ports operated by ANNP, because of better services in terms of costs, quality of operation, security and coverage. Issues and scope for trade facilitation The main problems affecting import and export operations in Paraguay relate to:

• Beacons and dredging of rivers; • Transit through third countries; • Insufficient warehouses at transfer ports; • Single Export Window (VUE) System; • Port facilities; • Stock of containers; • Use of ICT; • Waivers; • Inspection by scanner in the export process; • Consular Legalization; • Corruption.

Each of these is discussed in more detail in the case study. Since 2001, the Paraguayan government has been carrying out activities related to promote trade facilitation with the assistance of the Inter-American Development Bank (IDB) and the US government. Activities have included modernisation of the National Customs Management (DNA) system, and strengthening of border controls and customs legal operations. Other actions to improve trade facilitation have included:

• New Customs Code • Quality Management System under ISO 9001:2000 • Use of ICT systems • Transparency and professional training

Recommendations On the basis of its analysis of the issues the case study makes the following recommendations for trade facilitation measures in Paraguay, with EU assistance where appropriate:

1. Improvement of the navigation quality on the Paraguay and Parana rivers by dredging and marking of the rivers, so to make navigation possible throughout most of the year and 24 hours a day.


2. Modernization of local port and logistics at ports in transit, the use of technological tools in modern equipment for the provision of prompt and efficient services, thereby reducing the costs of delays.

3. Development and deployment of information and communication technologies, improving and streamlining customs through the Single Window System for Export – VUE.

4. Creation of a Single Window for Import (VUI), to streamline procedures and to reduce imports transaction costs.

5. Harmonization and simplifying customs operations with neighbouring countries (transit) and the EU, to standardize formalities to be followed and to allow the digitization of import and export declarations with a single, integrated electronic format. This will facilitate an electronic tracking of the whole operation, by both government agencies, companies and brokers

6. Building capacity for the transmission and processing of electronic information and data before the arrival of the cargo.

7. Working on compatibility of electronic systems between customs administrations of MERCOSUR and the EU

8. Simplifying and streamlining customs procedures - port procedures in Paraguay, customs - in the dock ones in transit countries (Argentina, Brazil and Uruguay)- through the coordination via the Internet with ports and depositories, so all the required information in electronic format are sent in advance.

9. Working for the introduction or amendment of codes of conduct, laws, policies and local regulatory tools that include provisions on conduct, conflict of interests and penalties and disciplinary actions to customs officials.

10. Strengthening customs procedures and systems for handling and clearance that include risk analysis and selection methods to identify high-risk goods; and risk analysis through pre-processing of information and data to identify or recognize high-risk goods that will be inspected and / or subjected to other customs procedures.

11. Training and capacity building in trade facilitation for the staff and negotiators in government agencies and in the private sector involved in foreign trade, so they can act with a single voice in negotiating measures of trade facilitation in international bilateral and regional agreements.

12. Elimination of consular legalizations to avoid additional costs and delays.


America and Caribbean region of between 0.12% and 0.36%, varying according to the assumed degree of diversity of costs between countries and economic sectors. In Paraguay the welfare benefit projected by the CETM model is considerably higher than in the other countries. Even here, however, as a one-off gain resulting from over ten years of negotiation, plus the time for implementation, its significance is relatively minor compared with the country’s expected rate of economic growth of around 3% each year49. In both the EU and Mercosur countries, the main economic benefits of trade facilitation come from other effects. 5.2. Effects on Small and Medium Sized Enterprises The effect of trade facilitation measures on Small and Medium Sized Enterprises (SMEs) is of particular interest in view of the high burdens that trade transaction costs may place on them, along with the importance of their contribution to overall economic performance, in both the Mercosur countries and the EU. Many SMEs in both the EU and Mercosur will not be directly affected by trade facilitation measures. Many operate only in the domestic market, while others are part of the supply chains of large corporations, or use materials that are imported most efficiently in high volume by larger companies. Nonetheless, significant numbers of SMEs in both regions use or produce specialist products that may be traded directly. The OECD has conducted a study to examine general trade facilitation issues that are highly relevant to a potential EU-Mercosur agreement50. This confirmed that trade transaction costs can indeed vary according to characteristics of the trader, including the size of the firm. Small firms which engage infrequently in cross-border transactions have several disadvantages:

• they tend to have fewer specialised personnel, so may need to devote relatively more resources towards developing the necessary expertise and administering import/export procedures;

• they may have limited capital, so that border delays can affect their liquidity and force them to seek expensive interim financing;

• they have little track record with customs authorities, so may be classified in a higher risk category and be subjected more frequently to costly checks.

Despite these disadvantages, an analysis of about 650 survey responses concluded that it is not firm size as such that determines the level of trade transaction costs, but the size of a firm’s international trade activities51. Hence, small firms which specialise in international markets are often able to achieve economies of scale in border procedures. Furthermore, in both the EU and Mercosur small firms can often outsource customs-related activities, and thereby avoid the disadvantages they might otherwise face. Nevertheless, an earlier study in Europe52 found that firms with fewer than 250 employees incurred trade transaction costs 30-45 per cent higher per consignment than those paid by bigger firms. One of the main reasons given was that, due to infrequent transactions, SMEs were often unable to participate in simplified procedures that reduce the trader’s costs.

49 World Bank (2007) 50 OECD (2003) 51 Verwaal and Donkers (2001) 52 Ernst & Whinney (1987)


Hence it may be concluded that although many small importing or exporting firms have proved capable of surmounting the difficulties, the introduction of simplified procedures that are fully accessible to those SMEs that import or export directly is likely to be a significant factor in maximising their contribution to economic performance in both the EU and Mercosur. 5.3. Economic benefits and costs of typical trade facilitation measures There is a broad consensus that trade facilitation does have the potential to contribute significantly to smoother and intensified trade between countries, particularly in terms of eliminating burdensome trade procedures, increasing transparency, improving business opportunities and security, and generally enhancing competitiveness and economic development to the benefit of both the government and the private sector53. Both the EU and Mercosur can be expected to benefit from improvements in these areas. Paraguay in particular, as a landlocked country, can expect to benefit from reduced border delays and transit costs. There are often other benefits accruing from trade facilitation reforms. The direct savings in trade transaction costs, both for governments and for importers and exporters, can often outweigh the cost of implementing the reforms. In some developing countries an immediate gain may come from increased government revenue, through more efficient and reliable tax collection and reduced corruption54. The effect will be fairly small in the EU but may be significant in some of the Mercosur countries. Larger long term gains may occur by increasing the ability of Mercosur countries to attract foreign direct investment and integrate into global supply chains, and hence accelerate their rate of growth55. Investing companies typically require cheap, quick, transparent and predictable customs services56. Analysis of the implementation costs of trade facilitation is important, not only for comparison with the expected benefits, but also in designing implementation and assistance programmes. Priority should be given to the most cost-effective elements of trade facilitation. The OECD has conducted a series of country surveys to address the issue. Data on the implementation costs of eleven trade facilitation measures proposed in the WTO negotiations were collected in fourteen developing countries57. While the OECD cost study does not include any conclusive quantitative cost estimates for the measures examined, it provides useful information on the relative complexity of the various measures, and on some of the major issues associated with their implementation. The study focused specifically on implementation costs for governments, and considered the following four cost components specifically and directly related to a given TF measure:

• Regulatory costs; • Institutional costs; • Training costs; • Equipment/Infrastructure costs.

53 Hellqvist (2003), UNECE (2004), Ivanow and Kirkpatrick (2006) 54 Engman (2005) 55 OECD (2005a) 56 Engman (2005) 57 OECD, 2004; OECD, 2005c


The study notes that overall implementation costs of specific measures will be affected by the current level of infrastructure development in each country, which may need to be improved before a particular measure may be effectively implemented. While the study did not attempt to compare the costs of the various measures examined, it identified risk assessment, audit-based controls, and special procedures for authorised persons as the most complex and costly measures, followed by advance lodgement and processing of data. In contrast, advance rulings and security for duties and taxes were reported to have minimal implementation costs. Similarly, Finger and Wilson point out that there are a number of administrative reform measures that would probably not require large-scale investments or new infrastructure projects58. These include, for example, more explicit rules on publication of fees for imports and exports, and more rapid response mechanisms to adjudicate customs disputes. Other measures are more costly. It has been estimated, based on analysis of World Bank projects, that each of the 16 areas of a customs reform project typically cost more than $US 2.5 million to implement59. In projects funded by development assistance programmes automation is often a major component, in some cases amounting to over two-thirds of the total cost of a customs-related lending project. An OECD study of the costs and benefits of customs automation reports a very wide range of costs, from $US 15000 to develop a website in Senegal, up to $US 190 million for Russia’s Customs Development Project, of which $US 133 million was for customs automation60. Off-the-shelf automation systems such as the ASYCUDA system developed by UNCTAD can be significantly cheaper than custom-designed systems, but the costs of operation and maintenance can be similar. The OECD study concludes that the costs for implementing, maintaining and operating automated customs systems are substantial, but that past experiences have shown that the financial benefits in many cases have exceeded the costs over time. It also stresses that many of the most cost-effective reforms can be implemented without automation. Other OECD studies61 report a similar range of costs for various types of trade facilitation measure, with and without automation. Duval62 has examined a wide range of other costs, many of which are not readily quantified. These are categorised as:

• Regulatory/Legislative Costs: Extent to which new legislation will be needed, requiring expertise and time.

• Institutional Costs: Extent to which new institutions will be needed, additional units in existing institutions, or restructuring with existing institutions

• Human Resources (HR) Training Costs: Extent to which government officials will need to be trained for efficient implementation of the trade facilitation measure

• Equipment/Infrastructure Costs: Extent to which new/additional equipment will be needed for implementation of the measure, as well as to ensure its effectiveness (e.g., if docs are published online but SMEs do not have internet access because of lack of a decent national ICT infrastructure...)

• Political Costs: Extent to which such measures will be resisted by staffs within relevant institutions; or by policy makers because of fears of loosing political support they need

58 Finger and Wilson (2006) 59 Finger and Schuler (2000) 60 OECD (2005d) 61 OECD (2003a, 2005c) 62 Duval (2006)


• Recurring/Operating Costs: Costs associated with maintaining the new/additional systems associated with the trade facilitation measure (e.g., replacement of computers and software, salary/wages of dedicated additional staffs or experts etc.)

Duval suggests that the political costs can often be the biggest impediment, since implementation of TF measures generally involves various degrees of change that can be perceived negatively by those affected. Governments may therefore need time and flexibility for implementing the measures, along with appropriate technical assistance with training and infrastructural investments. Nonetheless, the potential for significant long-term benefits is widely accepted. Other OECD studies63 stress the importance of initial analysis and diagnosis of trade facilitation issues. One of the most common causes of failed reform is inadequate or insufficient understanding of the problem areas that need to be addressed. High trade transaction costs generally have several interrelated causes, which need to be tackled comprehensively in order to ensure the success of a reform programme. Consultation with stakeholders in analysing the problems and devising solutions is a key success factor. The OECD reports that many reforming countries have established permanent structures for consulting stakeholders, and that the use of outside consultants has been successful only when the customs administration has had a clear understanding of what it wanted them to do. These considerations suggest that a well designed trade facilitation programme can achieve significant economic benefits, although they cannot be quantified with any certainty. The Mercosur countries and many other developing countries have recognised this, and have embarked on customs modernisation unilaterally as part of a broader programme of reforms. The European Commission has itself contributed to this through an EU-Mercosur customs cooperation project64. As noted in Section 4.3, trade facilitation projects in Paraguay have been undertaken with the assistance of development banks and aid agencies. The potential benefits and possible risks associated with committing to such reforms within a trade agreement are less clear. On the basis of this analysis some broad estimates may be made of the likely costs and benefits of some of the measures discussed in the project Inception Report. Full implementation of the Common External Tariff Fully implementing the Common External Tariff would entail eliminating the double imposition of import duties and the development of a mechanism agreed by all the Mercosur countries for the distribution of customs revenue.

• regulatory/legislative costs: medium • institutional costs: low • training costs: medium • equipment/infrastructure costs: low • political costs: high • recurring/operating costs: low

63 OECD (2003, 2003a) 64 PADUEM (2007)


The financial and economic costs involved are likely to be low in comparison with the potential gains. The barriers to more rapid progress arise primarily from the political difficulties of developing an agreed revenue distribution mechanism. Full implementation of the Common Customs Code Full implementation of the Common Customs Code requires harmonisation and simplification of customs procedures and clearance procedures among the Mercosur countries.

• regulatory/legislative costs: medium • institutional costs: medium • training costs: medium • equipment/infrastructure costs: low • political costs: low • recurring/operating costs: low

The benefits of implementing the Common Customs Code are already recognised in Mercosur and progress to date has been good. Mutual recognition within Mercosur of product standards and conformity certificates and harmonisation of SPS legislation and procedures Mutual recognition of product standards between the Mercosur countries necessitates a review of the objectives of each standard affected, and agreement on minimum standards that are acceptable to all the countries. Mutual recognition of conformity certificates is dependent on agreement on standards. Harmonisation of SPS requires a similar review and agreement, and amendment of the relevant legislation.

• regulatory/legislative costs: high • institutional costs: high • training costs: high • equipment/infrastructure costs: medium • political costs: medium • recurring/operating costs: low

The scope for mutual recognition and harmonisation is high, with high potential benefits. The principal barrier to more rapid progress is the high institutional cost of reviewing the standards. Action to improve efficiency and transparency A wide variety of actions can be taken to improve efficiency and transparency, some involving automation while other require only institutional reform.

• regulatory/legislative costs: low • institutional costs: high • training costs: high • equipment/infrastructure costs: variable • political costs: medium • recurring/operating costs: variable


Many potential measures are likely to deliver benefits that exceed the financial costs, but may require significant investment in institutional reform. For some types of measure political difficulties may arise either with policy makers or with staff. Development of appropriate administrative capacity Most of the measures discussed above will require capacity development for the staff involved.

• regulatory/legislative costs: low • institutional costs: medium • training costs: high • equipment/infrastructure costs: low • political costs: low • recurring/operating costs: medium

Training costs may be a significant component of the implementation costs of many trade facilitation measures, with ongoing needs for enhanced training of new staff. For well designed measures these costs are likely to be recovered fairly rapidly. 5.4. Impacts of a potential trade agreement While the economic benefits of trade facilitation itself are fairly well understood (subject to the acceptability of implementation costs that cannot all be quantified), the impact of including these measures within the trade agreement is less apparent. In the Mercosur customs union itself, as in the common market of the EU, there are evident benefits from making joint commitments on such measures, since all member states benefit from common action. In the case of the EU-Mercosur trade agreement the common interest of the parties is less readily identifiable. The case studies presented in Annexes 1 to 3 and summarised in Section 4 have identified specific trade facilitation measures in both Mercosur countries and the EU from which traders in both regions would benefit. Governments in both regions are already engaged in programmes to address many of these issues, and face numerous technical, administrative, financial and political barriers to addressing them more fully or more rapidly. The extent to which either party would benefit from making a commitment to the other on any of these issues will depend strongly on what commitments are made in return. These issues are discussed more fully in Section 6 on potential mitigation and enhancement measures. The EU-Mexico and EU-Chile agreements give an indication of possible aspects of an agreement between the EU and Mercosur. The main provisions of these agreements are:

• mechanisms for cooperation and coordination between EU and Mercosur authorities • requirements for coordination between customs and other control agencies; • a requirement for import or export data to be submitted to a single agency; • the computerisation of customs procedures and the possible establishment of common

standards; • the application of modern customs techniques, including risk assessment, simplified

procedures for entry and release of goods, post-release controls, and company audit methods;

• the establishment of common positions in international organisations;


• the provision of technical assistance in implementation. Provisions for customs cooperation would build on the EU-Mercosur project that was completed in 200765. The project aimed to contribute to the consolidation of customs integration and the establishment of the single market, including work on harmonising legislation, increasing transparency and speed of customs operations, administrative cooperation and implementing a communication policy. This and other provisions for cooperation and coordination will have relatively low cost, with minimal adverse impact if the expected benefits fail to materialise. Most of the other provisions already have been or are being implemented in the EU, and are consistent with the Mercosur countries’ own objectives for improving the efficiency and effectiveness of their procedures. The provision of technical assistance from the EU will help to facilitate more rapid action than would otherwise be possible. The principal benefits of an agreement of this nature are therefore expected to come in two main areas. First, there are likely to be specific measures in both the EU and Mercosur for which the costs of making an additional commitment are outweighed by the benefits of the other party’s reciprocal commitments. It is beyond the scope of the SIA to identify which measures fall in this category, but potential candidates are discussed in Section 6. Second, both parties would benefit from EU technical assistance to Mercosur countries in implementing trade facilitation reforms. Subject to careful project design based on evaluating the effectiveness of previous projects, the benefits to the EU are likely to exceed the cost of the assistance, while contributing to the larger potential gains of a full trade facilitation programme. 5.5. Impacts on core sustainable development indicators Economic indicators Real Income The direct financial and revenue benefits of a well designed trade facilitation programme can often outweigh the costs, with potentially large indirect economic benefits in the longer term. The static efficiency effects on economic welfare are small, but the longer term dynamic effects are potentially much larger. These gains are available primarily in the Mercosur countries, which have made less progress than the EU in implementing efficient border procedures. The EU will also benefit economically, mainly through improved performance of specific export industries and reduced costs of its own border procedures. The long term gain will be smaller than in Mercosur, since EU-Mercosur trade is a smaller proportion of its total trade. These benefits and the actions needed to deliver them are those which would apply to unilateral action by both parties, primarily in Mercosur. As discussed in Section 5.4, the additional benefits that would accrue from including trade facilitation measures within the trade agreement are dependent on the negotiation of reciprocal commitments and on the magnitude and effectiveness of technical assistance.

65 PADUEM (2007)


Fixed Capital Formation Trade facilitation can contribute to fixed capital formation through increased foreign direct investment, since investing companies require cheap, quick, transparent and predictable customs services. However, many other factors also contribute to the investment climate, so that trade facilitation on its own may not yield a significant benefit in this respect. Nonetheless, the contributions to long term economic growth discussed in Section 5.3 would facilitate a sustained increase in both domestic and foreign investment. This impact is as would apply for unilateral action by the Mercosur countries. As discussed in Section 5.4, the additional benefit from including these measures in the trade agreement is directly related to negotiation of reciprocal commitments and the level of technical assistance provided. Employment Similarly, it is reasonable to anticipate beneficial employment effects from trade facilitation measures, but the specific contribution from including such measures in the trade agreement is likely to be small. Social indicators It is reasonable to assume that the trade facilitation component of the trade agreement will be economically beneficial to both parties. The social impacts will be directly related to the economic impacts, in terms of both those which are stimulated specifically by the trade agreement, and those resulting from unilateral action. It will be in the interest of both parties to ensure that the beneficial social impacts of trade facilitation measures are maximised, and that any adverse effects are minimised, irrespective of whether the reforms are undertaken unilaterally or as part of the agreement. Any appropriate mitigation or enhancement measures undertaken cooperatively within the agreement should therefore apply to the full trade facilitation package, rather than only to any specific measures subject to negotiated commitments. The impacts as assessed below are therefore those of a full trade facilitation programme, primarily as is expected to be undertaken in Mercosur, and also as relevant in the EU. Poverty There will be some direct employment effects associated with border controls, but these are not expected to be significant compared with the wider costs and benefits. The principal impact on poverty is expected to come in the longer term in Mercosur, from accelerated economic growth, and is likely to be significantly beneficial. No significant poverty impacts are expected in the EU. Health and Education The long term impact in Mercosur will also come indirectly from the influence on growth, and is expected to be significantly beneficial. A similar but smaller effect is also expected in the EU.


In the shorter term the Mercosur countries are expected to gain a significant increase in tax revenues, enabling increased expenditure on health and education. Equity Accelerated growth can have distributional effects, which are potentially significant. Although the net effect on economic welfare estimated by the CETM model is small, the influence on trade flows is much larger. The modelling study did not disaggregate the effects, but the relative contributions of tariff reductions and trade facilitation measures are likely to be similar to those for welfare. On this basis we estimate that the changes in trade flows due to trade facilitation measures will be approximately equal in both nature and magnitude to those from tariff reductions. The main distributional impacts come from increased agricultural exports from Mercosur to the EU, associated with increased mechanisation and potential conflicts over land. The Preliminary Overview SIA66 assessed the distributional impacts as mixed, and potentially adverse for women. Those arising from trade facilitation are expected to be similar. Environmental indicators As with the social impacts, environmental impacts are assessed for a full trade facilitation programme rather than for any specific measures subject to negotiated commitments. Biodiversity The main biodiversity impacts of changed trade flows come from increased agricultural exports from Mercosur to the EU. The Preliminary Overview SIA67 assessed these impacts as of major adverse significance, in both the short term and the long term. Those arising from trade facilitation are expected to be similar. Environmental quality The main impacts on environmental quality of the changes in trade flows also come from increased agricultural exports from Mercosur. The Preliminary Overview SIA assessed these as of minor adverse significance in the short term, with mixed beneficial and adverse impacts of minor significance in the long term. The impacts of trade facilitation are expected to be similar. Natural resource stocks The impacts on natural resource stocks are closely related to those on biodiversity. On the basis of the Preliminary Overview SIA findings they are assessed as being of major adverse significance in both the short term and the long term.

66 IARC (2007) 67 IARC (2007)


6. MITIGATION AND ENHANCEMENT MEASURES 6.1. Summary of impacts As described in Section 2.6, the EC’s SIA methodology provides for Mitigation and Enhancement (M&E) measures to enhance the beneficial impacts identified in the assessment and to avoid, reduce or compensate for any adverse ones. The methodology identifies three main categories of M&E measure:

1. modification of the trade agreement 2. action by national governments to enhance positive effects or mitigate negative ones 3. complementary mechanisms to accompany the trade agreement

As discussed in the impact assessment of Section 5, the potentially significant beneficial impacts of the proposed trade facilitation measures are primarily economic, with consequent social effects that are also beneficial. These can be maximised by appropriate enhancement measures. Other social impacts have been identified that are potentially adverse, along with significant environmental effects. The need for mitigation applies to these social and environmental effects. The significant impacts identified in Section 5 are: Economic

• potentially large indirect benefits in the longer term from a full trade facilitation programme.

• benefits from the trade agreement itself through the negotiation of reciprocal commitments and the provision of effective technical assistance.

Social

• long term benefits from the economic effects of a full trade facilitation programme • potentially adverse distributional impacts associated with increased agricultural

exports from Mercosur, particularly for women, with potential conflicts over land. Environmental

• significantly adverse impacts on biodiversity and natural resource stocks in both the short term and the long term associated with increased agricultural exports from Mercosur

• intensified need for change in unsustainable patterns of consumption and production. 6.2. Enhancement measures All three types of M&E measure are applicable to enhancing the potentially beneficial impacts of the trade agreement. Modification of the trade agreement As discussed in Section 5.4 there are likely to be specific trade facilitation measures in both the EU and Mercosur for which the costs of making commitments in the trade agreement are outweighed by the benefits of reciprocal commitments. Potential candidates include all the recommendations presented in the case studies and summarised in Section 4. Commitments in the following areas are suggested for particular consideration.


Joint commitments 1. establish EU-Mercosur Customs and Trade Facilitation Committee 2. cooperate on the development of electronic exchange for all documents 3. adopt international standards for customs procedures and electronic systems

Commitments in both EU and Mercosur

4. extend and improve single window systems for both export and import, with particular attention to countries with less developed systems

5. extend the use of risk management techniques 6. simplify all procedures 7. provide up-to-date information on all trade and customs procedures from a single

source Mercosur commitments

8. adopt Kyoto Customs Convention 9. streamline systems for preparation and movement of export documentation

(particularly Argentina and Uruguay) 10. simplify documentation for alcoholic beverages (particularly Paraguay) 11. develop simplified procedures that are fully accessible to SMEs that import or export

directly 12. relax requirements for pre-authorisations (particularly Brazil) 13. improve transfer port logistics (Argentina and Uruguay) 14. strengthen transparency and professionalism of customs and regulatory environments

EU commitments

15. greater harmonisation of trade related procedures between EU countries (including, for example, registration requirements, data requirements, electronic systems, VAT systems)

16. simplify veterinary and phytosanitary procedures (particularly for animal product imports) . See, for example, the recommendations in the LACORS report to the UK Cabinet Office Review68

17. strengthen compatibility between veterinary controls and customs procedures. See , for example, the recommendations in the LACORS report

18. strengthen systems to help Mercosur exporters comply with REACH requirements, particularly by improving the provision of information and technical assistance through the WTO enquiry point and the European Chemicals Agency

Additional action by national governments As discussed in Sections 5.3 and 5.4, trade facilitation reforms offer significant long term economic benefits to the reforming country, subject to the acceptability of implementation costs that may be institutional and political as well as financial. Governments in both the EU and Mercosur are already engaged in unilateral action to address many of the issues. In both regions the pace of continuing reform is limited by numerous technical, administrative, financial and political barriers. In many cases the barriers relate to ensuring the continued effectiveness of the controls for which import and export procedures exist. A detailed understanding of the issues is needed before the barriers to further reform can be overcome. We therefore recommend:

68 LACORS (2003)


19. detailed research in both regions into the barriers to trade facilitation reforms beyond those to which commitments are made in the trade agreement

Complementary mechanisms As discussed in Section 5.4, both regions can be expected to benefit economically from effective EU technical assistance to Mercosur countries in implementing trade facilitation reforms. In order to ensure the effectiveness of such assistance it should be based on a full understanding of the contribution made by previous trade facilitation support provided by the EC and other donors. We therefore recommend:

20. joint research into the effectiveness of previous technical assistance provided by the EC and other donors in contributing to the trade facilitation objectives of Mercosur countries

On the basis of the information gained through this research we recommend:

21. jointly planned and managed technical assistance targeted at specific trade facilitation objectives of the Mercosur countries

Both regions can also be expected to benefit from trade facilitation measures to address other key issues identified in the assessment, primarily in the field of transportation. Both of the case studies summarised in Sections 4.1 and 4.3 identified inadequate transport infrastructure as a significant barrier to trade. The issue is of greatest concern in Paraguay, associated with its status as a landlocked country, but it is also relevant throughout Mercosur. The desirability or otherwise of government intervention to stimulate investment in transport infrastructure is primarily a matter for Mercosur countries’ own governments. The area is however one that offers significant potential for investment by EU companies, with potential gains for other EU traders that would deliver economic benefits in both regions. We therefore recommend:

22. joint EU-Mercosur review of transport infrastructure needs in Mercosur countries and of the potential contribution of EU companies.

6.3. Mitigation measures As summarised in Section 6.1 above the potentially adverse impacts of an effective trade facilitation programme are primarily social and environmental, associated with increased agricultural exports from Mercosur. The issues of greatest concern are: distributional impacts on rural communities, particularly for women; significantly adverse impacts on biodiversity and natural resource stocks; intensified need for change in unsustainable patterns of consumption and production. These impacts are expected to be relatively small for the trade facilitation commitments of the trade agreement itself. However, if the agreement were to succeed in its aim of stimulating the deeper reforms of a full trade facilitation programme the magnitude of the effects would be similar to those associated with full tariff removal, and of potentially major adverse significance. Proposals for mitigating the impacts of tariff reductions are presented in the final overview SIA report. We recommend that:


23. the priority given to the actions identified in the Overview SIA to mitigate the potentially adverse impacts of tariff reductions on social and environmental issues in Mercosur countries should be doubled in order to address the additional impacts of an effective trade facilitation programme.

The relevant actions recommended in in the Final Report of the Overview SIA are: Trade Pillar Measures

Include a Trade and Sustainable Development Chapter in the Trade Pillar of the Association Agreement. The proposed Trade and Sustainable Development Chapter would include clauses to address specific social and environmental concerns relating to the proposed Agreement. Social Clauses could include:

• reference to the requirement that both parties commit to the effective implementation of core labour standards and other basic decent work components

• statement that both parties will ratify the ILO standards concerned • establishment of a EU Mercosur Trade SIA Forum with responsibility for monitoring

the social impacts of the EU Mercosur Agreement. The body would provide for regular consultation with civil society in the EU and Mercosur, and would be required to report regularly, in a transparent manner, to high-level EU Mercosur Association Agreement meetings.

Environmental Clauses could include:

• Voluntary or mandatory certification for forest products and biofuels • Commitment to multilateral agreements, such as the Kyoto Protocol • EU Mercosur cooperation on the development of measures to reduce CO2 emissions

from automobiles, focusing particularly on technology development and transfer opportunities between Mercosur and EU in the areas of biofuels, engine design and emission control technology.

• Joint committee to report on the environmental consequences of increased production of biofuels in the EU and Mercosur

• EU Mercosur cooperation in promoting trade in environmental goods and services • Commitment by both parties to the adoption and implementation of effective

environmental regulation measures. • Establishment of a EU Mercosur Trade SIA Forum with responsibility for monitoring

the environmental impacts of the EU Mercosur Agreement. The body would provide for regular consultation with civil society in the EU and Mercosur, and would be required to report regularly, in a transparent manner, to high-level EU Mercosur Association Agreement meetings.

Cooperation and Political Pillar Measures

• support for regulatory policy capacity building in Mercosur, particularly in environmental regulation, public utility regulation (water and electricity sub-sectors) and financial sector regulation. The Mercosur countries should be pro-active in identifying their technical assistance and expertise needs that can be best met through the EC Mercsosur cooperation programme.


7. CONCLUSIONS Five broad conclusions may be drawn from the Trade Facilitation SIA study for the EU-Mercosur trade negotiations: 1. Trade facilitation measures offer potentially significant economic benefits in both the EU

and Mercosur, for the countries undertaking the reforms and their trading partners. The static efficiency effects on economic welfare are small, but longer term dynamic effects and gains to individual export industries are potentially much larger.

2. Both regions are engaged in unilateral actions to avail themselves of these benefits. Additional economic benefits may be obtained through the negotiation of specific commitments within the trade agreement whose costs are outweighed by the benefits of reciprocal commitments.

3. There is considerable scope for reducing trade transaction costs in many EU countries as well as in Mercosur, but the EU in general has made greater progress in trade facilitation measures than the Mercosur countries. Technical assistance from the EU to Mercosur can make a significant contribution to improvements in Mercosur to the benefit of both parties. Such assistance should be based on detailed research into the effectiveness of previous assistance from the EU and other donors.

4. The social and environmental impacts of specific trade facilitation commitments made in the trade agreement are expected to be small.

5. If the agreement were to succeed in its aim of stimulating deeper trade facilitation reforms, an overall long term social benefit would be accompanied by potentially adverse distributional impacts on rural communities in Mercosur, particularly for women, and potentially major adverse impacts on biodiversity and natural resource stocks. Measures to mitigate similar impacts from agricultural liberalisation will need to be doubled in order to counter the additional impact of fully effective trade facilitation reforms.


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Estudio López Dardaine

SIA of Mercosur Negotiations – Trade Facilitation Final Report page A

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ANNEX 1. MERCOSUR EXPORTERS’ PERSPECTIVE

TRADE FACILITATION CASE STUDY TRADE SIA MERCOSUR

MERCOSUR EXPORTERS’ PERSPECTIVE TABLE of CONTENTS: 1. The new scenario 2. A short introduction to Trade facilitation 3. The relevance of the elements analyzed under this Case Study 3.1. General issues 3.2. How have we tackled these issues within our Case Study? 3.3. Specific issues 4. Using the Real and the Peso instead of the Dollar as from October 2008 5. Trade facilitation issues faced by Mercosur exporters to the EU, covering the import side into the EU 6. Implementation of the external common tariff revisited 7. A comparative approach regarding the General Issues of Trade Facilitation 7.1. Questionnaire on General Issues ARGENTINA 7.2 Questionnaire on General Issues BRAZIL 7.3. Questionnaire on General Issues URUGUAY 7.4. Comparative chart on General Trade Facilitation Issues 7.5. Regarding Transport and Logistics 8. Regarding Mercosur as a Whole 8. 1. Buoying and dredging is also a common concern of Argentine and Uruguayan exporters 8.2. Obstacles to transportation in Argentina, Brazil and Uruguay 9. Figures regarding transportation by lorry and by railroad 10. Port Facilities in Mercosur 10.1. Regarding costs

End of September 2008



2

1. The new scenario Both Mercosur exporters and EU importers are faced with a world trade scenario which has been modified, -from the anticipation’s point of view- since the 2008 Trade SIA Mercosur Inception Report and Mid Term Report were submitted. If one were to put this change in a single phrase, one ought to say that on the evening of July 29th the failure of the Doha Round Mini-Ministerial presented both sides of the Atlantic with the certainty of stronger impacts, the moment full liberalisation is implemented, in the field of tariffs and non tariff barriers to Mercosur-EU trade.

Had there been a positive outcome as a consequence of the Geneva Mini-Ministerial, the EU and Mercosur countries would have lowered their tariff barriers to a certain extent, or would have been in the process of so doing at the time of an EU-Mercosur agreement. If such had been the case, the respective impacts of full liberalisation would have been relatively smaller that they are bound to be when an agreement is reached now, in the absence of a settlement at the WTO level. A related fact to be borne in mind is that of the divergent stances Brazil and Argentina took at the time of the Geneva Mini-Ministerial. Brazil was all for the agreement, whilst Argentina argued the offer on the table was still bellow what had been expected; on the one hand, regarding the US and EU offers on subsidy reduction, on the other hand, as far as the demand for rather steep rebates on industrial tariffs that were expected in turn is concerned. Such a disagreement might surface once again when EU and Mercosur negotiators sit at the table. As Mercosur needs to coordinate their stance vis-à-vis the EU before sitting at the table, the expected impact of an eventual disagreement might be one in the direction of attenuating the effects full liberalization. It would, if such were the case, affect Mercosur exporters to an extent that cannot be gauged at this stage. The relationship between the two major Mercosur partners was enhanced by the visit of President Cristina Fernández to Brazil on September 7th and 8th. After Black Monday September 29th, 2008, when President Bush’s rescue package was rejected by the US Congress, and amidst the uncertainty and lack of confidence prevailing even after said package was finally approved on the following Friday, the world economic and trade arena is bound to be altered. What are then the actual chances of a settlement at the level of the WTO? The world in which the future agreement between Mercosur and the EU may be signed will indeed be a world quite different from the one we had as our scenario when we started working on this Case Study, only some weeks ago. Mercosur-EU trade is bound to slow down as consumer watch their pockets within the EU and as Mercosur industrial importers do likewise. But maybe because of all of these significant modifications vis-à-vis our starting point scenario, Trade Facilitation issues might become more rather than less important. Mercosur exporters will need to sharpen their exporting tools, to cut down their costs, face less red tape, to improve their infrastructure and to have a better command of their own logistics. These issues, as we shall see, do require improving indeed.



3

So let us look at Trade Facilitation from a few different angles. 2. A short introduction to Trade facilitation And to do this we are here borrowing, with permission from the Manchester University, from “A case study focusing on trade procedures as applicable to the EU import of beef and poultry products” by Trade Facilitation Consulting Ltd. (2008). While there is no single official definition [of Trade Facilitation], primary focus tends to be the regulatory interface between business and government in cross-border trade operations (Grainger 2007c). Today, about 18 concepts that define the content of trade facilitation debate can be observed (Table 2.1). A detailed discussion for each of the 18 concepts can be found in a report produced by Andrew Grainger for the European Parliament (Grainger 2008b). Table 2.1. Trade Facilitation Concepts: a practitioner's observation Better regulation: 1. Simple rules and procedures 2. Avoidance of duplication 3. Memoranda of Understanding 4. Alignment of procedures and adherence to international conventions 5. Trade consultation 6. Transparent and operable rules and procedures 7. Accommodation of business practices 8. Operational flexibility 9. Customer-service provisions for government administrations 10. Mechanisms for corrections and appeals 11. Fair and consistent enforcement 12. Proportionality of legislation and control to risk 13. Time-release measures 14. Risk management and trader authorisations Information and communication technology: 15. Standardisation of documents and electronic data requirements 16. Automation 17. International electronic exchange of trade data 18. Single Window (Source: Grainger 2007)



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3. The relevance of the elements analysed under this Case Study If the expected impacts of full liberalisation –vis à vis Mercosur exporters and EU importers- are now expected to be greater than before, once both parties reach an agreement, then the significance of Trade Facilitation is certain to be enhanced. And there is one Trade Facilitation specific issue that is essential to Mercosur as a block; an issue that is bound to have a positive impact on the Mercosur - EU flow of exports, and one that would probably be perfected even without the influence of the EU - Mercosur ongoing negotiations. We are referring to Council’s Decision 54/04. Under this Decision we have the full implementation of the External Common Tariff, Mercosur countries customs interconnection and the Mercosur Customs Code. These questions happen to be very much on the Mercosur 2008 agenda. It is interesting to look at a series of the Trade Facilitation issues we are asked to analyse as the nucleus of this Case Study, and ask ourselves whether these elements would still be important to Mercosur even in the absence of Mercosur - EU negotiations. Said issues are the following: 3.1. General issues a. customs: efficiency of the clearance process by customs and other border agencies b. preparation and movement of documentation c. transparency and professionalism of customs and regulatory environments d. logistics of moving goods through ports e. competence of the logistics industry f. logistics costs g. ease and affordability of arranging international shipments h. ability to track and trace international shipments i. timeliness of shipments in reaching destination. j. quality of transport and information technology infrastructure k. technical barriers to trade l. harmonisation of standards After going through each of them, we feel the probable answer is that even without the Mercosur – EU ongoing negotiations, these issues would still be essential as far as Trade Facilitation is concerned, for Mercosur as a block and for each of the Mercosur Member States. However, these issues are vital –according to all of the sources we have had recourse to during our survey- when considering their impact, either positive or negative, relative to the ability of Mercosur exporters in securing a better position vis-à-vis EU markets. The relative importance of these general issues for each of the Mercosur countries is outlined in the answers to the questionnaires put to each of the country’s representatives. In some cases too –where possible, for there are few cost analysis on a particular issue - we have shown costs related to some of these issues, and even what is expected to be gained through improvement (see point 10.1, for instance). 3.2. How have we tackled these issues within our Case Study?



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Let us just give a general idea regarding our approach to these general issues. Then we shall do the same regarding the specific issues under our Task specification. The first four elements are linked to one of the specific issues, and we ought to mention this link before going further. a. customs: efficiency of the clearance process by customs and other border agencies b. preparation and movement of documentation c. transparency and professionalism of customs and regulatory environments d. logistics of moving goods through ports These issues are among the ones that are included among the “particular difficulties faced by SMES” in the field of Trade Facilitation. This is because any additional cost created by inefficiency in these fields are much more difficult to be absorbed by Mercosur exporting SMES than is the case as far as the bigger exporting firms are concerned. Let us take issue (a) in the above list: efficiency of the clearance process by customs and other border agencies. All Mercosur exporters in Argentina, for instance, and especially exporting SMES, would indeed benefit from a round the clock clearance system. Today this is achieved by means of extra time, extra costs and extra expenses, the latter because of corruption pockets created by the necessity for extra clearance time. Our general approach was to contact the exporter chambers in Argentina, and Uruguay, and experts with a long time association with the Exporters Association in Brazil and to ask their opinions on each of these general issues. For Paraguay we had recourse to an excellent document prepared for USAID. We also had talks with operators (such as customs brokers) and individual exporters as our survey was progressing, to have their own take on these matters. Regarding Argentina, Brazil and Uruguay, we give the answers to general issues separately, plus some comments on said issues and then compare their individual answers to see where there is divergence and where there is coincidence. And although the format used for Paraguay is different, you will see a number of issues that concern Paraguayan exporters are quite similar than those addressed by their colleagues in Argentina, Brazil and Uruguay. At the governmental level, we have made use of meetings where this issues were discussed, especially regarding those on the Mercosur 2008 Agenda, such as all those aspects connected with Decision 54/04. It must be said that we got a lot of coincidences, regardless of which individual country the interviewee was from, and rather candid answers. However, a number of our sources gave their answers provided their names were not disclosed, and we are bound to respect their requests. Chart 7.4., a “Comparative chart on General Trade Facilitation Issues”, aggregates the individual answers on general issues, regarding Argentina, Brazil and Uruguay.



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3.3. Specific issues The specific issues have considerable relevance because, on the one hand they involve those elements that Mercosur as a block is focusing intensely and, on the other hand, because these are the special fields where cooperation between Mercosur and the EU already exists and can be intensified. These elements are the following: A. implementation of the Common External Tariff B. current trade facilitation programmes C. past, current and planned international assistance with TF programmes D. key economic sectors that would benefit from TF measures E. particular difficulties faced by SMEs F. views of different stakeholder groups G. similarities/differences between the Mercosur countries A. implementation of the Common External Tariff As mentioned before, the full implementation of the External Common Tariff, under Mercosur Council’s Decision 54/04, is very much on the Mercosur 2008 agenda. B. current trade facilitation programmes Here a series of digitalisation programmes are being implemented. C. key economic sectors that would benefit from Trade Facilitation measures If we take the Trade Facilitation general issues listed above from (a) to (l), there is little doubt, according to different opinions by our interviewees, that all Mercosur exporting firms, belonging to all sectors, stand to benefit from any kind of improvement in these fields. It is rather difficult to pin-point one segment that would not actually benefit. However, taking in consideration items (a) to (d), as has been already stressed, exporting SMES within Mercosur are bound to benefit certainly even more than the bigger firms. D. particular difficulties faced by SMES This has been addressed within our report each time it is mentioned by the sources we consulted with. F. views of different stakeholders groups Here we have focused, one the one hand, Mercosur as a block. And on the other hand each of the Member States, through contacts with Exporters and Government Officials involved in Trade Facilitation.



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G. Similarities / differences between the Mercosur countries These have surfaced as a result of the consultation process with key people in Argentina, Brazil and Uruguay. Our Task specification says “Where practicable, estimates of the likely costs of implementing particular TF measures should be obtained. Costs may include: Regulatory/Legislative Costs: new/revised legislation; Institutional Costs: new institutions, additional departments, restructuring; Staff Costs: salaries/wages; Training costs; Equipment/Infrastructure costs; Recurring/Operating Costs; Political Costs: resistance by staff or policy makers.” “Where practicable” is indeed the right way of defining this part of our Task specification. We have endeavoured to obtain some estimated costs in some cases where this was feasible. However, in the Mercosur countries estimating, even very roughly, the cost of revised or new legislation is quite beyond the question. The same may be said of political costs such as “resistance by staff or policy makers.” We have wanted to be very candid in this respect in order to prevent any false expectations from arising. We are talking of Mercosur; there are no realistic bases to estimate this sort of costs that we are aware of. 4. Using the Real and the Peso instead of the Dollar as from October 2008 During the visit by President Cristina Fernández of Argentina to Brazil, on September 8th a series of agreements were signed between the two major partners of Mercosur. Although the idea of using the Real and the Peso instead of the Dollar had been on the bilateral agenda for sometime, the decision of launching the respective initiative with enforcement as from October 2008 was taken during this visit. And even if it is rather a Financial Measure and not a Trade Facilitation issue, it ought to be mentioned here because the beneficiaries will be the SMES of both countries. The measure is not compulsory, and the big firms will go on operating under the dollar sign. At the time of the announcement, President Inácio Lula da Silva said this bilateral channel will pave the way towards the Mercosur monetary union. It is indeed an interesting step in said direction, and that is why we feel it ought to be mentioned within the framework of this Case Study. 5. Trade facilitation issues faced by Mercosur exporters to the EU, covering the import side into the EU. Apart from the General Issues and Specific Issues we have discussed above, there are questions facing the import side into the EU. One aspect affecting both Mercosur exporters and also EU importers (their clients) has already been discussed briefly under our previous reports (Inception Report and Mid Term Report) and that is REACH. This expensive and complex system of registration by the EU is not only about chemicals but



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it involves chemical derivatives and there are exporters to the EU that think this is about to become a considerable non tariff barrier to trade. It provides an example of one of the difficulties Mercosur exporters face. We have used this example because, on the one hand, it has been systematically signalled as a case in point by our interviewees, and on the other hand, because it has been the subject of a series of meetings at the time we were conducting our survey (i.e. Chemical Chamber in Buenos Aires and the Chamber of Exporters). We know it has also been a major concern within ABIQUIM, the Brazilian Association of Chemical Industries, sited in Sao Paulo, according with phone conversations we had during this same period with members of this Brazilian institution. All of the exporter associations in Mercosur we came in contact with while conducting our survey for this Case Study, had something to say about REACH . Especially as it will soon become a technical barrier to trade for both EU importers and Mercosur exporters. These difficulties are enhanced when we come to exporting SMES. The kind of costs and bureaucratic EU procedures involved are often beyond the scope of what SMES can manage in view of their organisational structure. As this instrument aims at the registry, evaluation, authorisation and restriction of chemical substances, one would tend to think it is a specific issue facing only the chemical sector. However, this is not the case. REACH is a complex EU regulation which, unless complied with, prevents exportation from Mercosur to the EU (of course this is so regarding other countries, but other parties are not our concern in this case). And because it involves the exports to the EU of chemical substances and chemical preparations and such manufactures containing chemical substances or chemical preparations, its scope practically covers a rather vast and heterogeneous tariff universe. So it is not only the exporters in the chemical industry that must deal with REACH and the severe extra costs involved, but it is also exporters exporting products that contain chemicals such as footwear, textile, leather, household appliances, pharmaceuticals, food additives, animal nutrition products, cosmetics, fuel, monomers, chemical intermediaries, minerals and blends of chemical products, to mention the most relevant sectors under consideration. This registration process aims at studying how a series of substances affect the environment. And here are the most significant impacts as far as costs are concerned. The ECHA, European Chemicals Agency demands that each legal entity of a business group make a separate application. We are at present at the pre-registry stage, and there are only two months left at the time this case study is being completed (end of September 2008). On September 25, 2008, at the Chemical Industry Chamber in Buenos Aires, Reachlaw, a Finish consulting firm sited in Helsinki, made a comprehensive presentation to a room packed with anxious exporters. They explained the key elements in the cost of registration are those related to those studies conducted in order to determine how it is the respective substances affect the environment (ecostudies). These are roughly 80 percent of total cost, whilst consortia agreement fees add another 10 percent and administrative costs an additional 10



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percent. However, they made it clear that it is early days yet to be able to assess the actual final cost of the whole process. We are still dealing in terms of budgets, they said. ECHA is not accepting free riders such as traders making an application on behalf of their clients from around the world. As said above, it is each legal entity separately. However, the non-EU manufacturers cannot pre-register directly. They can do that through an importer sited in the EU or by means of the “Only Representative”, the O.R. in ECHA jargon. Or through their subsidiaries in case they do have subsidiaries in the EU. The SMES are clearly not in this sort of league. For exporting SMES the impact is expected to be far greater. They need to have recourse to credit lines for SMES, extended especially by official banks in each of the Mercosur countries, in order to face the costs associated with registry, evaluation and authorisation within the EU. For EU importers are not apparently playing a major role as far as said REACH stages are concerned, according to the Finish consultant firm. But this question of evaluation is not finished once the authorisation for each separate chemical substance or component is issued. REACH requires all the data to be updated periodically. And although the EU proclaims “equal treatment” regarding REACH for either an EU-Manufacturer or a non-EU-Manufacturer, the general take within Mercosur exporters and officials we were able to consult is that we are dealing with a strong technical barrier to trade. Argentina, at the Governmental Level, have submitted their claim. 6. Implementation of the external common tariff revisited

Decision 54 / 04 by the Mercosur Council

Update

The implementation of this Council Decision within Mercosur involves three key issues related to Trade Facilitation. It is clearly a matter that concerns Mercosur per se and both the implementation and the internal debate around it would be pursued in any case, even without the existence of bilateral negotiations between Mercosur and the European Union. However, the full implementation of this decision will have a positive impact vis-à-vis said negotiations. The essential elements of Decision 54 “THE MERCOSUR COUNCIL DECIDES: “ Article 1 – Goods imported from third countries by a Mercosur Member State, that comply with Mercosur’s common duty policy, will be treated as originary, both regarding circulation within Mercosur, as regarding their incorporation into production processes, as defined within this Decision and corresponding regulations. By complying with Mercosur’s common duty policy one understands paying the ECT (external common tariff) at the time of ultimate importation, or, when applicable, the



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tariff resulting from applying the same tariff preference on the ECT, by all Mercosur Member States within the trade agreements signed with third countries, or the common measures applicable in view of trade defence measures. In other to guarantee compliance with was is established in this article, the Member States customs houses may require the presentation of the document bearing proof issued by the Member State having collected the respective ECT, at the time of clearance of such goods imported into their territory. Article 2 – Goods imported from third countries paying an ECT of 0 percent applied by all Member States, will be considered originary goods. The same treatment will be granted to such goods to which the Member States apply, all four and simultaneously, 100 percent tariff preferences within the framework of agreements signed by Mercosur, when said goods come from and are originary from the country or group of countries to which said preferences are granted. ……………………………………………………………………………… The Mercosur Customs Code: a) [requires in order to be enforced] The on-line interconnection of the electronic data processing systems of customs management existing within the Mercosur Member States, in order to do which a series of common data on export and import operations will have to be agreed among the Member States, data exchanged through the electronic data processing system, which in turn shall have to feed a data basis providing the information necessary for the future distribution of Mercosur customs revenue. a) A mechanism, and corresponding definition of modalities and procedures, in order to distribute customs revenues which need to take into consideration the especial and specific circumstances of the Member States regarding eventual impacts resulting from the application of what is established in article 1 of present Decision. ………………………………………………………………………………. Therefore, the three key issues are:

a) The Mercosur Common Customs Code b) The distribution of import revenues among Mercosur Countries c) Customs electronic data processing systems interconnection All of the above with a view towards achieving the elimination of double taxation on Mercosur imports for goods circulating through Mercosur countries other than the country of importation. Article 4 of Decision 54/04 establishes the end of 2008 as the date for issues (a) to (c) –described above- to be implemented. And although all the meetings proceedings concerning these issues are restricted to exporter associations in Mercosur, we have been able to update the internal negotiations regarding these issues through informal well informed sources. What follows is therefore non official information.



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Regarding the distribution of import revenues there are still questions not entirely settled regarding how exactly to share the revenues among countries and through which Mercosur body. And countries still have to define exactly which goods will be excluded, such as sugar and automobiles, which have still not been actually incorporated into Mercosur after 13 years. Some countries like Argentina have presented Mercosur with simulations showing how revenue distribution ought to be done. There is also some indecision regarding the Authority of Application and Control: is it to be an intergovernmental task or are we talking about a multinational body such as the Mercosur Administrative Secretariat, the latter a body already in existence? As far as the Mercosur Customs Code is concerned, the four countries are almost there. The exact definition of the customs territory associated with the special free zones have Argentina and Brazil on one side of the table and Paraguay and Uruguay not exactly on the same side. Agreement, however, is expected as from October 2008. One thing appears to be clear: the national duty free zones are not a part of the Mercosur customs territory. This is rather clear in the Mercosur Treaty signed in Asunción in 1991, but the Ouro Preto Protocol engineered at the end of 1994 between Argentina and Brazil granting “originary” status to such goods manufactured in both Manaos and Tierra del Fuego under the so-called “production process” has somewhat blurred this otherwise clear-cut definition. The system, under the Ouro Preto Protocol of 1994 works like this: those products manufactured in Manaos under the umbrella of the “production process” which is regulated by the Brazilian Authorities, can be shipped to the whole territory of Argentina and pays no duties. Likewise, goods produced under the “production process” [“proceso productivo”] in Tierra del Fuego special duty free zone can enter the whole Brazilian territory without paying any duties. This exception to the definition regarding duty free zones of Mercosur as non-Mercosur territory is based, to a certain extent, on the fact that both Manaos and Tierra del Fuego special areas were created having geo- strategic considerations in mind. Uruguay and Paraguay have always objected to this longstanding bilateral privilege. Nevertheless, in recent years two similar protocols were signed involving, on the one hand, Colonia (Uruguay) and Tierra del Fuego (Argentina) and on the other hand, Colonia (Uruguay) and Manaos (Brazil), granting “originary” status to a limited list of goods, which means paying no duties when shipped from the respective duty free zone to the national territory of the other Mercosur country in the respective (bilateral) protocol. We have expanded on this issue, because to complete the definition of “territory” as far as the Common Customs Code is referred, according to the sources we got in contact with while conducting this survey, both Paraguay and Uruguay need to be compensated regarding the “special duty free zone” status granted to Manaos and Tierra del Fuego within Mercosur. The interconnection phase between customs houses has already been completed some time ago. There exists, however, in the opinion of knowledgeable exporters



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and experienced customs top officials, the need for improvement. Updating the electronic data processing systems of today to a level compatible with EU processing systems is imperative, say top officials at customs. This, they feel, is an area for cooperation between the EU and Mercosur, if one is to lessen the negative impact on Mercosur exporters.

M E R C O S U R

7. A comparative approach regarding the General Issues of Trade Facilitation

Following the General Issues defined at the beginning of this Case Study we approached the Chamber of Exporters in Argentina, the Exporters Union in Uruguay and an extremely experienced consultant in Brazil . All these people answering the questionnaire we developed we have known for many years though the annual meetings of MERCOEX, the Mercosur (Private) Foreign Trade Council. In order that the opinions expressed here are absolutely devoid of our intervention, there are no comments of our own, just a few notes to direct readers to other sections when a subject is also discussed elsewhere. And thus the final comparative chart reflect their answers to which nothing has been added. Paraguay, we have presented under a different format, and that is why we have decided not to include Paraguay within the comparative diagram at the end of this section.



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7.1. Questionnaire on General Issues

ARGENTINA

• 1. Customs: How would you rate the efficiency of the clearance process by customs and other border agencies?

Excellent Good Fairly bad X Bad • 2. How would you rate the preparation and movement of the documentation

required to export? Excellent Good Fairly bad X Bad It depends on which sector one is referring to. But, as a general rule, regulations are far too many. To give an example, take agro business: regulations are such that they often almost prevent operations from being carried out (ONCCA – National Agency for Agricultural Commercial Control is an example of excessive control). • 3. How would you rate the transparency and professionalism of customs and

regulatory environments? Excellent Good Fairly bad X Bad Transparency and professionalism do not usually go hand in hand; as a general rule each one is looking after his own benefit. • 4. How would you rate logistics of moving goods through ports? Excellent Good X Fairly bad Bad • 5. How would you rate the competence of the logistics industry regarding exports? Excellent Good X



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Fairly bad Bad Logistics associated with putting the goods in the right condition, in order to be exported. At the terminal level the service is good; significant investment has occurred, but there is a cartel, one cannot chose; there is actually no competition. A round the clock service (24 hours a day, 365 days per year), as in all big ports around the world, is under discussion. . • 6. How would you rate your logistic costs compared with those of your competitors

in other Mercosur Countries? Much higher Higher X Equivalent Lower We ought to mention here that Paraguay has a high cost regarding transportation by barge by river owing to their land-locked condition [this is also discussed further on from the point of view of Paraguay]. • 7. How would you rate the ease and affordability of arranging international

shipments from your Mercosur Country to the EU? Excellent Good X Fairly bad Bad There exists freight availability. • 8. How would you rate the ability to track and trace international shipments to the

EU? Excellent Good X Fairly bad Bad Most terminals have the necessary equipment to carry out the necessary tracking. • 9. How would you rate the timeliness of shipments in reaching destination? Excellent Good X Fairly bad X Bad



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We rate this issue between Good and Fairly bad. Timeliness, following local standards, is rather good. Brazil has a lot of weight when it comes to freight negotiations because of their cargo volume. It often happens that ships leave part of the cargo already negotiated in Argentina, because they give priority to Brazilian cargo. • 10. Does your country –a Member of Mercosur- have transport infrastructure? How

would you rate de quality of said infrastructure? Excellent Good X Fairly bad Bad Transportation by lorry has had a sturdy development, owing to the fact that the railway system has been almost completely dismantled. • 11. Does your country –a Member of Mercosur- have information technology

infrastructure? How would you rate de quality of said infrastructure? Excellent Good X Fairly bad Bad • 12. Please point out which are the main barriers to trade in order to export from

Mercosur. There exist non-tariff barriers among which we may mention: those that are of an environmental nature, those linked to the sort of production process, regulations regarding sorts of registration, authorisation regarding production site and/or warehousing. Apart from the abovementioned restrictions: having first to supply the local (Argentine) market or to have stock that guarantees the supply of a certain portion of local market in order to be granted the authorisation to export. Furthermore, in Argentina there are no foreign trade medium and long range policies. • 13. Please point out which are the principal technical barriers to trade in order that

your products are imported into the EU? Environmental regulations related to pallets, bottling and wooden frames. The Nº 15 International Rule for Phyto Sanitary Measures (NIMF 15), is a rule approved by the International Committee for Phyto Sanitary Protection of the Food and Agriculture Organization (FAO) through which all wooden material used for packaging in international trade must be treated in order to prevent the dissemination of plagues that may damage forest species. Productive processes



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Certification in order to ensure no underage labour is employed in producing goods or raw materials. REACH [specialised opinion has been expressed before on this issue] Security regarding electricity. • 14. What can you tell us regarding the harmonization of standards as far as the

relevance they have on your exports to the EU is concerned? Standards are a reality. International markets determine marketing conditions in this respect. Once local producers were able to attain said standards it has been rather constructive for them, as well as for local consumers. We have a positive view regarding fair standards.



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7.2 Questionnaire on General Issues

BRAZIL



required to export? Excellent X Good Fairly bad Bad Through SISCOMEX – Electronic on-line system. In 2009 it is expected that this system will be extended to services (SISCOSERV). • 3. How would you rate the transparency and professionalism of customs and

regulatory environments? Excellent Good Fairly bad X Bad • 4. How would you rate logistics of moving goods through ports? Excellent Good Fairly bad Bad X There is enormous inefficiency in Brazilian ports. • 5. How would you rate the competence of the logistics industry regarding exports? Excellent Good Fairly bad X Bad



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• 6. How would you rate your logistic costs compared with those of your competitors in other Mercosur Countries?

Much higher Higher X Equivalent Lower • 7. How would you rate the ease and affordability of arranging international

shipments from your Mercosur Country to the EU? Excellent Good Fairly bad X Bad • 8. How would you rate the ability to track and trace international shipments to the

EU? Excellent Good Fairly bad X Bad • 9. How would you rate the timeliness of shipments in reaching destination? Excellent Good X Fairly bad Bad • 10. Does your country –a Member of Mercosur- have transport infrastructure?

How would you rate de quality of said infrastructure? Excellent Good Fairly bad Bad X Especially regarding transportation by road because Brazilian highways are in very poor shape, expect for two or three sections. • 11. Does your country –a Member of Mercosur- have information technology

infrastructure? How would you rate de quality of said infrastructure? Excellent Good X Fairly bad Bad



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• 12. Please point out which are the main barriers to trade in order to export from Mercosur.

Deficient port logistics Excess bureaucracy and the need for pre-authorisations Inefficient financing for exporting SMES High interest rates Over valuated rate of exchange. • 13. Please point out which are the principal technical barriers to trade in order that

your products are imported into the EU? High duties on agricultural goods Subsidies regarding local (EU) agriculture Extremely demanding sanitary and phyto sanitary regulations REACH [this has been discussed before elsewhere] Excess regulations on industrial goods. • 14. What can you tell us regarding the harmonization of standards as far as the

relevance they have on your exports to the EU is concerned? These are aspects of exports to the EU that are becoming progressively demanding, especially for developing countries, which will involve a great deal of difficulties in order to comply with them, and also a negative impact on exporting costs. The most obvious example is the technical barrier to trade to be established by REACH as from January 1st, 2009. We may also observe a considerable increase in terms of goods that may have a negative impact on the environment and the health of the EU population.



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7.3. Questionnaire on General Issues

URUGUAY



required to export? Excellent Good Fairly bad X Bad • 3. How would you rate the transparency and professionalism of customs and

regulatory environments? Excellent Good Fairly bad X Bad • 4. How would you rate logistics of moving goods through ports? Excellent Good X Fairly bad Bad • 5. How would you rate the competence of the logistics industry regarding exports? Excellent Good X Fairly bad Bad • 6. How would you rate your logistic costs compared with those of your competitors

in other Mercosur Countries? Much higher Higher



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Equivalent Lower X • 7. How would you rate the ease and affordability of arranging international

shipments from your Mercosur Country to the EU? Excellent Good Fairly bad X Bad • 8. How would you rate the ability to track and trace international shipments to the

EU? Excellent Good X Fairly bad Bad • 9. How would you rate the timeliness of shipments in reaching destination? Excellent X Good Fairly bad Bad • 10. Does your country –a Member of Mercosur- have transport infrastructure?

How would you rate de quality of said infrastructure? Excellent X Good Fairly bad Bad • 11. Does your country –a Member of Mercosur- have information technology

infrastructure? How would you rate de quality of said infrastructure? Excellent X Good Fairly bad Bad • 12. Please point out which are the main barriers to trade in order to export from

Mercosur. No answer here. • 13. Please point out which are the principal technical barriers to trade in order that

your products are imported into the EU?



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REACH Sanitary regulations Subsidies applied by the EU with regard to their agriculture. • 14. What can you tell us regarding the harmonization of standards as far as the

relevance they have on your exports to the EU is concerned? No answer here. This questionnaire was answered by Ms. Teresa Aishemberg, Executive Secretary of the Exporters Union in Uruguay.

Mercosur

7.4. Comparative chart on General Trade Facilitation Issues

Source: each of the country by country questionnaires we put to Argentina, Brazil and Uruguay as a key element of this survey.

[See next page for actual chart]



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PARAGUAY

7.5. Regarding Transport and Logistics

With regard to Paraguay, we had recourse to a document prepared for USAID by CARANA Corporation, in collaboration with CNCSP, the Paraguayan National Chamber of Commerce and Services, in June 2006. The document we refer to is named “Impact of Transport and Logistics in Paraguay’s International Trade”. It is well known that Paraguay has to deal both with their land-locked geographical situation as well as with their relatively smaller economic development vis-à-vis Mercosur, regarding their exports to the EU. Owing to their land-locked geographical position, and when viewing exports from Paraguay to the EU, there exists the necessity to accesses the Atlantic Ocean through the Paraguay and Paraná rivers, and through the latter the Rio de la Plata, the estuary where the ports of Buenos Aires, La Plata (Province of Buenos Aires) and Montevideo are sited. The above mentioned report refers to the factors which have a bearing and impact fluvial transportation . The following issues have been recorded:

� River dredging (improper or inefficient dredging causing delay in accessing main ports);

� Delays at border;

� Delays in pre-embarkation (owing to delays in transportation by lorry and the need for

phyto-sanitary certificates at this stage);

� Over-costs owing to the SENASA regulations (SENASA is the Argentine Sanitary Official Agency dealing with foodstuffs).

There are other over-costs that have a negative impact in Paraguayan exports, which are of an internal nature and very specific of Paraguay, according to the same document:

� Bounding deposit [depósito franco] rate (no service is actually rendered);

� Sundry expenses (usually included in customs agent’s invoices that, because they are not specified, tend to become over-costs);

� Tips (generated owing to payment for the activation of services rendered by public

entities);

� Origin certificates (cost originated by double visa and also due to issuing of certificates even in cases when not requested by the government of the country of destination);



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� Customs transhipment rate (over-cost owing to the fact there is no service associated to said rate).

It appears that within Mercosur, Paraguay –today a growing exporter of foodstuffs- is in a weaker position in order to export to the EU, at least from the logistics stand point, when compared with their three other Mercosur neighbours. 8. REGARDING MERCOSUR AS A WHOLE 8. 1. Buoying and dredging is also a common concern of Argentine and Uruguayan exporters Buoying, that is the system of beacons for night-time river navigation, is something other of our interviewees in Argentina and Uruguay have also referred to, together with the existence of insufficient dredging. The over-costs resulting from poor buoying and insufficient dredging have an impact as far as hold utilisation is concerned, owing to the unnecessary increase in freight it occasions. It also prevents the use of ships of greater draft, which would in turn mean better freight costs. To this one ought to add the impact on inventory costs –always referring to Mercosur fluvial transportation- owing to the fact that more days of navigation are required, because of poor or even in some cases non existent buoying, an obvious restriction to night-time navigation. 8.2. Obstacles to transportation in Argentina, Brazil and Uruguay Ricardo Sanchez from ECLAC gives us a list of serious concerns regarding transportation by lorry among Mercosur countries, focused on Argentina, Brazil and Uruguay. It appears the concerns in Paraguay are rather similar. And although Ricardo Sanchez completed his study in 2002, we can say after our own survey in relation with this Case Study, that these issues still constitute obstacles to transportation by lorry within Mercosur today in 2008. And they represent constraints that have a negative impact in exports from Mercosur countries to the EU. The obstacles defined are the following:

� Accumulation of extra time owing to a series of operations at [Mercosur internal] borders (attributed to official bureaucracy); loading and unloading at origin (attributed to the private sector); loading and unloading at destination (when destination is not the final destination within the EU but a Mercosur location), the latter also attributed to the private sector;

� Amount of transhipment at (internal) border. Return of empty Lorries;

� Bureaucratic internal (among Mercosur countries) authorisations issued to transport operators. Delays regarding the issuing of said authorisations;



28

elsewhere. Who is going to invest the millions of dollars required to relieve the congestion of lorries in Buenos Aires, once the Port of La Plata (Province of Buenos Aires) is one hundred percent operational? Or when the planned works of expansion are carried out in Montevideo? This is the question both specialists and operators are asking themselves these days. Regarding the access to the Port of Buenos Aires, Avenue Eduardo Madero, with only two lanes for each traffic direction, is the only way for lorries to cross the city from north to south and vice versa. And it is not an exclusive road for lorries. The pressure exerted by the unions is ferocious, and there are five unions. In a single day of strike –this means no reception nor container delivery, no ship loading nor unloading- terminals are prevented from receiving between 600 and 1,700 lorries at their gates, this according to the average cargo operated. It also means a queue of ships in the access channels. Freight has to absorb both the “dead” day plus the delays on the following day when movement is doubled. The renting of one of these ships, per day, may range between 40,000 and 70,000 US dollars. With this series of infrastructure problems and union pressure on top, the credibility and future of the Port of Buenos Aires are in jeopardy. The pre-agreement granted to Tecplata –in the Port of La Plata- for the construction of a terminal with a capacity for one million TEU (Twenty-feet Equivalent Unit for containers) and the announcements regarding expansion made in Montevideo, makes the Buenos Aires Port situation even more critical. Uruguay has clearly demonstrated, within Mercosur, that they are more efficient, cheaper and have better navigation access than Buenos Aires. Regarding La Plata, eight hours of navigation are saved with regard to Buenos Aires, and this means savings in fuel, harbour pilot and tug costs. Those terminals that did invest in the Port of Buenos Aires and know that their operation term expires between 2012 and 2019 are worried indeed. Genuine investment regarding piers, roadbeds for Postpanamax cranes and ships over 300 metres long is required, and there is no true official counterpart with whom to discuss these issues. One cannot know what to expect regarding the policy involving the Port of Buenos Aires, which is a key prerequisite in order to be able to analyse this sort of investment. To become a feeder kind of port, owing to the fact that the bigger ships no longer come to Buenos Aires, means an increase of freights in the long run. Today Buenos Aires is between 30 and 40 percent more expensive than Montevideo. In order to regain its position as far as the ship owner’s cost equation is concerned, the logistics variables that require to be improved are, among other issues:

a) the waterway (Hidrovía del Mercosur: this is the whole project involving the improvement of navigation conditions along the 3,302 Kilometres of the Paraná and Paraguay rivers between Cáceres, in the Mato Grosso, in Brazil and Nueva Palmira, in Colonia, Uruguay).

b) [time of] stay in port c) tugging d) harbour pilots

This again is the prevailing opinion among Mercosur logistic specialists and operators. Montevideo has proved it can be both efficient and quite cheaper. Those ship owners that have recorded this fact, have decided to keep on operating in Montevideo rather than in Buenos Aires. Furthermore, they monopolise the ships that navigate under foreign flag which, according to Argentine coasting trade law, are not allowed to tranship between Argentine ports.



29

These Mercosur logistics experts and operators tend to conclude by saying that unless the Port of Buenos Aires is not subjected to great improvements very soon, the mother ships will operate in either La Plata or Montevideo. However, there shall be no lack of holds after the ship building world fever, added to the financial crisis that is bound to turn into an economic crisis. The smaller ships shall seek cargo in both Buenos Aires and Zárate, the later port situated some 90 Kilometres north of Buenos Aires up the Paraná River. 10.1. Regarding costs Regarding Mercosur in general, an expert in these matters, Raúl Ochoa, said at a recent talk in Buenos Aires, that “… inefficient ports have an impact such that it means an objective target market can be as far 40 percent further [compared to the possibilities of an exporter operating from an efficient port by world standards].” “Each day in with goods are delayed at an internal border pass may have an impact of 0.8 percent that needs to be added to the [still existing] ad valorem tariff. These delays are an onerous weight specially for exporting SMES of perishable goods, so typical of developing countries. “Similarly, added Ochoa, all new additional documentation required at a border point implies an additional cost impact of up to 4.5 percent of the exportation’s total value.” All these incremental costs have a negative impact in that they result in a decrease of the commercial flow. News from Brazil

At the time of our submitting this final draft there is news from Brazil regarding ports. Dated September 29, 2008, we transcribe the news verbatim (our free translation from Portuguese, however): “Private [Brazilian] sector shall be able to operate organised ports. “The Special Ministry for Ports, Pedro Brito, just revealed this afternoon (on the 25th) that President Lula will be signing in the next few days a decree that will allow the private sector to operate new organised [safe] ports [safe] ports, through bids. Brito said that the pier companies that were withdrawn from the National Privatisation Program shall remain at the head of public ports. “The decree will focus new undertakings. “We need a regulatory framework that ends with the doubts entrepreneurs have. The question of own freight is no longer relevant, said the minister at the National Commerce Confederation in Rio de Janeiro, before attending a meeting of the Ports Committee. According to what was announced by Brito, the undertakings with own freight shall remain as they are, and will be able to move third party’s cargo. “The novelty is that the new undertakings under the form public ports -without own freight- shall have to have an infrastructure such as to put them in a competitive position vis-à-vis the other ports, employing labour from OGMO (the Labour Managing Organism).



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“This tool aims at providing a solution to those private terminals located within the area of organised [safe] ports, which feared the strong competition from those undertakings with freedom to engage their own labour without the onus of paying for the operation concession.” Mauricio López Dardaine Maximiliano López Dardaine Estudio López Dardaine Buenos Aires

Trade Facilitation Consulting Limited · Registered in Cardiff No. 6144692 · Registered office: 35 Coombe Road, Kingston Upon Thames, Surrey KT2 7BA, United Kingdom · Web: www.tradefacilitation.co.uk

ANNEX 2. THE ANIMAL PRODUCTS SUB-SECTOR IN THE EU

EU-Mercosur Trade Facilitation Study

A case study focusing on trade procedures as applicable to the EU import of beef and poultry products (products of

animal origin)

By

Dr Andrew Grainger

October 2008

Trade Facilitation Consulting Ltd www.tradefacilitation.co.uk

SIA of Mercosur Negotiations – Trade Facilitation Final Report page A 32

Executive Summary Trade facilitation, phrased in the most simplest of terms, is about improving the environment within which trade takes place. Trade facilitation often concerns itself with the simplification, harmonisation, standardisation, and modernisation of trade procedures. Most practitioners will subscribe to the 18 concepts (see Annex 1) that attempt to improve the regulatory interface between business and government in international trade operations. This case study has been commissioned to highlight trade facilitation related issues that can be made relevant in an EU-Mercosur trade facilitation agreement. The cross-border environment is a complex institutional arrangement with many different actors and stakeholders. The subsequent list of applicable procedures and controls can be long. This case study sets out all the regulatory compliance operations specific to the import of beef and poultry (products of animal origin) into the European Union. The case study draws out a map of compliance operations and identifies 10 areas that apply to imports into the EU. These include: business authorisation in the EU, the health certificates, the import licensing arrangement in the EU, the certificate of origin, other documents issued in Mercosur necessary to affect import into the EU, EU advance notification, export declaration in Mercosur, EU customs clearance, and other EU declaration and control regimes. A number of key issues and concerns have been identified by mapping out compliance operations. These give rise to a long list of recommendations that can be made applicable to an EU-Mercosur trade facilitation agreement and deserve active consideration. Key issues include a genuine commitment to applying trade facilitation concepts (Annex 1), ongoing dialogue with stakeholders to monitor improvements and consider additional scope for trade facilitation on an ongoing basis, as well as a wide range of more specific recommendations that can be derived from the analysis of current regulatory compliance operations. Disclaimer Although this document provides details on EU laws and procedures, it should not be construed as legal advice whatsoever. This document serves illustrative purposes only. The author will not accept liability for any decisions taken on the basis of this document. Rules and procedures are prone to change. Any tariff specific examples are based on the EU’s TARIC as it stood on 20th August 2008.


Index Executive Summary Disclaimer Acronyms and Abbreviations 1. Overview 2. Background and Stakeholders 2.1. A short introduction to Trade facilitation 2.2. International supply chain operations 2.3. EU stakeholder groups 3. Overview of regulatory compliance operations in the trade of POAO (e.g. Poultry and Beef) 3.1. Business Authorisations 3.2. Health Certificates 3.3. Import Licences 3.4. Certificate of Origin 3.5. Export Declaration 3.6. Other Documents that need to be prepared prior to export 3.7. Advance Notification 3.8. Veterinary Controls 3.9. Other Import Documents 3.10. The customs declaration 4. Issues and scope for trade facilitation 5. Recommendations References Annex 1


Acronyms and Abbreviations BIP Border Inspection Post [for products of animal origin] CAP Common Agricultural Policy [of the EU] CoI Certificate of Inspection CVED Common Veterinary Entry Document DG SANCO [The EU Commissions’] Directorate General for Health and

Consumer Affairs DG TAXUD [The EU Commission’s] Directorate General for Tax and Customs EU European Union EUR Euro [€] EUROPRO An umbrella body for European trade facilitation committees FAO Food and Agriculture Organization of the United Nations GATT General Agreement on Tariffs and Trade IATA The Air Transport Association IMO The International Maritime Organisation IT Information Technology OECD Organization for Economic Co-operation and Development POAO Products of Animal Origin (e.g. poultry and beef) SITPRO The UK Trade Facilitation Agency TURN Trade Unique Reference Number UK United Kingdom UN United Nations UN/CEFACT The United Nations Centre for Trade Facilitation and Electronic

Business VAT Value Added Tax WCO World Customs Organisation WTO World Trade Organisation


Overview The purpose of this case study is to highlight trade facilitation related issues that can be made relevant in an EU-Mercosur trade facilitation agreement. As such, the case study should offer an informed document that can be used to:

1) Support the EU in preparing its negotiation position; 2) Help set the agenda and scope for trade facilitation in EU-Mercosur trade

negotiations; and 3) Support the dialogue between policy-makers and civil society in the EU and

Mercosur. The trade in beef and poultry – Products of Animal Origin (POAO) have been identified as a particularly illustrative case for trade facilitation. This study has been prepared by Dr Andrew Grainger, a freelance consultant with recognised international expertise in the field of trade facilitation. He has prepared a number of related reports, studies, and papers for a wide range of organisations including the World Bank, European Parliament, and SITPRO (the UK trade facilitation agency). Where relevant, reference is made to relevant documents. In addition to Dr Grainger’s previous work, this case study also draws on a series of informal interviews with relevant European trade associations and traders. However, the author acknowledges that this study is no substitute for a more comprehensive consultation exercise which would help further substantiate the identified issues as well as flesh out underlying technical issues and recommendations. The document is structured in three parts. The first part gives a short background to trade facilitation as well as details on relevant stakeholder groups. The second part maps out trade procedures as applicable to importing POAO (e.g. beef and poultry) into the EU. The third part summarises identified issues as well as offers a range of recommendations for initial consideration in EU-Mercosur trade facilitation negotiations. Background and Stakeholders A short introduction to Trade facilitation Trade facilitation, phrased in the most simplest of terms, is about improving the environment within which trade takes place. While there is no single official definition, primary focus tends to be the regulatory interface between business and government in cross-border trade operations (Grainger 2007c). For instance, the WTO, in a web-based training package, defined trade facilitation as: “The simplification and harmonisation of international trade procedures” where trade procedures are the “activities, practices and formalities involved in collecting, presenting, communicating and processing data required for the movement of goods in international trade” (WTO 1998). Some, like the World Bank, expand the field by including the desire to improve the quality of transport infrastructure and logistics performance (World Bank 2007). Others, such as the UN’s Centre for Trade Facilitation and Electronic Business (UN/CEFACT), also concern themselves with the commercial procedures for ensuring payment (OECD 2001).


Trade facilitation as an agenda item has recently come to prominence within the efforts of the WTO. It was first raised at the 1996 WTO ministerial meeting in Singapore. It has since gained much momentum and is now widely seen as a relatively uncontentious issue with the support from most of the developed and developing world (Grainger 2007c). Discussion is often closely tied to wider capacity building programmes and generous aid-for-trade funding (e.g. OECD and WTO 2007). Trade facilitation has also come to prominence within the area of supply chain security, where it is generally seen as a means to soften the additional regulatory burden associated with the avalanche of new security and safety focused regimes (e.g. Grainger 2007a; WCO 2007; Grainger 2008b). The economic prize derived from trade facilitation is usually held to be very high. For example, the OECD calculates that each 1% saving in trade-related transaction costs yields a worldwide benefit of US$43 billion (OECD 2003). A number of organisations are currently busy drafting and making suitable recommendations (e.g. UN/CEFACT and UNCTAD 2002). Today, about 18 concepts that define the content of trade facilitation debate can be observed (Figure 1). A detailed discussion for each of the 18 concepts can be found in a report produced by Andrew Grainger for the European Parliament (Grainger 2008b) and is summarised in Annex 1. Key issues considered within the narrower WTO negotiations are tied to GATT Articles V (freedom of transit), VIII (fees and formalities), and X (publication and administration of trade regulations) and extend to: provisions for advanced rulings and appeal procedures; discipline on fees and charges; specifications for publishing rules and procedures; the single window concept; use of risk management techniques and post clearance controls; and use of simplified procedures for suitably authorised persons (WTO 2008). Figure 1. Trade Facilitation Concepts: a practitioner's observation

Better regulation: 1. Simple rules and procedures 2. Avoidance of duplication 3. Memoranda of Understanding

(MoUs) 4. Alignment of procedures and

adherence to international conventions

5. Trade consultation 6. Transparent and operable rules

and procedures 7. Accommodation of business

practices 8. Operational flexibility 9. Customer-service provisions for

government administrations

10. Mechanisms for corrections and appeals

11. Fair and consistent enforcement 12. Proportionality of legislation and

control to risk 13. Time-release measures 14. Risk management and trader

authorisations

Information and communication technology: 15. Standardisation of documents and

electronic data requirements 16. Automation 17. Single Window 18. International electronic exchange

of trade data

(Grainger 2008b) International supply chain operations International trade operations tend to vary from one contractual arrangement to the next (Figure 2). Contracting buyers and sellers in two different countries are seldom able to oversee or perform all the necessary steps required to trade and move goods in-house. Traders usually depend on a wide range of intermediaries. Types of intermediaries employed to support trade movements include: shipping- and airlines,


Considering the many parties involved in a trade transaction, it is unlikely that any one individual will have full knowledge of all operational details. For example, an exporting trader may know what goods he has consigned to his overseas customers. However, it will be his logistics partner who knows which containers have been used and how much the shipping line is charging for transport. The shipping line knows which vessel the container has been shipped on and when the container is expected to arrive. The overseas agent knows the specific requirements for clearing the goods at the point of import. The overseas customer knows what he has paid for the goods and on which day he took delivery. There are many operational steps within the movement of goods (Figure 3). These range from production, packaging, storage, warehousing, stevedoring, shipping, exporting and importing, port clearance, distribution, recycling, and after sales services (e.g. warranties, guarantees, and maintenance services). The applicable trade and customs procedures are just as numerous. Regulatory-defined procedures apply to the goods, the vehicles moving the goods, and the people or companies responsible for making the trade happen. Regulatory categories include Revenue Collection, Safety and Security, Environment and Health, Consumer Protection, and Trade Policy (Grainger 2007c) (Figure 4). Responsibility for compliance can fall to anyone of the parties involved in the trade transaction right across the supply chain, depending on the specific contractual and operational arrangements. Each regulatory regime has a transaction cost which trade facilitation concepts and ideas seeks to remedy. There are many regulatory issues that traders need to consider and in most EU and Mercosur countries 60 and more trade and customs procedures can be easily counted (e.g. Grainger 2007a). Adding to the complexity, many of the listed procedures break down into multiple facets which might include requirements to make an application or request an authorisation, lodge advance notifications, make summary declarations, and subsequent full declarations (Figure 5) (Grainger 2008a). Each of the 60 plus procedures and subsequent compliance steps provides an opportunity for trade facilitation (see Annex 1). Procedures relevant to POAO are often held to be particularly complex and frustrating (e.g. Lacors 2003; SITPRO 2008).


Declaration Components Examples Applications Applications tend to be a requirement where traders seek special

treatment such as preferential duty rates or wish to draw on quantitative quotas.

Authorisations These are often required in order for operators to take advantage of simplified customs procedure or handle goods while under customs control. For example most ports handling goods for international trade will have a customs authorisation allowing them to do so. Authorisation may also be required for handling goods that are normally prohibited or restricted.

Advance notifications and pre-notifications

These enable authorities to make arrangements prior to goods arriving – for example to intercept goods prior to arrival or to ensure that sufficient staff is on standby when goods arrive at the border.

Summary or partial declarations and supplementary declarations

Summary or partial declarations are often used in simplified procedures where goods are under customs control but free to enter the country on the understanding that a supplement declaration with all missing details will be provided at a later point.

Full declaration Gives all the information necessary to discharge the conditions laid upon the import or export of goods.

(Grainger 2008a)

EU stakeholder groups There are many stakeholders with an interest in the form and shape of the trade environment. Stakeholders include both public and private sector organisations. On the public side this includes traders, the intermediaries employed by traders to conduct operations, as well as the providers of facilities and infrastructure. SITPRO and Grainger (2008) have produced a helpful diagram which lists all business stakeholders (Figure 6). Each of these groups tends to have its own trade associations as can be observed in the European Commission’s DG TAXUD and WCO’s consultation groups (Figure 7). Additional private sector interest groups can be identified for specific types of goods. Many of those with a specific interest in POAO can be identified in the responses to public consultations made by the European Commission’s DG SANCO. They include producers, food importers, retailers, farmers, distributors, environmentalists, consumers, scientists, veterinarians, health inspectors, lawyers, trade unions, and many more (e.g. see DG SANCO 2006). On the government side the stakeholder community is equally diverse, depending on the type of controls and procedures. Adding to complexity are the multiple policy and executive levels. For instance, policy for the Organic Certificate of Inspections (CoI) at the European Commission level falls under DG SANCO (Health and Consumers). At member state level policy normally falls upon the ministries for food or agriculture. Executive authority (that is the implementation and enforcement of controls at the border) in most member states lies with customs, though in some member states it falls under the remit of local health authorities. Occasionally there is also executive overlap in the enforcement of procedures. For example, depending on the member state concerned, import licences conferring quotas for certain types of agriculture products might be issued by the executive


branches in ministries of agriculture, trade, finance, or by customs (see. 0). Similarly, responsibility for processing veterinary declarations (CVED) and inspection of legitimate imports (those that have been declared) will normally fall onto the veterinary or health authorities (see 0). In contrast, as for example in the UK, checks and controls to stop illegal imports (e.g. where smuggled or deliberately misdeclared) fall under the customs umbrella. A comprehensive map for all member state specific arrangements in the governance of trade and customs procedures would be a significant undertaking and is outside the scope for this particular study. However, Figure 8 – based on research published in SITPRO and Grainger (2008) as well as further work by Andrew Grainger (2007a) – shows the UK example, listing relevant government bodies with policy and executive interests. Figure 6. Business Stakeholders in International Trade

Business Stakeholders Traders • Small and Medium Seized Enterprises • Large and Multinational Enterprises • Foreign Firms and Investors • Exporters/Importers: operating within one

industry • Exporters/Importer: operating across

industries • Distributors and Retailers • Buyer’s and Seller’s Agents • Foreign Companies Exporting to the UK

from Developed Countries • Foreign Companies Exporting to the UK

from Less Developed Countries

Transport and related services • Shipping Lines • Ferry Operators • Airlines • Trucking and Haulage Companies • Railway Companies: operating

international routes • Logistics Service Providers • Freight Forwarders • Customs Brokers • Banks and Finance Companies • Insurance Companies

Facilities and infrastructure • Seaports • Ferry-ports • Airports • International Rail-terminals • Inland Container Ports • Port Operators and Stevedores

• Cargo Handlers and Handling Agents • Warehouse Operators • Transitshed Operators • Port Community System Providers • IT Service Providers • IT Systems Developers

(SITPRO and Grainger 2008)


Figure 8. UK Government Stakeholders

UK Government Stakeholders Executive

• HM Revenue and Customs • Port Health Authorities • Department for Business, Enterprise and Regulatory Reform (BERR) • Civil Aviation Authority • Health and Safety Executive • Border and Immigration Agency • HM Treasury • Maritime Coastguard Agency • Medicines and Healthcare products Regulatory Agency • Plant Health Inspectorate • Police • The Traffic Commissioner • Vehicle Operators Agency • US Customs [export controls at UK ports] • US Food and Drug Administration [for the authorisation of food exporters]

Policy • HM Revenue and Customs • Department for Transport • Home Office • Department for Business, Enterprise and Regulatory Reform (BERR) • Department for Environment, Food and Rural Affairs • Food Standards Agency • Health and Safety Executive • HM Treasury • Plant Health Inspectorate • State Veterinary Service

(SITPRO and Grainger 2008)


Overview of regulatory compliance operations in the trade of POAO (e.g. Poultry and Beef) Figure 9 maps out the regulatory steps as they apply to the trade in POAO between Mercosur and the EU. It is important to note that many of the mapped regulatory requirements are also relevant to industries that do not focus exclusively on POAO. For example leather hides (POAO) might be used in the textile industry and the furniture industry. Some types of animal products may also be used in the pharmaceutical industry (for example, eggs are often used as culture media when shipping live vaccines). Regulatory compliance requirements in the trade between Mercosur and the EU include the following: 1) applications for registration and authorisation necessary or beneficial when importing into the EU; 2) health certificates; 3) import licences; 4) origin documents; 5) other controls and regulatory regimes that might be applicable prior to export to enable import into the EU; 6) advance notification to EU authorities; 7) the export declaration; 8) the Certificate of Veterinary Entry Declaration (CVED); 9) Other applicable import declarations and regimes; and 10) the customs declaration. Most of these regulatory requirements have cross-border dependencies, which can significantly add to the overall compliance burden and consequent transaction costs. Business Authorisations Requirements for authorisations vary from business to business and from one EU member state to the next. Usually, the importer is required to register with customs as a trader. For example, in the UK traders need to apply for a customs registration number – the so called Trader Unique Reference Number (TURN). Any customs declaration processed by UK customs is processed against this number. Other EU member states have similar registration requirements. Most businesses in the EU must also register for value added tax (VAT) in each of the countries where they have a presence and conduct business activities. VAT is levied in addition to customs duties. Variances in member states’ VAT rates and how they choose to administer and account for VAT can be quite considerable. Many businesses involved in trade rely on so-called “simplified customs procedures” and “customs procedures with economic impact”. These too, require prior business authorisation which can take several months to arrange and are frequently subject to meeting set economic and financial conditions. A number of trade procedures mandate the appointment (or employment) of suitably qualified individuals. Areas where such specialist qualifications are mandated include dangerous goods declarations (see 0 and 0) as well as in food handling and hygiene. Moreover, some EU member states, particularly in southern Europe, also mandate the use of licensed customs brokers when traders wish to make a customs declaration.


Figure 9. Importing into the EU: Regulatory Compliance Operations in the Trade of Products of Animal Origin between Mercosur and the EU


Health Certificates As a general rule, imports of products of animal origin into the EU require a health certificate. The health certificate (sometimes referred to as a veterinary certificate) must be obtained from the relevant authorities in the country of export prior to loading. The import of product of animal origin into the EU is only permitted from countries where the governing authorities have been approved by the European Commission. Moreover, EU regulations specify that goods must originate from premises that have been specifically authorised by the governing authorities. A full list of approved countries and authorised premises is published on the European Commission’s website69. Country approval is dependent on periodic visits from EU veterinary officials who need to be satisfied that authorities are able to meet EU standards. The four Mercosur countries – Argentina, Brazil, Uruguay, and Paraguay – are EU-approved. To enable the import of products of animal origin into the EU, exporters must send valid health certificates to their importing trade partners in the EU. EU importers require the health certificate as supporting evidence when presenting the Certificate of Veterinary Entry Declaration (CVED) (see 0). Practices for issuing the required health certificates are likely to vary amongst Mercosur member states. Normally, in order to obtain a health certificate the exporter will need to contact the competent authorities in the relevant Mercosur country and arrange a visit with an approved vet. A health certificate, in accordance to EU import requirements, is then issued providing the veterinarian is satisfied with the goods. In most countries, inspections and certification attract a fee which needs to be paid in advance of the certificate being issued. Availability of veterinarians can be a constraint when arranging shipment. Equally difficult can be the fact that EU health requirements, including specifications of document formats and declaration texts, are known to change frequently. Prudent exporters will normally establish and verify the latest applicable rules and requirements (for instance, by contacting their customers and the relevant authorities) prior to making export arrangements. Import Licences Most agricultural goods, including most beef and poultry products, fall under the EU’s common agriculture policy (CAP) and require an import licence. The CAP area is known to be volatile as governing regulations and associated measures frequently change. In many instances, the CAP confers additional duty rates (CAP charges). However, some CAP goods can benefit from a reduction in import duty. For example, at present the import duty rate for fresh and chilled boneless chicken (falling under the commodity code 020713 10 00) is 102.40 EUR per 100 kg. However, if imported with a valid import licence (conferring a non-preferential tariff quota; order number 094068) the import duty rate is 512.00 EUR per 1000 kg. Traders can apply for this import licence on a quarterly basis. The import licence is awarded subsequent to an application and a security deposit (in this example 20 EUR per 100 kg are required). To apply for the import licence, applicants must first register with the relevant member state authorities. A number of conditions (such as proof of establishment and trade) must be met to obtain the licence. For poultry products this also includes evidence that the applicant has imported at least 50 tonnes in each of the last two twelve month periods (533/2007/EC). Many quota conferring import licences also require the importer to present a Certificate of Origin (see 0).

69 http://ec.europa.eu/food/food/biosafety/establishments/third_country/index_en.htm


Although many EU member states have electronic customs systems in place, automatic management of a trader’s specific quota balance is a facility that is not available in all member states. Subsequent manual reconciliation and monitoring of quota balances against import declaration is a process that some trades describe as very cumbersome and time-consuming. Certificate of Origin As outlined earlier, the Certificate of Origin is often required as a supplementary document when applying for an import licence. It is also often relied upon when lodging a customs declaration and claiming preferential duty rates. For example, many countries – especially from developing and emerging economies as well as those which have preferential trade agreements with the EU – benefit from preferential duty rates. To give an illustration, the EU import duty rate for corned beef (classified under 1602 50 31 00) is 16.60%. However, for countries that qualify for preference (for example South Africa or Chile) the preferential duty rate currently lies between 0% and 5.4%.70 Where goods originate from countries that do not have a preferential trade agreement with the EU, the proof of origin will normally require a Certificate of Origin. In most countries the Certificate of Origin is issued, against a fee, by the chamber of commerce. Procedures for issuing Certificates of Origin vary significantly from country to country and chamber to chamber. A standard approach is one where the trader purchases a blank document, fills in the details, pays a processing or stamping fee and presents it to his local chamber for endorsement. However, many chambers also have electronic procedures which can significantly speed up the application and authentication process as well as reduce costs. Specific to Mercosur countries, anecdotal evidence suggests that when applying for the Certificate of Origin some traders in poultry also need to present a certified copy of the EU import licence71. This practice has been described as frustratingly cumbersome. Where countries have preferential trade agreements with the EU (e.g. South Africa and Chile) importers can normally use an EUR1 document as proof of origin. Unlike the Certificate of Origin, responsibility lies with the customs authorities and is normally issued free of charge. In some cases the exporting trader is allowed to produce the EUR1 himself – providing his governing customs authority has authorised him to do so. One type of customs authorisation even allows the trader to make the EUR1 declaration on the commercial invoice (by adding a short statement and reference to the trader’s authorisation number), eliminating the need for a separate document. Export Declaration Most countries require exporters to declare goods to customs prior to export. Formalities and procedures can vary significantly depending on the country concerned, mode of transport used, and the nature of the goods. For example, some countries apply export duties where others do not. Some countries use electronic systems where others depend on paper-based declarations. Some countries might also require additional information, such as for statistical purposes. Some countries also require exporters to hold export permits and employ or contract

70 In this example, none of the four Mercosur countries qualify for preference. 71 This issue was raised in informal interviews with an EU trade association whose members have experience in importing meat products from Brazil.


the services of licensed brokers. Special export procedures might apply where trade is conducted via free zones or export processing zones. A discussion of Mercosur-specific export procedures is outside the scope of this study. However, in some Mercosur countries, interview evidence suggests that for goods where the EU imposes import quotas exporters in Mercosur are also required to apply for an export licence. This adds to the regulatory burden suffered. Other Documents that need to be prepared prior to export In addition to the health certificate, it is likely that the EU importer will also require a range of other regulatory documents. These might be specific to the goods traded, the mode of transport used, or the type of packing and handling arrangements utilised. High quality beef cuts provide a good example for additional documentary requirements. In order to declare goods correctly to EU customs and take advantage of reduced duty rates available to high quality beef, a Certificate of Authenticity72 must be presented. To give an example, the EU import duty for high quality boneless fresh or chilled beef (classified under 0201 30 00 10) is 12.80% + 303.40 EUR per 100 kg. However, each of the four Mercosur countries currently benefit from a non-preferential tariff quota (order number 094002). The reduced duty rate is 20% with the relevant import licence. In order to take advantage of this reduced import duty rate traders also need to present a Certificate of Authenticity – which confirms that the beef really is of high quality – to customs, in addition to the import licence. The certificate must be signed and endorsed by the relevant authorities in the country of export prior to shipment (810/2008/EC). Similar specialist certificates might also be required for other products, especially where goods have quality or end-use73 attributes that are not visible to the plain eye. Phytosanitary measures apply where goods are packaged using wood. The EU has recently adopted the FAO International Standard for Phytosanitary Measures No. 15 (ISPM15) (FAO 2002; 2006/14/EC). Given the prevalence of wood packing in international shipping, such as pallets and crates, phytosanitary considerations have become relevant to the majority of goods movements. Phytosanitary requirements specify that wood packing and dunnage must be appropriately marked by approved manufacturers. Where wood packing or dunnage is sourced from unauthorised suppliers, consignments must be accompanied by phytosanitary certificates. Non-ISPM15 compliant wood packaging without phytosanitary documents will be subject to remedial action by the relevant inspectors on arrival into the EU. Remedial actions normally involve the destruction by burning or re-export at the expense of the importer. Many types of goods, when handled or shipped, have dangerous propensities. For example, they may be explosive, flammable, toxic or corrosive. Goods falling under the Dangerous Goods regulations vary between the transports modes. To give an example, excessive amounts of inert gases which might be used in the packaging of fresh produce can be deemed dangerous on an aircraft. Similarly, flour or grain shipped in large quantities by sea might become prone to dust explosions. To ensure the safety of operators most countries subscribe to transport mode specific international dangerous goods conventions. These include the International Maritime Dangerous Goods (IMDG) Code (IMO 2006), the IATA Dangerous Goods Regulation (IATA 2009) and the European Agreement concerning the International Carriage of Dangerous Goods by Road (ADR) (UN 2007). To ensure compliance with the 72 Sometimes also referred to as the Hilton Certificate. 73 Fore example, goods for use in aircraft often benefit from a 0% customs duty rate.


regulations traders must present a Dangerous Goods declaration before handing dangerous goods over to the relevant operators contracted to move them (e.g. hauliers, airlines, or shipping companies). Normally the declaration must be made by someone who has obtained the necessary professional qualifications. The purpose of the Dangerous Goods declaration is to advise individuals involved in transporting and handling the goods or those who might become involved in the event of an accident (such as members of the emergency services). Goods covered by Dangerous Goods regulation must also be packaged and labelled in accordance to the detailed provisions set out in the relevant regulations. In addition to the regulatory-motivated documents outlined so far, there are many commercial documents that are used in any trade transaction. Many of these must also be prepared prior to shipment. A detailed discussion is outside the scope of this study as there are many types of documents and their use will depend on the specific commercial arrangements between the buyer and seller as well as the intermediaries that they might have engaged. Examples of commercial documents include the commercial invoice, proforma invoice, packaging list, letters of credit, sales contract, standards shipping note, air waybill, bill of landing, shipping manifest, master air waybill, and packaging list. Advance Notification There are a number of EU procedures which require traders or their intermediaries to submit advance information to the relevant authorities. This includes customs and the health authorities (see 0). The notification to customs is currently made in the form of a “summary declaration”. Practices vary between member states. Usually the submission of commercial documents to customs – such as the shipping manifest by the shipping line or the master air waybill by the airline – will suffice. Some member states might also require formal declarations by the importer. However, EU customs legislation has recently been amended to include new security provisions (648/2005/EC). Under the newly added security amendment to EU customs legislation – which are expected to become mandatory by July 2009 – traders or their intermediaries will be required to provide more detailed information than is currently the norm. Traders will also be required to provide the information in advance of their arrival, the so-called pre-arrival declarations. It is anticipated that a 24-hour deadline for prior declaration will apply to goods brought into the EU customs territory by sea where the voyage duration exceeds that period. In most other cases, prior notification will probably need to be given just 2 hours if electronic, or 4 hours if on paper, before the goods are brought into or out of the EU customs territory (European Commission 2008b). The operational implication is that traders and their intermediaries will be forced to collect and share data prior to export (for example when arranging and booking shipment with the shipping line) to a greater level of detail than currently specified. Veterinary Controls The main principles for veterinary checks are set out in Council Directive 97/78/EC. In most instances, checks on products of animal origin must be conducted at the first point of entry (the border). Even where goods are consigned for an onward destination, checks normally need to take place at the first point of entry into the EU. For example, if a consignment of fresh beef is consigned to a trader in Brussels, but on an aircraft that lands in Paris, health checks (unlike customs controls) must take place in Paris.


Import checks can only be performed within dedicated Border Inspection Posts (BIPs) that have been approved by the Food and Veterinary Office of the European Commission. BIP approvals are regularly reviewed. Currently there are around 300 BIPs; Commission Decision 2007/616/EC contains the latest official list74. Products of animal origin landed at a port not authorised as a BIP will lead to them being treated as illegal and entry is refused. When importing POAO the importer needs to pre-notify and declare the goods to the relevant authorities operating the BIP. Declaration is made through use of CVED. On receipt, inspectors at the BIP will assess the CVED and any supporting documents, such as the health certificate issued in the country of origin. Supporting documents will also include any documents that help inspectors identify the goods. Usually these are copies of the shipping documents, invoices, and packing lists. On receipt, inspectors will conduct documentary checks to assess the documents for completeness and accuracy. This is followed by an identity check, where inspectors verify that the stamps, marks, as well as the labelling and packing match-up with the supporting health certificates and any accompanying documents. Anecdotal evidence suggests that the performance of CVED checks can vary significantly from port to port. At some ports it takes longer for documents to be processed and checked than at others. Perceived variances in the performance of health officials at different locations can amount to several days. Many POAO are also subject to mandatory physical checks. Checking frequency is normally set at defined targets (94/360/EC). For meat (such as beef cuts), meat products (like corned beef), and fish and fishery products the minimum inspection frequency is set at 20%. For poultry meat (such as boneless chicken), honey, and dairy products the minimum inspection frequency is set at 50%. POAO not for human consumption are subjected to a minimum inspection frequency between 1% and 10%. The requirement to conduct checks in line with a pre-set inspection quota contrasts crassly with customs controls where inspection frequencies are usually based on risk-management principles. Inspectors conducting physical checks will often take samples which are then tested at an authorised laboratory for health risks. Targeted health risks often include illegal contaminants such as heavy metals and veterinary drugs residues. Laboratory fees normally need to be paid by the importer. Fees for tests vary from laboratory to laboratory. Goods can only be released from the port once test results have been returned. During this period it is not uncommon for port operators to charge additional demurrage and storage fees75. The time it takes for tests depends on the nature of the test, administrative efficiency, and the overall laboratory capacity. Once the documentary and identity check plus any applicable physical checks have been satisfactorily completed, inspectors will mark and stamp the CVED accordingly and return the document to the importer or his agent. The importer or his agent can then present the CVED to customs as proof that relevant health checks have been completed. Where checks resulted in a negative outcome for the trader, he may re-export unless the goods are deemed a risk to human or animal health. If the latter is the case, good must be destroyed by incineration. The cost for destruction is charged to the importer.

74 The same information is made slightly more accessible, including the relevant contact details, on the Commission’s website; see: http://ec.europa.eu/food/animal/bips/bips_contact_en htm 75 For example, in the UK, the demurrage for a 40-foot container is often said to be around £100 (€125) per day


Other Import Documents A range of additional import document requirements and procedures can apply to certain types of goods or operational practices. For example, traders bringing in goods subject to phytosanitary requirements (such as unapproved wood packaging and most products of the soil) will have to present phytosanitary certificates. As outlined earlier (see 0 above), the certificate is normally issued in the country of export. However, the certificates will be checked and verified upon presentation to the relevant EU authorities. Phytosanitary checks, similar to those for POAO, include documentary, identity, and physical (sampling) elements. Products marked as “organic” also have additional documentary requirements (1788/2001/EC). The importer must hold a special import authorisation76 in order to import organic food into the EU from a third country. Prior to the arrival of the goods the importer or his agent needs to notify the competent member state authorities. This is followed by the submission of a Certificate of Inspection (CoI). The CoI is issued by the body certifying the goods as organic in the country of export and lists details relating to: the issuing authority and organic inspection body; the producer; the exporter and importer; the country of dispatch, quantity, marks, and numbers; and the tariff classification. Upon submission the competent authority in the EU will check the document and, providing all is OK, stamp it. In most EU member states the competent authority is the customs service and stamping is free of charge. However, in some member states stamping is performed by other government bodies. For instance, in the UK it is the local health authority, which charges a stamping fee as well as an out-of-hours surcharge if operating outside of normal office hours. For completeness, it needs to be noted that procedures for importing organic products are currently being amended to reduced reliance on the CoI. Traders claiming tariff preference will have to present documents proving the country of origin (usually the certificate of origin or EUR1). Earlier, this paper also made reference to goods specific documents such as the Certificate of Authenticity. Where there is a modal switch, for example from ship to truck, additional dangerous goods declarations might be required. The potential list of applicable trade and customs procedures can be long, depending on the goods moved. However, the major concern for most POAO is the CVED, the customs declaration, and any supporting documents necessary to enable customs and veterinary clearance. Many products for human consumption, such as poultry and beef products, are also subject to EU food safety and hygiene regulations. Legislation in each of the member states is governed by Regulation (882/2004/EC). Unlike the POAO or customs regimes, the EU does not require member states to conduct inspections at the point of import. However, if food and hygiene inspectors become aware of a food safety or hygiene threat – for example when inspecting warehouses or supermarkets – they will share intelligence with customs and health inspectors so that action can be taken at the ports. Most member states employ dedicated teams within customs to counter illegal food importers. One area of difficulty in non-customs documents is that key information requirements are not standardised. For example, key definitions such as “consignment” and “shipment” in EU veterinary and plant health legislation do not match general commercial and customs’ practices (e.g. see Lacors 2003, p.5). Variances may also be found where documents seek to

76 The requirement to register does not apply if importing from “equivalent countries” where organic standards are deemed to be equivalent to those in the EU. Currently the list of equivalent countries includes Argentina, but none of the other Mercosur countries.


identify the responsible parties. Terminology might include: owner, consignor, consignee, contact person, responsible person, or shipper. In addition to the regimes and controls outlined so far, there are also many commercially driven procedures that apply at the importer’s end of operations. The analysis of these is outside the scope of this study. However, this typically involves entries into the port community systems, bank and payment procedures, transport contracts, logistics arrangements, and insurance. The customs declaration The customs declaration in the EU normally requires the importer or his agent to use the Single Administrative Document or its electronic equivalent. Often, supporting documentation such as the CVED, Certificate of Origin, and commercial invoice must be submitted with the declaration. Further documentation might include a valuation statement and reference to a Binding Tariff Information77. EU traders can benefit from a wide range of customs procedures. These are summarised in Figure 10. The EU has signed up to the Kyoto Customs Convention (WCO 1999). As such, most of these procedures will be recognisable to traders in countries that have also signed up to the convention. In this context it needs to be noted that although all Mercosur countries are members of the World Customs organisation, none of them have yet ratified the Kyoto Customs Convention. A discussion on the differences between EU and Mercosur customs legislation is outside the scope of this particular study. In addition to the procedures outlined in Figure 10 many traders or their agents also take advantage of so-called “simplified customs procedures”. Typically, simplified customs procedures in the EU allow traders to clear goods at the border with the minimal of customs formalities, providing they are authorised by customs and make subsequent customs declarations – for example when goods arrive at the importer’s premises or at the end of the month. However, use of simplified customs procedures is often prohibited where goods are subject to veterinary and health checks – although practices on restricting scope for simplified procedures where POAO are concerned do vary across the European Union. Many traders and businesses in the EU also take advantage of suspensive arrangements and so-called “customs procedures with economic impact”. These include procedures such as transit, customs warehousing, inward processing relief, processing under customs control, temporary importation, and outward processing (see Figure 10). Where traders operate within or through free zones additional authorisation and registration procedures might apply. Again, variances in the administration of common community customs legislation (primary instrument are 2913/92/EEC; and 2454/93/EEC) exist from member state to member state. Legislation governing customs procedures are harmonised across the EU and traders can normally rely on the same documents and procedures. However, there are variances between ports of entry and member states. Traders will occasionally complain about the “unlevel playing field”. Some even admit to diverting cargo because of actual or perceived differences in the enforcement of procedures. For instance, Andrew Grainger (2007b), in a survey of UK importers found that 19% (N=131) of the survey respondents admitted to diverting cargo to an

77 Binding Tariff Information (BTI) are advance classification rulings which are particularly helpful in ensuring certainty about using the correct tariff classification. They also reduce the risk of classification-related challenges from customs officers at the ports and borders.


alternative port. In the same survey 14% (N=98) of respondents admitted to diverting imports to an EU port outside the UK. Concluding this subheading, it is important to note that the EU is currently overhauling its customs legislation to accommodate greater integration of systems used between the EU member states and to create a paperless trade and customs environment. This initiative is underpinned by an overhaul of governing legislation, the so-called Modernised Customs Code. Described aims by the Commission are to: � “Introduce the electronic lodging of customs declarations and accompanying documents

as the rule; � Provide for the exchange of electronic information between the national customs and

other competent authorities; � Promote the concept of "centralised clearance", under which authorised traders will be

able to declare goods electronically and pay their customs duties at the place where they are established, irrespective of the member state through which the goods will be brought in or out of the EU customs territory or in which they will be consumed.

� Offer bases for the development of the 'Single Window' and 'One-Stop-Shop' concepts, under which economic operators give information on goods to only one contact point ('Single Window' concept), even if the data should reach different administrations/agencies, so that controls on them for various purposes (customs, sanitary,...) are performed at the same time and at the same place ('one-stop-shop' concept).” (European Commission 2008a)

A detailed review of this initiative is outside the scope of this study, though many trade associations have concerns about the degree of progress made and of eroded ambitions (e.g. Grainger 2008b).


Figure 10. Customs regimes available at import and export

Regimes available at import include: • Import into Free Circulation – customs duty and import VAT is paid and goods are

removed from customs control; some goods may be subject to import licences and policy measures

• Customs Warehousing – enables goods to be stored without payment of import duty or VAT until released for free circulation or placed under another customs regime

• Free Zones – enable goods to be stored and processed without payment of import duty or VAT

• Inward Processing Relief (IPR) suspension/drawback – allows conditional relief from duty on imported materials and components for use in manufacture of products for export; under IPR, suspension duty is suspended while under IPR drawback duty is paid and later reclaimed

• Processing under Customs Control – allows specific dutiable components and materials to be imported without payment of duty, processed into finished products and released for free circulation at the duty rate of the finished good (this rate may be lower than the rate of the components and materials used in the production process)

• Temporary Importation – gives relief from duty for goods imported for a given period of time (maximum 24 months) and re-exported in the same state

• Returned Goods Relief – allows relief on re-importation of goods previously exported • End Use – reduced/zero duty rates for goods intended for specified end use [e.g.

aircraft, off-shore installations] • Other – goods are re-exported, destroyed or otherwise disposed of without payment of

duty

Regimes available at export are: • Export – goods leaving the EU may be subject to licensing requirements, export duties

and commercial policy measures • Outward Processing Relief – allows relief from duty on EU goods re-imported after

repair or process abroad • Community Transit – an EC customs procedure which controls and facilitates the

movement of certain goods from one part of the EC to another – delaying duty and VAT payment

• ATA Carnet – may be used to simplify customs clearance of temporarily exported goods; the carnet replaces normal customs documents both at export and re-import

• TIR Carnet – subject to certain conditions, these allow goods to travel across national frontiers with the minimum of customs formalities

(Grainger, 2000a)

Issues and scope for trade facilitation Businesses, when involved in trade operations, frequently complain about excessive documentation requirements, lack of automation and use of information technology, lack of transparency in requirements and objectives, inadequate procedures and operating practices, as well as lack of modernisation (e.g. Staples 1998; Grainger 2007c). Most international trade facilitation recommendations, such as those considered within the WTO (see WTO 2008) or recommended by organisations like the WCO, UN/CEFACT and others (see UN/CEFACT and UNCTAD 2002), have been borne out of the frustrations suffered by traders and their intermediaries. As Figure 9 shows, there are many operational steps and scope for frustration in the trade between Mercosur and the European Union. Each compliance step shown in Figure 9 is an opportunity to consider any one of the trade facilitation concepts listed in Annex 1.


When examining compliance operations as detailed in Figure 9, a number of issues that provide scope for trade facilitation are immediately transparent to the practitioner. They include the following: 1. The many steps necessary to register as a trader (e.g. VAT, Customs Registration,

registration with other authorities) can be prohibitive for the small or occasional trader. In fact, some research suggests that fixed cost requirements strongly favour economies of scale, which makes smaller or occasional traders more reliant on the services of intermediaries and agents (Verwaal and Donkers 2003; Grainger 2007b).

2. The overall complexity of procedures and frequent changes in procedures (e.g. in specifications for EU Health Certificates) can result in traders failing to provide a key document or producing the wrong document. Subsequently entry of goods into the EU can be denied or severely delayed. The risk of inadvertently not being compliant was described in informal interviews by some as very high – even for the more experienced trader! Often documents need to be sent back to issuing authorities so that they can be corrected or amended. The complexity of requirements was also described as prohibitive for the smaller or occasional trader.

3. Where EU health or sanitary requirements change (e.g. new test or certification procedures) authorities in exporting countries may not always have the capacity to accommodate them. This can potential disrupt trade until suitable capacity has been developed.

4. The specific complexities associated with applying for import licences and managing associated EU import quotas can be very complex. Inevitably it will require advance planning as well as close managerial attention – which adds to the cost of trade.

5. Advance notification forces traders (importers and exporters) and their intermediaries to exchange information prior to import. Given the physical distance between Mercosur and the EU pre-notification is less of a concern than to traders located immediately at the EU’s borders. Nevertheless, advance notification is an additional operational step that has a compliance cost.

6. EU rules mandating veterinary entry controls to take place at the first point of entry can be in conflict with customs procedures, which allow for transit and inland clearance.

7. EU rules mandating inspection quotas for products of animal origin inhibits the use of risk management control methods. This means that regulators are unable to ease the control burden for those traders that are consistently compliant.

8. Physical sampling often requires importers to wait until results are returned from the laboratories. It usually takes time for bacterial cultures to grow. Subsequently test results are often only available after several days have passed, if not weeks. Associated demurrage costs can be quite substantial, especially as veterinary legislation does not normally allow the trader to move cargo away from the BIP facility to cheaper off-port storage facilities while waiting for results.

9. At some ports it takes longer for the CVED to be processed and checked than at others. Perceived variances in the performance of health officials at different locations can amount to several days.

10. In most EU member states health officials are responsible for CVED controls while customs is responsible in ensuring that no illegal meat is imported. This division of labour can cause disruption where traders have inadvertently used the wrong documents or made an error in their declarations. The distinction between an inadvertent error and a deliberate mistake is often a judgement call for the officers concerned. The risk of “getting it wrong” and exposure to criminal investigation can be a genuine concern, especially for new or occasional traders.

11. Sending documents backwards and forwards between the exporter and importer severely delays shipment. Where original paper documents are required, traders need to use


express postal services. This comes at a cost, which can be difficult to justify in an age of electronic communication.

12. Document dependencies between export and import can also lead to traders delaying physical shipment, adding to cost penalties associated with market distance.

13. The availability of a vet to prepare health certificates can also be an inhibiting factor when making transport arrangements.

14. In theory, it is conceivable that a country’s veterinary authority may lose its EU recognition. Traders are concerned that they might inadvertently procure goods from a country that has just lost its EU status (effectively rendering the import of those goods into the EU as illegal).

15. Complexities involved in obtaining export documents required for importing into the EU (e.g. Certificate of Origin or health certificate) makes it difficult for EU parties to procure on an EXW basis. Potentially, this can frustrate larger EU importers, such as retailers and distributers, from leveraging their economies of scale when negotiating shipping rates.

16. The requirement to present Certificates of Origin for certain types of import licences can further add to operational commercial difficulties. Where the Certificate of Origin is a condition for obtaining import licence, it forces the importer to engage with the exporter prior to being certain that an EU import licence can actually be obtained.

17. Some anecdotal evidence suggests that some of the Mercosur countries (e.g. Brazil) specify that a certified copy of the EU Import Licence must be presented when applying for the Certificate of Origin. Potentially, this can bring export operations to a halt. The requirements for certification (e.g. though a solicitor) of the EU Import Licence when applying for the Certificate of Origin further adds to the expense of trading.

18. The mandatory requirement to use licensed customs brokers in Mercosur (e.g. to lodge a customs export declaration) as well as in some of the EU member states when making a customs import declaration, can also drive up overall transport and shipping costs – especially in those countries where the number of licence holders is restricted.

19. There is a potentially long list of export documents and control requirements that can be problematic. For example where exporters rely on wood packaging (e.g. wooden pallets) they need to make sure it is procured from a manufacture with ISPM 15 credentials. Failure to ensure compliance will force the exporter to arrange for an official inspection and a phytosanitary certificate. The latter can potentially be very costly while the former may not always be available, especially in the more rural areas.

20. While the EU has signed up to the Kyoto Customs Convention, Mercosur countries have not. The Convention ensures familiarity in the types of customs procedures available. It also enables better sharing of information and data. It would be a separate research task to analyse the differences between EU legislation and Mercosur customs provisions. However in the absence of Mercosur agreement to the Kyoto Customs Convention scope for sharing of data (e.g. using a Mercosur Export Declaration to help populate an EU import declaration) is likely to be inhibited.

21. The time it takes to research issues and the many government agencies that traders and their intermediaries need to deal with appears to be excessive. Subsequently, the trade in POAO apears to be the domain of experts and specialists.

22. Inconsistencies in the use of common terms (such as “consignment”) and definitions between different sets of documents can cause severe confusion and create additional operational burden.


Recommendations One of the main purposes of this case study is to help set the agenda in trade facilitation related negotiations between Mercosur and the EU. In this context subsequent recommendations should be viewed as items for negotiators or for civil society to consider. The following list should not be viewed as comprehensive or complete. A detailed stakeholder consultation exercise would help further qualify the issues outlined in this document and subsequent remedies through implementing trade facilitation concepts (e.g. those listed in Annex 1). Further research would also give room for more technical detail which this study has had little room to evaluate. Initial recommendations, in no specific order, might include the following points. 1. A genuine commitment to simplify procedures without losing sight of regulatory control

objectives 2. A commitment to ongoing consultation with all stakeholders concerned 3. A commitment to actively apply trade facilitation concepts (for example those listed in

Annex 1) 4. A commitment to reduce overall complexity in the administration and controls of EU and

Mercosur trade procedures 5. A commitment to align trade and customs procedures and reduce multiple reporting and

declaration requirements, for instance by creating a single window environment (see UN/CEFACT 2004)

6. A commitment to ensure that authorities have the capacity to implement and manage procedures efficiently without disrupting trade

7. A commitment to reduce reliance on paper documents 8. A commitment to reduce the volume of paper documents that need to be shared between

country of export and country of import (e.g. health certificates). Where absolutely necessary electronic alternatives should be considered

9. A commitment to subscribe to international document and data standards. This would enable wider use of electronic systems and give scope for increased automation and rationalisation. Ambiguity on key terms (e.g. consignment) amongst different control regimes should be avoided

10. Where feasible, to let traders engage licensed customs brokers on a voluntary instead of a mandatory basis

11. A commitment to provide sufficient advance notice whenever procedures change 12. A commitment to ensure that authorities process and clear goods as efficiently as possible.

This includes a commitment to measure and publish average and maximum processing times for customs declarations, CVEDs and other documents

13. A commitment to adopt a risk management based import control regime for products of animal origin instead of relying on the current practice of set inspection quotas. Importers with good compliance records should benefit from a reduced level of control at the border

14. A commitment to allow traders awaiting laboratory test results for products of animal origin to move their goods to authorised storage facilities that lie outside of the port. This would reduce pressure on storage facilities within port parameters as well as the importer’s exposure to high demurrage fees

15. A commitment to align the non-customs area with customs procedures; for example by allowing suitably authorised traders to clear products of animal origin away from the first point of entry

16. Manual reconciliation and monitoring of EU import quota balances against import declarations is a process that some traders describe as very cumbersome and time-consuming. Improved electronic customs capabilities, for example in a single window environment, could reduce this burden significantly


17. A commitment to publish administrative fees where applicable. In the veterinary area this includes inspection fees, sampling costs, storage and demurrage costs, as well as the laboratory fees for each authorised EU port

18. A commitment to ensure that information necessary to comply with all EU trade and customs procedures (e.g. those documented in Figure 9) is available from a single source (e.g. a website). Such an information resource should also ensure that veterinarians, health officials, and traders have easy access to up-to-date information on certification and document requirements

19. A commitment to ease and harmonise any trader registration procedures across the EU 20. A commitment to simplify proof of origin, for example by adopting the EUR1 procedures

and allowing suitably authorised traders to make invoice declarations 21. A commitment to ensure that traders can take advantage of tariff quotas and preferential

trade agreements with minimal hassle 22. A commitment to ensure that Mercosur customs procedures match international norms

and conventions, such as the Kyoto Customs Convention. This could potentially give scope for further bilateral arrangements on simplifying customs administration and control with subsequent benefits to traders

23. The creation of a dedicated trade facilitation committee could help keep track of stakeholder concerns on a continued basis. Such committee could also help policy makers monitor progress on trade facilitation measures agreed in an EU-Mercosur agreement


References 648/2005/EC. Regulation (EC) No 648/2005 of the European Parliament and of the Council

of 13 April 2005 amending Council Regulation (EEC) No 2913/92 establishing the Community Customs Code [OJ 2005 No. L117/13]

882/2004/EC. Regulation (EC) No 882/2004 of the European Parliament and of the Council of 29 April 2004 on official controls performed to ensure the verification of compliance with feed and food law, animal health and animal welfare rules [OJ 2004 No. L 165/1]

936/97/EC. COMMISSION REGULATION (EC) No 936/97 of 27 May 1997 opening and providing for the administration of tariff quotas for high-quality fresh, chilled and frozen beef and for frozen buffalo meat [OJ 1997 No. L 137/10]

1788/2001/EC. Commission Regulation (EC) No 1788/2001 of 7 September 2001 laying down detailed rules for implementing the provisions concerning the certificate of inspection for imports from third countries under Article 11 of Council Regulation (EEC) No 2092/91 on organic production of agricultural products and indications referring thereto on agricultural products and foodstuffs [OJ 2001 No. L 243/3]

2006/14/EC. Commission Directive of 6 February 2006 amending Annex IV to Council Directive 2000/29/EC on protective measures against the introduction into the Community of organisms harmful to plants or plant products and against their spread within the Community [OJ 2006 No. L 34/24]

2454/93/EEC. Commission Regulation (EEC) No 2454/93 of 2 July 1993 laying down provisions for the implementation of Council Regulation (EEC) No 2913/92 establishing the Community Customs Code [OJ 1993 No. L 253/1]

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533/2007/EC. Commission Regulation (EC) No 533/2007 of 14 May 2007 opening and providing for the administration of tariff quotas in the poultry meat sector [OJ2007 No. L125/9]

810/2008/EC. Commission Regulation (EC) No 810/2008 of 11 August 2008 opening and providing for the administration of tariff quotas for high-quality fresh, chilled and frozen beef and for frozen buffalo meat (Recast) [OJ 2008 No. L219/3]

DG SANCO (2006). Summary of results for the consultation document on: “Labelling: competitiveness, consumer information and better regulation for the EU”. Brussels, European Commission,.

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European Commission. (2008b). "Pre Arrival / Pre Departure Declarations." Retrieved 20 August, 2008, from http://ec.europa.eu/taxation_customs/customs/procedural_aspects/general/prearrival_predeparture/index_en.htm.

FAO (2002). International Standards for Phytosanitary Measures (Publication No 15): Guidelines for regulating wood packaging material in international trade, Food and Agriculture Organization of the United Nations: Rome.

Grainger, A. (2007a). "Supply chain security: adding to a complex operational and institutional environment " World Customs Journal 1(2): pp.17-29.

Grainger, A. (2007b). Trade Facilitation and Supply Chain Management: a case study at the interface between business and government. London, Birkbeck, University of London. PhD: 448.


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Grainger, A. (2008a). Integrated Trade Management Systems: Concepts and Issues: Technical Note for the World Bank". Trade Facilitation Consulting Ltd. Kingston Upon Thames, World Bank.

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IATA (2009). Dangerous Goods Regulations (DGR) 50th Edition, IATA. ICC (1999). Incoterms 2000: ICC Official Rules for the Interpretation of Trade Terms. Paris,

International Chamber of Commerce. IMO (2006). IMDG Code - 2006 Edition (2 volumes), International Maritime Organisation. Lacors (2003). Importation of Goods Subject to Animal or Plant Health Regimes. SITPRO.

http://www.sitpro.org.uk/reports/lacors.html. OECD (2001). Business Benefits of Trade Facilitation. Working Party of the Trade

Committee. Paris, OECD. TD/TC/WP(2001)21. OECD (2003). Quantitative Assessment of the Benefits of Trade Facilitation. Working Party

of the Trade Committee, OECD. TD/TC/WP(2003)31/Final. OECD and WTO (2007). Aid for Trade at a Glance, 1st Global Review (Executive

Summary), WTO. SITPRO (2008). The Cost of Paper in the Supply Chain: “Project Hermes” Perishable Foods

Sector, SITPRO. SITPRO and A. Grainger (2008). A UK Review of Security Initiatives in International Trade.

London, SITPRO. Staples, B. R. (1998). Trade Facilitation,

http://www.cid.harvard.edu/cidtrade/issues/tradefacpaper.html. UN (2007). ADR 2007. Geneva, UN. UN/CEFACT (2004). Recommendation No. 33: Single Window Recommendation. CEFACT.

Geneva, UN. ECE/TRADE/352: 37. UN/CEFACT and UNCTAD (2002). Compendium of Trade Facilitation Recommendations

UN/CEFACT, UN. ECE/TRADE/279. Verwaal, E. and B. Donkers (2003). "Customs-related Transaction Costs, Firm Size and

International Trade Intensity." Small Business Economics 21(3): 257-271. WCO (1999). Revised Kyoto Convention; International Convention on the Simplifications

and Harmonisation of Customs Procedures, WCO. WCO (2007). WCO SAFE Framework of Standards. World Bank. (2007, 2/12/2007). "Trade Costs and Facilitation: The Development Dimension;

About the Project." Retrieved 4 August, 2008, from http://go.worldbank.org/XROSJZFRR0.

WTO. (1998). "WTO: A Training Package; What is Trade Facilitation?" Retrieved 2 August, 2006, from http://www.wto.org/english/thewto_e/whatis_e/eol/e/wto02/wto2_69.htm#note2.

WTO (2008). WTO Negotiations on Trade Facilitation: Compilation of members' textual proposals. Negotiating Group on Trade Facilitation. TN/TF/W/43/Rev.15.


Annex 1

Trade Facilitation Recommendations and Concepts (as listed in Grainger 2008b)

1. Simple Rules and Procedures The core argument here is that that if rules and procedures are kept simple, their administration and compliance should correspondingly require less effort and less costs. The cross-border environment with its rules, procedures and institutions is complex. In contrast, the pursuit of simpler rules and procedures is seen by many proponents of trade facilitation as a means to creating an environment in which transaction cost problems do not carry the same scale as they currently do. Simpler rules and procedures are also seen as a means to ensuring tighter and more efficient controls. 2. Avoidance of Duplication The aim here is to avoid duplication of controls and procedures. Given the many regulatory bodies with an interest in controls, the alignment of controls and procedures between administrations requires extensive efforts. The overlap between recently added security controls [“security spaghetti”, see Grainger 2007a; or the overlap of controls in POAO mapped in Figure 5] serves as a negative example. This objective also includes the idea of mutual recognition of controls at multilateral and bilateral levels. For example the information required for export declarations in one country could be recycled for import declarations in another. Another variant of this objective is for regulatory bodies to recognise a businesses’ internal control measures (e.g. for audit, finance or quality control purposes) in lieu of controls and inspections enforced by government executive agencies. For example, many EU based companies fear severe repercussions from consumers and shareholders should they fail to meet their expectations. Subsequently, they operate very tight internal control systems. These are usually more comprehensive than those mandated by government. Nevertheless, these companies still need to comply (at a cost) with the government specified procedures. Industry examples can be found in the food, pharmaceutical, arms and toy industries. 3. Memoranda of Understanding (MoUs) MoUs between business and government parties and among executive agencies (e.g. customs and veterinarians) or governments, help clarify the control objectives and can also be used as instruments to guide cooperation. They often offer greater flexibility than narrowly defined legislative instruments and are therefore more accommodating of dynamic operational needs. Also, they can provide very cost-effective alternatives when compared to the institutional effort associated with drafting and implementing new regulations.


4. Alignment of Procedures and Adherence to International Conventions Essentially this is about bringing consistency in trade procedures as enforced by individual states and regions. The more aligned these are, the less traders need to duplicate effort in developing capabilities, systems and compliance procedures. One of the key international instruments is the Kyoto Customs Convention (WCO 1999). However, where a common regulatory framework is not agreed upon, an alternative model is for governments to formally recognise the control objectives of their trading partners. Where governments are satisfied that the institutions of their trading partners meet their regulatory objectives, even if they use different procedures and methods, there is no need for them to duplicate controls (OECD 1994). 5. Trade Consultation It is unlikely that legislators have full knowledge of commercial and operational practices. Most proponents of trade facilitation therefore argue that for legislation to be drafted in a way in which its objectives are met with the least impact on operations and cost, extensive consultation efforts with traders are a necessary prerequisite (e.g. through user and policy groups or national PRO committees). 6. Transparent and Operable Rules and Procedures Governing rules and procedures are often perceived to be poorly or ambiguously drafted, adding cost and causing confusion. For example, key definitions such as “consignment” and “shipment” in EU veterinary and plant health legislation do not match general commercial practices (Lacors 2003, p.5). Occasionally, rules and procedures may not even be implemented in any practical manner, placing costly obligations on parties who are unable to meet them. For example under the UK’s Anti Terrorism Act (2000) and its Information Order (2002) it is theoretically possible for Government executive agencies to ask shipping lines and their agents to provide specific cargo related information to which they have no access . Similarly, IT systems take time to develop. Where system requirements have been communicated too late or are not clearly defined and documented, implementation and transaction costs are likely to escalate significantly. Consequently, proponents of trade facilitation will make a strong case for any new proposals, policies and regulations to be pre-notified at the earliest possible stage. 7. Accommodation of Business Practices There are many variants on this theme, but in principle it hinges on businesses’ desire for regulatory controls and procedures to fit their operational requirements. One of the most significant aspects of this theme includes ideas revolving around inland clearance – allowing goods to leave the port where checks and controls can be conducted more cost-effectively as, for example, when unloading containers at the trader’s premises. Other themes look at the use of open information standards for Customs’ IT systems that integrate easily with existing commercial software, rather than the de facto requirement for using the propriety standards imposed by government system suppliers (as is currently the practice in many member states). 8. Operational Flexibility Although consistency in enforcement (a “level-playing field”) is desirable for fairness reasons, a degree of operational flexibility is considered necessary by many proponents. Infrastructure and systems can break down or be placed under stress due to unforeseen circumstances (e.g. bad weather, strikes, fires, power-outage, military mobilisation etc.). In such instances traders and operators wish to draw on some degree of leniency, if controls in the prescribed manner are not practical. Similarly, operational environments can vary from location to location and rigidly formulated procedures may not


always work in the prescribed manner. Again, traders and operators may ask for a degree of regulatory flexibility. 9. Customer Service Provisions for Government Administrations There are numerous concepts of customer service that proponents of trade facilitation seek to encourage. This fits in very closely with GATT Article X negotiations (GATT 1947; 1994). It includes the use of Charter standards committing government agencies to pre-specified service levels. For example customs may agree locally to clear goods within x-amount of hours and keep the same office hours as the port operator. Other service provisions might include dedicated help-lines, an up-to-date website, a free-to-use customs tariff, training events and open surgeries. 10. Mechanisms for Corrections and Appeals Efficient correction and appeals mechanisms allow traders to take appropriate actions in response to the decisions taken by individual enforcement officers. Proponents of trade facilitation will argue that mistakes do frequently occur. For example, an “I” and a “1” or a “B” and an “8” can easily be misread, leading to erroneous declarations (e.g. through incorrect reference numbers). Similarly, given the inherent complexities in international trade, proponents of trade facilitation will argue that it is easy for traders as well as officials to be unclear about governing procedures and requirements. In contrast, efficient correction and appeals mechanisms allow resulting costs to be kept to a minimum (where errors and mistakes have been made unintentionally or in good faith). 11. Fair and Consistent Enforcement The worry here is that where rules and procedures are applied inconsistently, it diverts traffic from the most direct route and also distorts competition. Some industries will also make cases for ensuring that regulations do not affect them unfairly. For example, lobbyists working for express parcel carriers frequently lament that national post-office companies, who offer similar services, enjoy significant customs privileges that other parcel operators are unable to take advantage of (e.g. see WCO and UPU 2004). 12. Proportionality of Legislation and Control to Risk Here it is held that control regimes should not be disproportionate to the risks that they aim to provide protection against. For example, as customs tariffs fall, it becomes increasingly difficult to justify the expense of drafting legislation and procedures that seek to collect them. However, a more contentious area in this respect is the threat of terrorism. Given the uncertainty of risk to security from international trade, it is unclear to most parties involved in control and operations how far security measures should go. 13. Time-release Measures The recommendation by proponents of trade facilitation here is to measure the time it takes for goods to clear through the regulatory process. With such measures in place, interacting parties can then work together at improving their performance. In this context Charter standards, where goods are guaranteed to be cleared within a certain timeframe, are frequently propagated. 14. Risk management and Trader Authorisations The idea here is to focus government resources and efforts on illegal activity, while freeing up the legitimate trade from regulatory burden. Rather than enforcing blanket controls at set quotas (e.g. 100%, 50% or 5% of all traffic), control levels are determined in proportion to the perceived degree of risk. Traders can seek to build a relationship of trust with executive agencies and in turn enjoy lower risk profiles and physical disruption through checks.


Moreover, where traders are deemed to be trustworthy, they may be given further customs privileges, by being granted an authorisation, which includes simplified customs procedures or other accommodating operational and fiscal benefits. While risk based controls are provided for by EU customs legislation, this is not necessarily the same in other areas of trade related controls. For example, port health officers at UK ports are likely to complain that they are forced by legislation to repeatedly check the same cans of tuna, even if they come from a very reputable food importer and have never failed inspections. From their point of view, time and effort would have been better spent at targeting more risky importers. 15. Standardisation of Documents, Data-sets and Electronic Messages Providing the backbone to trade facilitating electronic systems, common standards for documents and their electronic equivalent are generally considered to be essential prerequisites (Mulligan 1998). For example, the harmonisation of document layouts will increase familiarity and reduce levels of error (UN/CEFACT 1981). The document harmonisation project started with the advent of photocopiers, allowing users to transpose information contained on one type of document (e.g. an invoice) onto another (e.g. a customs declaration). In the electronic world, the same principle applies. If information is communicated in the same way (e.g. by XML or EDI), it can be read more easily by other systems, greatly increasing scope for interoperability. Although most EU customs documents are aligned to international document standards, other agencies – like for example in the veterinary and phytosanitary area – still have some way to go. Clarity on data elements contained within documents (or their electronic equivalent) can also reduce confusion. For example, in the English-speaking world it is customary to notate decimals by using a decimal point (“.”) and separate units of thousand by a comma (“,”). In contrast, continental EU member states use the comma as a decimal point and the decimal point as a separator for units of thousands. Thus 1,000 tonnes without clarification on the notation can be read as one thousand tonnes or just one tonne. Agreement on common standards avoids repeated typing of information into document and information systems, reduces error rates, improves the quality of data, and provides for greater interoperability between systems. 16. Automation The introduction of electronic customs clearance systems is often described as revolutionary (Appels and de Swielande 1998). Many traders are familiar with the benefits of automation within their own organisations and wish to use electronic means when interfacing with government agencies. Some even advocate “pull” technologies where administrations help themselves to required information, thus freeing them from having to actively make any formal declarations (though this would require changes to existing legislation). 17. The Single Window Probably one of the biggest single issues in the field of trade facilitation is the concept of the single window, which looks at enabling traders to submit trade related information once at a single entry point, saving them having to interface with a multiple of different government executive agencies (UN/CEFACT 2004). Usually single window ideas propagate a high use of electronic systems, eliminating requirements for paper and providing an infrastructure for greater integration among the many government agencies as well as between government and business actors. The single window system in Singapore has been particularly inspiring. It links multiple parties involved in external trade transactions, including 35 government institutions, to a single point of transaction for most trade documentation tasks. (Applegate, Neo et al. 1993; 1995; Wulf 2004; International Trade Institute of Singapore 2005).


18. International Electronic Exchange of Data Numerous initiatives are being pursued to help the exchange of trade data between governments and business. For examples, shipping lines use their booking systems to collect data from their customers. This data is then reused and consolidate into a shipping manifest, which in turn can be recycled into a pre-arrival declaration for customs clearance purposes (as is currently the practice at UK container ports). However, agreement on common standards is often a necessary prerequisite for such exchange of data. Another example of electronic transmission is provided by New Zealand. Their veterinary service places its veterinary certificates on a password protected website. Instead of having to ask New Zealand suppliers to send the documents by courier, overseas traders are given the facility to download and print the certificate directly from the official website.


ANNEX 3. TRADE FACILITATION IN PARAGUAY

Centro de Análisis y Difusión de la Economía Paraguaya - CADEP78

Introduction The purpose of this study is to evaluate the costs of the commercial transactions and other aspects of trade facilitation for Paraguay in terms of exporting goods to and importing goods from the European Union (EU). Paraguay is a special case for trade facilitation in the MERCOSUR region because of its condition as a landlocked (inland) country that contributes with additional costs in terms of transportation and trade logistics. Trade aspects included in this study are the most relevant for an eventual trade facilitation agreement between Paraguay and the European Union, namely simplification of foreign trade rules and regulations, modernization of customs with focus on automation improvement and the use of new technology, improvement of navigability of rivers and modernization of ports and transportation services. Primary and secondary sources of information have been used in this work as well as interviews conducted with economic agents (private sector) and government officers at various public entities that deal with foreign trade in Paraguay. Two productive sectors have been selected in studying the process of trade facilitation between Paraguay and the EU: alcoholic beverages (imported from the EU) and soy bean (exported from Paraguay). The first one was chosen because of the relatively high quantity of documents required to import. The second one because it is Paraguay´s main export product to the international market and to the EU, in particular. This work starts with a brief explanation of the concept of trade facilitation, more commonly used. Second, it follows a description of Paraguay´s foreign trade and its current tariff system. Third, the procedures of import-export operations, the transportation system and the custom system. Following up, the main problems of custom and transport operations are analyzed, as well as the main improvements achieved over the last years. Finally, some recommendations are made, in order to adopt actions oriented to reduce time and costs for trade between Paraguay and the EU. I. Trade facilitation Trade facilitation is a relatively new concept and it is related to a diversity of subjects, such as:

� Customs Issues � Technical and Quality Regulations � Transportation and Logistic � Commercial Information

78 Prepared by Maria Belen Servín under the under supervision and editorship of Fernando Masi


For the United Nation’s Centre for Trade Facilitation and Electronic Business (UN-CEFACT), the trade facilitation is the simplification, standardization and harmonization of the procedures and the exchange of information regarding the movement of merchandise. As a concept itself, trade facilitation was introduced in the working program of the World Trade Organization (WTO), for the first time, in the Ministerial Conference of Singapore (1996). On July 2004, the Members of the WTO formally agreed to initiate negotiations on trade facilitation, following a mandate to clarify and improve the explanation of some GATT articles about:

- V. Freedom of Transit - VIII. Rights and formalities regarding operations of import-export; and - X. Publication and application of commercial rules.

The United Nations Conference on Trade and Development (UNCTAD) and the World Customs Organization (WCO) have also been working to improve trade facilitation. UNCTAD has been active in four specific areas related with facilitation: i) development of rules, ii) technical assistance for rules enforcement, iii) multimodal transportation, and iv) customs modernization. The WCO introduced the harmonized system for classification and description of tradeable goods in the international market. WCO most important contribution has been the Kyoto Convention for the Simplification and Harmonisation of Customs Procedures. This Convention recommends the following principles to be put in place for modern customs administration:

• Standardized and simplified customs procedures,

• Continuing improvement of control techniques of customs.

• Increasing use of information technology.

In summary, two ways to facilitate trade are to reduce paperwork in the country on arrival and departure of the merchandise, and to provide easier access to this type of information. This can be seen as a procedure, in the following figure:


Figure 1

Transportation costs reductions

Improvement of port facilities

Transparent and harmonized regulations

Improvement in the communication

and information technology

Efficient and transparent in the

customs procedures

Proper infraestructure and systems of transportation

Trade Facilitation

II. Paraguay: Foreign Trade A. Exports

The economic model of Paraguay is based on the export of agricultural commodities, the sale of hydroelectric energy to Brazil and Argentina and on commercial intermediation or re-exportation79. The latter has been the most important as the value of re-exporting trade, at certain times, has greatly overtaken the value of commodities exports and that of sale of electrical energy. In 2007 re-exportation trade represented approximately 48% of imports (US$ 2,623.3 million)80. Thus, Paraguay has developed two ways of being integrated in the region and in the world: commercial intermediation and production of agriculture commodities. Both ways represent two completely different models with different beneficiaries. Export of locally produced goods demonstrates a productive integration into the world, where large, medium and small producers benefit. Trade intermediation represents integration only to a limited world and the benefits, in terms of consumption and employment, are mainly reaped by neighbouring countries, more specifically by Brazil. Most of the profits from this operation are not invested back into the country (Masi, 2008). Export of locally produced goods items have experienced a significant growth since 2003, breaking a status quo that lasted more than a decade (Chart 1). On the other hand, reexporting operation have always shown more dynamism than exporting , 79Re-export or commercial intermediation consists of importing goods from outside MERCOSUR, with exceptional low tariffs and sell them back to neighbour countries (Brazil and Argentina), with higher (common external) tariffs. The resale or re- export is a non registered or illegal operation (allowed by neighbour countries) since double tariff has not yet been eliminated within MERCOSUR. Merchandises traded are mainly luxury f goods (computers, electronic, perfums, sport shoes, etc). 80 Central Bank of Paraguay (BCP).


even though it experienced an important fall in the mid 90´s, to later recover starting in 2004, when Paraguay has obtained greater tariff exemptions from MERCOSUR, to reactivate this type of commercial operation.

In 2007, exports value reached US$ 3,374.0 million. The main exported products, are described as follows:

Table1 Paraguay: Exports of main products

Products (US$ million)

Soy beans 1,170.8 Cereals 392.0 Meat 368.0 Soy flour 361.2 Soy oil 294.5 Wood 116.0 Leather 83.6 Cotton fibres 47.1 Sugar 35.3 Tobacco 22.7 Essential oils 11.5 Others (*) 471.3 Total: 3,374.0

Source: Central Bank of Paraguay (BCP)

(*) Major Manufactured Goods81

81 Among the principal industrial items that Paraguay exports are textiles and clothing, food, manufactured wood and leather, chemical products, crafts work and metal mechanic goods.


In the 90`s MERCOSUR became the main destination market for Paraguay´s exports. This trend has been abruptly changed starting the next decade, when a significant increase of exports to the rest of the world has taken place (Chart 2). This phenomenon is mainly explained by an important increase in the international demand for commodities and the consequent increase in international prices of agricultural and agro industrial commodities, mainly from Asian countries, similar to what occurred with the rest of MERCOSUR.

Chart 2 Paraguay: Export Trends

Source: Elaborated with data provided by the BCP The EU has been reducing its participation as a destination market of Paraguay´s exports. After participating with 34% of total Paraguay´s exports, in 1990/91, this proportion is reduced to just 20%, by 2005/06 (Table 2). The main explanation for this diminishing trend is due to a displacement of the European markets by Asian markets and by non Mercosur Latin American markets (Masi, Ruiz Diaz 2008) In any event, most than 60% of Paraguay´s exports to the UE consist of agricultural commodities. Table 2 Paraguay: Changes in Destination Markets

Average ( in millions of US$) (%)

Mercosur EU USA RW Total Mercosur EU USA RW Total 1990/91 317 285 38 208 848 37 34 4 25 100 1995/96 527 268 43 142 981 54 27 4 15 100 2000/01 416 179 31 304 931 45 19 3 33 100 2005/06 608 354 65 770 1.797 34 20 4 43 100

Source: Elaborated with data of BCP RW: Rest of the World MERCOSUR regained its position as a main destination market of Paraguay´s exports in 2007, when Argentina become the main recipient of agricultural commodities (soybean and cereal grains) to be processed as edible oils and shipped afterwards to the Rest of the World. In essence MERCOSUR appears as an intermediary market or a bridge of Paraguay´s exports82 to its final destination. Thus, exports to MERCOSUR, in 2007, reached US$ 1,963.2 equivalent to 58.2% of total Paraguay´s exports. 82 Given the lack of industrial capacity in Paraguay to process most of soybean and grains.

0

200 400 600

800

1000

1200

1400

1600

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

MERCOSUR

Rest of the World


other type of market concentration. It was also agreed that the CET should pay attention to the following criteria: a) to have a small number of aliquots, b) low dispersion, c) greater possible homogeneity of rates of effective promotion (exports) and of effective protection (imports), and d) aliquots defined by eight digits. The CET also included some adjustment mechanisms of national tariffs, through Exceptions Lists, with defined periods of convergence to the CET established levels. On January 2007, the new version of the common nomenclature of MERCOSUR (NCM) came into place, adapted to the IV Amendment of the Harmonized System of Designation and Coding of Merchandise, passed by the Board of Customs Cooperation (SH-2007) There are three ways of altering the current CET (reducing protection): i) using special tariffs for capital goods (BK) and Information Technology and Telecommunications Tariff (BIT), ii) because of the absence of regionally made products in MERCOSUR; and iii) via inclusion of items in the Exception List of the CET with the denomination of Current National Tariff (CNT). These mechanisms of CET reductions are explained below: Special Tariffs for Capital Goods and BIT. Tariffs are reduced temporarily, on request, to favor building of industrial and productive capacities in each country as well as to reduce investment costs and to improve services infrastructure. This temporary reduction of the aliquote can only be given for Capital Goods and Information Technology and Telecommunications Goods, as well as their parts, pieces and components, as long as it is proven that national production of the standard features is absent. Absence of regionally made products. To overcome problems of shortage or absence of supplies in MERCOSUR, it is permitted that the State Members apply temporary reductions of aliquota tarriffs to CET items, with defined periods of enforcement, and limited to quotas. Exception List of CET. Since the inception of the CET, the State Members of MERCOSUR have been authorized to maintain some mechanisms of adjustment of the national tariffs, through the Exceptions List, with defined installments for the convergence to CET levels. Paraguay counts with a list of 100 exceptions until 2015, 150 current exceptions until 2010 and a list of basic exceptions of 399 items until 2010. Also, Paraguay has unilaterally adopted special import regimes, which imply total or partial exemption of the customs rights (CET); being the main ones the Temporary Admission (TA) for finishing manufactured products to be exported to third countries, and the Drawback System. Most of Paraguay´s imports from outside MERCOSUR are channelled through exception lists to the CET and the use of special import regimes. Thus, Paraguay enjoys an average low Current National Tariff (CNT) reaching only 8.6% in 200784. Likewise Paraguay presents the highest rate of economic openness85 in comparison to other MERCOSUR countries. This rate for Paraguay in 2007 is 67% while the 84 Data provided by the Integration Department of the Ministry of Finance. 85 X + M / PIB


same rate for Brazil reaches only 22% (the most protected economy of MERCOUR), 40% for Argentina and 53% for Uruguay86. Despite the fact that CET exceptions do not contribute to the deepening of the integration process of MERCOSUR (more specifically the formation of a custom union) a high level of economic openness, acts very much in favour of trade facilitation in Paraguay. With regards to imports from the European Union, it is observed in Table 6 that the principal products enter the country under exception lists and special regimes tariff (Average CNT less than Average CET)

Table 6

ISIC Description Average CET

Average CNT

1551 Distillation, rectification and mixture of alcoholic drinks; production of ethyl alcohol from fermented substances

19,3 18,8

2413 Production of plastic in primary forms and synthetic rubber 9,6 8,5

2423 Production of pharmaceutical goods, chemical substances and botanical products 6,3 5,9

2424 Production of soaps and detergents, cleaning and polishing products, perfumes and beauty products

14,3 12,9

2921 Production of agricultural and forestry machinery 13 3,4

2925 Production of machinery for processing food, drink and tobacco

12,6 1,4

2929 Production of other types of machinery for special use

11,5 1,7

2930 Production of domestic household appliances 18,4 16,8

3220 Production of radio and television sets and of telephone and wired telecharty appliances

9,7 3

3410 Production of motor vehicles 18,5 12,2

Source: Department of Integration, Ministry of Finance

IV. Customs process and trade facilitation In order to have a better understanding of the process followed by Paraguayan customs for the entry and exit of merchandise to and from its territory, preferences will be given to alcoholic beverages in terms of imports and soybean in terms of

86 See Ministerio de Hacienda (2008). “Panorama de Comercio Exterior”. Subsecretaria de Economía e Integración. Dirección de Integración. Asunción - Paraguay


The extent of these documents is briefly described below88: • The International embark acknowledgement (Bill of landing / Airway bill /

Postage Card) is the document required by the transporter as certification of merchandises to be delivered, along with a certification at destination in Paraguay.

• Packing Register This is the trade and logistic document that provides details of

contents of each package on a determined trip. • Certificate of Origin This is the official accepted document that guarantees that

merchandises stated on it comes from the country that sent them, complying with a certain rule of origin. This certificate is needed to apply tariff preferences, tariff exceptions, application of non tariff regulations and penalties for disloyal trade practices. In the case of the European Union, this certificate permits to identify the product as an extra zone product so to apply the corresponding CET.

These documents should be legalized by the Paraguayan Consulate in the European country of origin and they are subject to payment of consular rights. Consular rights are explained in Table 6.

Table 6 Law 1844/04

Consular Rights

Concept US$ Legalization of four copies of a trade invoice. 15

Legalization of additional copies of trade invoices. 5 Legalization of the original or negotiable international embark

acknowledgement (sea, river, railway, land, air). 15 Legalization of copies of certificates of international embark

acknowledgement. 5 Legalization of the original Certificate of Origin 25

Legalization of copies of the original Certificate of Origin. 5

Source: Library of the National Congress of Paraguay.

In order to proceed to the registration of imported alcoholic beverages at the National Institute for Food and Nutrition(INAN) , the European exporter must supply the following documents89:

• Health Certificate for free sale of the product in order to verify that it

complies with hygiene conditions and that it is sold freely in the country of

88 Data obtained from Maritime Agency and Customs Broker Rodolfo Riego Gauto (2008) and the Department of Import, A.J. Vierci & Cía. (2008). 89 Department of Sanitary Registry, National Institute of Food and Nutrition (2008).


origin (legalization of the Paraguayan Consulate at the country of origin is needed).

• Authorization of the exporting firm in Europe for the product to be registered by the importing firm (legalization of the Paraguayan Consulate at the country of origin is needed).

• Brand Title, awarded by official authorities from the country of origin (legalization of the Paraguayan Consulate at the country of origin is needed).

• Samples of original labels in Spanish or with the corresponding translation by a Public Translator, and complementary labels for each application to register, which must comply with the current regulations.

The importing company leaves all documentation to be evaluated at INAM and it takes 15 days for the documentation to be admitted as legal. Afterwards, it takes 8 more days for the importing company to pay the fee and get the product’s registration number. Registration is only required in case of manufactured products, and it is valid for five years. Each time the importing company is purchasing the product, it must present the commercial invoice to INAM that certifies the product is in their registry. 2. Customs Import Dispatch Once the aforementioned documentation has been obtained in order to complete the Dispatch Circuit of Importation, the following procedures should be carried out within the Custom Office (DNA: six (6) steps for the Green Channel, seven (7) steps for the Orange Channel, and eleven (11) steps for the Red Channel. Each one of these steps (indicated in Figure 2) is described below90:

Declaration of Arrival or Cargo Manifesto

Immediately after arrival, all merchandise introduced to the Paraguayan customs territory must be presented to the customs authority by the Transporting Agent by Declaration of Arrival through SOFIA, a computerized system. In certain cases this Declaration of Arrival could be required by the DNA before the introduction of the merchandise into the country. The DNA receives a fee of US$20 for each opening of the Registration of Entry for importing merchandises, as a cost of service for the use of the SOFIA system. An additional fee of 7% is charged on the consular tariff for legalization of the Cargo Manifesto.

90 Data obtained from the Coordination of the System of Quality Management, DNA, Maritime Agency and Customs Broker Rodolfo Riego Gauto and the Department of the Customs for Rules and Regulations, DNA.


Customs Dispatch This procedure is carried out by the Custom Broker in charge, after the opening of the register through the SOFIA system, by means of the Customs Declaration. It includes all the necessary information to classify the merchandise in the Tariff Nomenclature. This process determines the levels of tariffs to be applied to the importing merchandises, existing prohibitions or restrictions, incentives for exports, as well as ways of controlling the corresponding dispatch. For the use of the services of SOFIA system the DNA receives a sum equivalent to US $10 for each dispatch up to US $5000, and a sum equivalent to US $25 for each dispatch that is superior to US $5000. Here, also there is an additional fee of 7% charged on the total value of consular tariffs for legalization of international embark acknowledgement, certificate of origin and trade invoice. All expenditures of the Customs Dispatch are transferred to the importing or exporting company. Additional physical formalities: Apart from the mentioned procedures related to the Opening of Registration (Declaration of Arrival) and to the Customs Dispatch, the original Manifesto of Cargo must be presented to the Registration Department of the DNA. The Embarkation Acknowledgement and photocopies of the corresponding trade invoices must also be presented at the DNA. In both cases, there is an additional cost for the importing or exporting companies, since they have to carry out additional physical formalities.

Assignment of Channels The DNA has recently established (2006) the application of the selected channels of control for the process of import dispatches. These selective channels are applied with the use of rules and profiles of risk defined by technical units of the DNA. The risks are mainly defined according to the behavior of the importing company (amount dispatched and quantity per year), and the behavior of the customs broker. There are two main advantages in using selective channels: a minimal delay in the customs process and minimal level of contact between the user and the customs broker. If the product (e.g. alcoholic beverage) is selected for the Green Channel , the principle of good faith applies (accurate declarations and trustworthy companies and agents) and the release of merchandises is immediate without either physical or documental verification after the corresponding tax payment.

Estimated time for dispatch: 30 minutes


Table 7 Estimated Time – Green Channel

Section Estimated Time

Registration 5 minutes

Counterfoil 5 minutes

Control 3 minutes

Photocopy 10 minutes

Control 7 minutes

TOTAL 30 minutes

Source: Coordination of Quality Management System, DNA

If the product (alcoholic beverage) is selected for the Orange Channel, the merchandise submitted is only subject to documental verification.

Estimated time of dispatch: 45 minutes

Table 8 Estimated Time – Orange Channel

Section Estimated Time

Registration 10 minutes

Check 10 minutes

Counterfoil 5 minutes

Control 3 minutes

Photocopy 10 minutes

Control 7 minutes

TOTAL 45 minutes

Source: Coordination of Quality Management System, DNA If the product (alcoholic beverage) is selected for the Red Channel , the merchandise submitted is subject to physical and documental verification, in order to determine the value of the merchandise. According to data provided by the SOFIA system for 2008, the applied selective channels for the main imported products from the European Union are distributed as described in the following table:


1. Exports Documentation Processing all exports documents needed for the trade operation is a task that could be done through VUE, a computerized system connected to the main business export associations: Cámara Algodonera del Paraguay (CADELPA) for cotton; Cámara Paraguaya de Cereales y Oleaginosas (CAPECO) for soybean and cereals; Cámara de Comercio y Servicios del Paraguay (CNCS) for commerce and services; Federación Paraguaya de Madereros (FEPAMA), for wood; Unión Industrial Paraguaya (UIP) for manufactured goods and Servicio Nacional de Salud Animal (SENASA) for animal health91. However VUE is only working as such for processing export of meat. This system is introduced progressively for export operations and apart for meat products, the system only works for the certificate of origin operations for all other products exported by Paraguay. Exports of wood and vegetables are in process to be part of the VUE system. In the case of soybean exports to the EU, the exporting company must obtain the following basic documents: the international embarkation acknowledgement, the trade invoice, the packing register, the certificate of origin, the phytosanitary certificate, the certificate of genetically modified organisms (Surveyor – connection port), weight certificate (Surveyor – connection port), original fumigation Certificate (Fumigation Company – connection port), maintenance of cleanliness certificate (Surveyor – connection port)92 • Certifícate of Origin The Ministry of Industry and Commerce (MIC) has decentralized the emission of certificates of origin to the respective chambers of production: CADELPA, CAPECO, CNCSP, FEPAMA, and UIP. These certificates are checked and ratified by the Direction of Foreign Trade of MIC. The electronic process is carried out through the VUE system with the participation of the respective chamber, to which the exporter must present the sworn declaration of the producer and an authenticated copy of the trade invoice. It takes an average of 40 minutes to obtain the Certificate of Origin.93. Table 10 shows the current fees to obtain the certificate of origin, 50% of which is paid to MIC. Rates vary according to the tariff nomenclature and the different levels of MERCOSUR CET. The only exception are wood products whose fees are calculated as a percentage of the volume exported (0.5 to 1%) depending on the tariff nomenclature.

91 VUE is located at the Ministry of Industry and Commerce. 92 Maritime Agency and Customs Broker Rodolfo Riego Gauto. ADM Paraguay S.A.E.C.A. Export Department. 93 VUE. Ministry of Industry and Commerce.


Table 10 Cost of the Certificate of Origin

Exports Values (US$ FOB) Fees (US$)

Up to 50.000 10 From 50.001 to 100.000 20 From 100.001 to 200.000 30

From 200.01 to 400.00 40 From 400.001 to 600.000 50

More than 600.000 60

Source: VUE

• Phitosanitary Certificate94 The National Service for Health and Quality of Plants and Seeds (SENAVE) is in charge of the examination of phytosanitary condition of agricultural goods. In other words, the quality and harmlessness of vegetable products, and their sub products intended to be sold in the internal and external markets. Exporting agriculture commodities requires a SENAVE certificate. In order to obtain the phytosanitary certificate it is necessary to comply with the following requirements:

� Payment of a SENAVE fee (grains in general: US$ 0.12 per tonne) � To fill out an Export Application Form for vegetable products and

sub products (US$ 0.90) � Official Export Dispatch

• Other types of documents required are: 95

� Certificate of Genetically Modified Organism (Surveyor – Connection Port) � Certificate of weight (Surveyor – Connection Port) � Original Certificate of Fumigation (Fumigation company – Connection

Port) � Certificate of Maintenance of Cleanliness (Surveyor – Connection Port)

2. Customs Export Dispatch Once the aforementioned documentation has been obtained, in order to complete the Dispatch Circuit of Export, company must carry out seven (7) steps for the Green Channel, eight (8) steps for the Orange Channel, and eight (8) steps for the Red Channel96.

94 Department of Operations, Health and Quality of Plants and Seeds (SENAVE). 95 Department of Export, ADM Paraguay. 96 Coordination of the System of quality management, DNA,(2008) Maritime Agency and Customs Broker Rodolfo Riego Gauto (2008) Department of the Customs for Rules and Regulations, DNA (2008).


As can be seen in Figure 3, the main steps of the Dispatch Export Circuit are:

- Declaration of Exit of Cargo Manifesto - Customs Dispatch - Assignment of Channels

The differences between this and the dispatch circuit of import are:

a) Exports goods are exempt of any kind of local taxes and custom duties. b) In the process of exporting goods through the red channel, the DNA does

not determine the value of the merchandise. According to 2008 SOFIA figures, the applied selective channels for the main exported products to the European Union are as follows:

Table 11 Exports to the EU – Selective Channels

Product Green % Orange % Red % Soybean 84,2 7,37 8,41

Corn 59,87 33,15 6,97 Wood 24,92 0,57 74,49 Vegetable Coal 17,84 82,15

Sugar 87,03 2,38 10,58

Source: SOFIA, DNA (2008) V. Transport and Trade Facilitation An optimal harbor logistics and transport is of singular importance for an inland country like Paraguay where, the main means of international transportation (rivers and roads) must pass in transit through third party countries, with a substantial increase in trade transaction costs. Those effects could be reduced through measures of trade facilitation. A. Paraguay as a landlocked country: Ports in trans it

Paraguay, like many other landlocked developing countries, holds all the conditions to have high transport costs. In addition to this, Paraguay does not have the adequate physical infrastructure for the promotion of its foreign trade. Increasing highway transportation costs for Paraguay products over the last two decades have made waterway the most convenient option for trade operations. The waterway has adequate costs for the access of high volume –low value added products to the transfer ports. Currently, 72% of all foreign trade flows are conducted


through the two principal rivers that connect the country to its neighbors: the Paraguay River and the Parana River97. However, waterway transportation for Paraguay means dependence on the ports of neighboring countries alongside the Parana River and the River Plate: Rosario, San Lorenzo and Buenos Aires in Argentina as well as Montevideo and Nueva Palmira in Uruguay. In some of these ports the export loads operate in bulk, while in others export-import transfers operate in containers. Hence, for Paraguay, export competitiveness and import costs depend mostly on the transit procedures applied by Argentina and Uruguay. A shipyard industry in Paraguay as been established over the last 20 years because of higher costs in land transportation and continuing restrictions imposed by Brazil, to land transportation of Paraguay´s soybean to the free port of Paranaguá on the Atlantic Coast98. These restrictions have caused that, gradually, up to 90% of soybean transport shifted to waterway.99 B. Navigability of the rivers The maintenance of the navigability of the Paraguay and Paraná rivers is of great importance because they are the principal access gates to the Paraguayan territory. Support services of the navigability of both rivers, are performed by the National Administration of Navigation and Ports (ANNP). This support consists of the following tasks:

• Dredging.

• Beacons.

• Network of water meters.

These tasks are performed to maintain a minimal depth of 10 feet (3.05 meters) for navigability of the Paraguay River all year round. The average cost of maintenance is about US$ 1 to 1.5 million. There are two types of market transportation depending on the depth of the river: i) the bulk cargo market, mainly composed by soybean and fuels, which requires a 12-feet-depth minimum in the Paraguay River and 10-feet-depth minimum in the Parana River (high zone) to be operable; and ii) transport of containers market, which needs a depth of 14 feet in the Paraguay River (USAID 2006). Sadly, in certain periods the depth of the Paraguay River diminishes to 6 and 8 feet level depending on the section of the river.

97 Data provided by the Centro de Armadores Fluviales y Maritimos del Paraguay 98 The last restriction has been imposed by the local government of the state of Parana (Brazil) on transportation of transgenic soybean and cereals. 99 Interview with Ignacio Santiviago, Executive Director of CAPECO


C. Transport Service and Communication and Informat ion technologies. 100 The capacity and frequency of waterway transportation have experienced an important growth over the last years. In general, the average time of transporting goods to the European ports is approximately from 32 to 35 days, distributed on the following way: Fluvial transport to transfer ports: 7 days Transfer Ports: 4 days Maritime Transport: 22 to 24 days Additional costs are generated in the transfer ports of Argentina and Uruguay. Thus a better coordination must be implemented among countries to reduce delays. The importing and exporting companies can do the follow-up of the shipment via Internet, through the records carried out by the transporter company in its web page. This follow up consists of the itineraries of ships within route plans. D. Port Logistics 1. Regulatory and Institutional Port Norms The port and waterway system in Paraguay is regulated by Law No. 1066/65, which created the ANNP with the following duties:

- To manage and operate all ports of the Republic of Paraguay.

- To maintain the navigability of the rivers at any time of the year, for river boats and sea traffic.

The ports managed and operated by the ANNP are located on the Paraguay and Parana rivers, the main waterways for most foreign trade operations. Another important institution is the General Directorate of Shipping (DGMM) under the Ministry of Public Works and Communications. The DGMM works to monitor ships and cargo while in transit through the Paraguay territory. In accordance with Law No. 295/71, any vessel with a Paraguayan flag must be enrolled in this entity. The DGMM also requires that the transportation of 50% of all export-import goods be undertaken by ships of Paraguayan flag. According to regulations, the DGMM receives a fee equivalent to 0.50% of the minimum wage for various unspecified activities in the Capital of the country, and also for registration and issuance of certificates of import and export cargo (Waivers) carried by vessels flying both the national and foreign flags.101. Private ports have emerged in the nineties after the enactment of Law No. 419/94. The fees charged for the use of these ports are defined directly by the operating

100 Information obtained from the Agencia Marítima, Customs Broker Rodolfo Riego Gauto and Medship Paraguay S.A., Commercial Department. 101 Ministry of Public Works. Department of Merchant Marine.


companies. These ports are affiliated through the Paraguayan Chamber of Private Ports and Terminals (CATERPA). There are 34 private ports on the Paraguay River and 14 private ports on the Parana River. There are only 4 ports operated by ANNP. on Paraguay River and 7 inland terminals. Activities in the private ports consist mainly (57%) of bulk cargo, i.e., export of cereals, soybean and oils. The rest of activities are concentrated in loading and unloading of containers of different goods: timber, machinery and equipment, foodstuffs, beverages, vehicles, toys and cosmetics. Private ports have proved to be much more efficient than ports operated by ANNP, because of better services in terms of costs, quality of operation, security and coverage. Apart from public and private ports Paraguay has a large number of warehouses in different cities of MERCOSUR on the sea coast to facilitate trade: Montevideo and Nueva Palmira (Uruguay), Buenos Aires and Rosario (Argentina), Santos and Paranaguá (Brazil). 2. Port infrastructure 2.1 Equipment, Facilities and Communication Technol ogies Most of the existing equipment for loading and unloading of containers consists of a set of construction cranes adapted to the port operation. For instance, reach stackers are used for the storage in the container terminals, and Front Lift Trucks are used to operate the yard: getting cargo from the ships to deliver, and also for the delivery and receipt of containers. With regard to containers, they are all provided to the local importers and exporters by foreign shipping lines. that either are the owners of containers or contractors of international leasing companies, that provides all type of containers (dry, tanks, reefer, flan rack, etc.). Regarding Communication Technologies (ICTs), the computer systems for the treatment of existing information in the ports have not been adequately developed, although these systems allow a reasonable administration102. VI. Main Problems for Trade Facilitation Here are the main problems affecting the import and export operations in Paraguay:

102 ANNP. Department of Trade


• Beacons and dredging of rivers 103. It reduces the level of competitiveness in terms of navigation, resulting in cost overruns because of limitations on the volume of cargo draft (draft survey). Also, there are overruns due to delays caused by the lack of beacon that restricts the navigation at night, and by the idle time resulted by disarming and arming convoys.

• Transit through third countries. The existence of non-tariff barriers to products in transit to third countries, as a result of changing regulations as well as the arbitrary interpretation of international transportation rules by the authorities of neighboring countries104.

• Other technical difficulties stem from the inconvenient to get warehouses

at transfer ports of transit, because of the simultaneous completion of harvests in Argentina, Paraguay and Brazil105.

• VUE System. It is only empowered to obtain documents for the export of

meat products. For other exported products, it only serves to obtain the Certificate of Origin. This provokes that exporters perform separate bureaucratic operations for legalization of documents in each agency, with subsequent delays and additional costs.

• Port facilities. The port facilities, while effective, are obsolete because

they generate many breakdowns and delays by its low loading rate.

• Stock of Container. The legislation does not promote a proper maintenance of the stock of containers, to the extent that deadlines are meager (only 10 days in the best case), and hence importers or exporters (or their customs brokers) should return these units without cargo charge. After that period, there is a penalty of US$ 30 per 20 feet unit and US$ 60 per 40 feet unit.

• Use of ICT. Computer systems for treatment of existing information in

ports have not been adequately developed. While these systems allow a reasonable administration, they have difficulties to interact with the systems of shipping companies and users. Accordingly, Paraguay has no internationally comparable port statistics, which does not allow an understanding of the market size and generates a lack of transparency in port operations.

• Waivers. The procedure for obtaining a waiver to import and export in the

General Directorate of Shipping, even in the case of ships with a Paraguayan flag, generates an overrun for the load givers (importers / exporters) due to the payment of fees, with the addition of a 72-hour delay in many cases.

103 Interview with Juan Carlos Muñoz, Centro de Armadores y Fluviales Marítimos with members of Cámara de Exportadores (CAPEX), Mesa de Diálogo DNA. 104 Centro de Armadores y Fluviales Marítimos. 105 CAPECO.


• Inspection with the scanner in the export process. The containers must pass through a port terminal where the scanner of DNA is, generating losses of time and additional costs in both domestic transport and departure programs of the vessels.

• Consular Legalization. Paraguay maintains a tradition in the usage of

consulates for certain foreign trade formalities. The delays generated by these additional steps in the consulates of Paraguay abroad (distance from the consular office / courier use) and its costs are a major barrier to trade. This practice is not in accordance with the agreed procedures in terms of regime of origin of MERCOSUR, the WTO procedures and several trade agreements recently signed by Paraguay with other nations in the region.

• Corruption. According to Transparency International, Paraguay Chapter, Customs have obtained a very poor result in terms of integrity and lack of official corruption. The assessment index in 2007 was equivalent to 53.8 out of 100, the same result obtained in 2006. This shows a lack of institutional capacity and willingness to increase the level of integrity of the DNA. The main problems to overcome are tax evasion, under invoicing, smuggling, extortion, fraud and, collecting bribes.

VII. Improvements in Trade Facilitation Since 2001, the Paraguayan government has been carrying out activities related to promote trade facilitation with the assistance of the Inter-American Development Bank (IDB), which includes the strengthening and modernization of the DNA. Paraguay has also received cooperation from the United States government to strengthening border controls and customs legal operations. The main improvements in Trade Facilitation are described as follows: A. New Customs Code In 2004 a new Customs Code was enacted which aims to align the customs structure of import and export goods to the current requirements of international trade. The new Customs Code came into force having been designed so as to comply with international norms and standards, especially the revised Kyoto Convention on the Simplification and Harmonization of Customs Procedures of the World Customs Organization (WCO). Also, it adapts institutions and actors involved in trade to the latest changes in international economic relations. This code also incorporated the recognition and implementation of new principles considered basic in the development of a modern Customs: transparency, accountability of officials, simplification of customs function, the professionalization of the staff and automating of their activities. It also defines specific rights and responsibilities of all those agents involved in customs operations: customs brokers, transport operators, transport companies, importer, exporter, bailees, cargo agents, and postal business, on board suppliers, trustees and dependents.


This new Custom Code should adapt to the MERCOSUR Custom Code that is being elaborated and discussed at the regional level. B. Quality Management System under ISO 9001:2000 In September 2005, the National Customs Directorate (DNA) started a process of installing a quality management system in the institution, which has resulted in a process of cultural change and reengineering of institutional and human resources. The DNA has finally established the System of Quality Management under the ISO 9001:2000 in 2007. This norm involves certification of DNA processes of Import to Consumption ICO4 and Export to Consumption ECO1 in five of the main customs administrations in the country. At present, five other customs administrations were incorporated, reaching a total of 10 DNA administrations of the 25 existing ones106. In May 2006, DNA introduced the Customs Formalities Center (CTA)107, where the procedures are implemented and new streamlined procedures developed within the Quality Management System. The Center works in the Central Customs office, then replicating themselves in the customs administrations that are part of Project Quality Management System. At present, 11 customs administrations have CTA. The introduction of the CTA has been a milestone in installing the Quality Management System, as part of the strategic thrusts that aim to modernize the institution and the improvement of the services provided. The CTA is a Service Unit whose main purpose is to provide a differentiated service to the user linked to foreign trade. In the CTA, the customs broker began its proceedings by delivering the documents to the Register Section. After that, the process continues quickly and automatically through all the other units (such as Ward) until it completed the customs clearance circuit. This is possible because all offices are interconnected in-house at the CTA. C. Use of ICT 1. SOFIA system108 The DNA has a computerized customs management system called SOFIA. SOFIA system has been created for facilitating an efficient dispatch of import and export goods. This system interacts directly with its users: customs brokers, transport companies, trustees, customs officials and related organizations in foreign trade. In 2000, there were thirteen customs administrations, of which only eight were connected to the SOFIA system. At June 2007, twenty-two Customs administrations were interconnected The SOFIA system has been simplifying and streamlining procedures for completing the customs cycle of the goods, the application in a rapid and uniform legislation in

106 DNA. Coordination of the Quality System, 2008. 107 DNA-CTA, 2008. 108 Departamento Sistema SOFIA, DNA, 2008.


force, improving administrative efficiency and management capabilities of DNA, obtaining external trade statistics and information for fighting against fraud. Currently, 99% of customs operations are computerized. The DNA also introduced an electronic declaration of the import and export declarations, thereby streamlining procedures, facilitating the start of the process even before the arrival of goods at destination. The computerization of the procedures has accomplished the reduction of contact between the user and the officer at the lowest level, thereby diminishing the possibility of acts of corruption. 2. VUE system109 In 2006, Paraguayan government created the VUE, recognized by the WTO and the United Nations, for the purpose of simplifying the formalities for export through information technology and automation. This is an electronic management system of data approval or data modification via Internet. 3. Mobile Scanner110 Under the program Paraguay Exporta Seguro (Paraguay Export Safe) the DNA has started using mobile X-Ray Scanner for non-intrusive verification of goods export. The institution has implemented this system under the new concept of international trade for the implementation of exports with safety. The scanner has an inspection capacity of 20 containers per hour, working at their maximum capacity. At present, it makes the average verification of 30 loads per day, targeting the use in the maximum daily capacity. DNA has only two Mobile Scanners. One for all shipments by river ports in the metropolitan area of Asunción and land exits in Puerto Falcón (Argentina); and the other one to operate exports controls by land at the border point of Ciudad del Este and Foz de Iguazú (Brazil). Risk analyses are performed for the selection of the burdens that pass through the X-ray process. Primarily, the scanner is used for export. Preference is given to the loads of charcoal and wood. 4. Electronic payment of taxes DNA implemented the electronic payment of taxes through authorized banks. With the electronic payment, transparency is guaranteed for foreign exchange and corruption is prevented.

109 Ventanilla Única de Exportación, Ministerio de Industria y Comercio, (2008). 110 Coordinación de Gestión de Calidad, DNA, 2008.


5. INDIRA and SINTIA systems 111 MERCOSUR has created a program for the electronic exchange of information on customs records called INDIRA, which provides country members with electronic access to data for all exports and imports among MERCOSUR countries. The importing country can obtain real-time access to data reported in the exporting country in relation to a particular shipment. Paraguay also signed MERCOSUR agreements on transit of merchandises. Therefore, Paraguay uses SINTIA system, which makes possible an exchange online of real-time data about international traffic on roads within MERCOSUR. D. Transparency and Professional Training The DNA made a big step forward in terms of transparency: all the key foreign trade regulations, including those related to sanctions linked to foreign trade, are published in hard copies and are available to the trade community. Moreover, customs and other regulatory agencies count with public official websites (Ministry of Finance, Ministry of Industry and Commerce, Ministry of Agriculture and Ministry of Foreign Affairs). REDIEX, the Paraguayan Agency For Promotion of Export and Investment, does also have a website containing information on incentives and procedures for foreign investors, especially exporters. In addition to the websites of government agencies, there are other websites from different organizations such as the Customs Broker Center, the Chamber of Exporters and the Importers Center of Paraguay, offering information on regulations of foreign trade. In terms of professional training, the Customs Education and Training Center (Centro de Formación y Capacitación Aduanera-CFCA), at DNA the acts as an administrative support unit that conducts maintenance and training in areas of legislation and customs techniques, as well as managerial and administrative issues, to achieve optimum levels of technical and professional expertise for human resources. In 2006 a Customs Technical Career was launched with the purposes of : i) specialize human resources in terms of customs policies and modern managerial practices of customs institutions ; and ii ) ensuring improvement of individual skills to achieve an effective and efficient job performance of customs officials112. VIII. Recommendations One of the priorities of a Paraguay - European Union Agenda should be focus in promoting mechanisms and formulas for trade facilitation, with the purpose of helping Paraguay to overcome existing obstacles mainly in terms of customs and transportation. The eventual EU technical assistance to Paraguay in trade

111 SIF-AMERICA S.A. 112DNA .


facilitations as well as capacity building as a result of public-private partnerships should concentrate in the following needs:

1. Improvement of the navigation quality on the Paraguay and Parana rivers by dredging and marking of the rivers, so to make navigation possible throughout most of the year and 24 hours a day. 2. Modernization of local port and logistics at ports in transit, the use of technological tools in modern equipment for the provision of prompt and efficient services, thereby reducing the costs of delays. 3. Development and deployment of information and communication technologies, improving and streamlining customs through the Single Window System of Export – VUE. 4. Creation of the Single Window Import – VUI, to streamline procedures and to reduce imports transaction costs. 5. Harmonization and simplifying customs operations with neighboring countries (transit) and the EU to standardize formalities to be followed and to allow the digitization of import and export declarations with a single, integrated electronic format. This will facilitate an electronic tracking of the whole operation, by both government agencies, companies and brokers 6. Building capacity for the transmission and processing of electronic information and data before the arrival of the cargo. 7. Working on compatibility of electronic systems between customs administrations of MERCOSUR and the EU 8. Simplifying and streamlining customs procedures - port procedures in Paraguay, customs - in the dock ones in transit countries (Argentina, Brazil and Uruguay)- through the coordination via the Internet with ports and depositories, so all the required information in electronic format are sent in advance. 9. Working for the introduction or amendment of codes of conduct, laws, policies and local regulatory tools that include provisions on conduct, conflict of interests and penalties and disciplinary actions to customs officials. 10. Strengthening customs procedures and systems for handling and clearance that include risk analysis and selection methods to identify high-risk goods; and risk analysis through pre-processing of information and data to identify or recognize high-risk goods that will be inspected and / or subjected to other customs procedures. 11. Training and capacity building in trade facilitation for the staff negotiators in government agencies and in the private sector involved in foreign trade, so they can act with a single voice in negotiating measures of trade facilitation in international bilateral and regional agreements. 12. Elimination of consular legalizations to avoid additional costs and delays.


References - Banco Central del Paraguay. (2008). Informe Económico Mensual Enero 2008. Asunción, Paraguay. - Borda, D. (2008). Memorándum para el Gobierno 2008 – 2013. Centro de Análisis y Difusión de la Economía Paraguaya. Asunción, Paraguay: CADEP. - CARANA Corporation. (2006). Impacto del Transporte y de la Logística en el Comercio Internacional del Paraguay. Document prepared for USAID (United States Agency for International Development). Asunción, Paraguay. - CARANA Corporation. (2007). Índice del Transporte Terrestre de Cargas y Propuestas de Reducción de Sobrecostos del Comercio Internacional del Paraguay. Document prepared for USAID (United States Agency for International Development). Asunción, Paraguay. - Comisión Económica para América Latina y el Caribe (CEPAL). (2008). Proyecto de Informe. Delivered, by CEPAL, in the Regional Preparatory Meeting of the midterm review of the Almaty Program of Action Implementation: “Addressing the special needs of landlocked developing countries”. June 30th, 2008. Buenos Aires , Argentina. - De Wolf, L., Royals S., and Geourjon, A. (2006). Estudio sobre las necesidades y prioridades y el costo de la ejecución. Asunción, Paraguay: WTO Trade Facilitations Negotiations Support Program. - Dirección Nacional de Aduana. (2008). Coordinación del Sistema de Gestión de la Calidad: Memoria 2007. Asunción, Paraguay. - Dirección Nacional de Aduana. (2008). 5 Años de GESTIÓN 2004 – 2008. Asunción, Paraguay - Ferreira, O. (2005). “Negociaciones sobre Facilitación de Comercio”. Document prepared for a Trade Facilitation Interinstitutional Workshop. Ministry of Foreign Affairs – Paraguay. - Laterza, E. (2005). “Estado Actual de las Negociaciones sobre Facilitación de Comercio en la OMC”. Document prepared for a Trade Facilitation Interinstitutional Workshop. Ministry Foreign Affairs – Paraguay. - Masi, Fernando (2008). La inserción económica de Paraguay en el mundo. Cuadernos de Debate Electoral. CADEP: Asunción. - Masi F. and Ruiz Díaz F. (2008). “Paraguay – Industrial Export Patterns to the United States and the European Union”. In A. Valladao and M Marconini (org) Reviving the EU-MERCOSUR Trade Talks. Sciences Po-Chaire Mercosur-Fecomercio. Rio de Janeiro (Brazil). - Ministerio de Hacienda, Subsecretaria de Economía e Integración. (2008). Panorama de Comercio Exterior. Asunción – Paraguay.


- Ministerio de Hacienda – IDB. (2005) Programa de Fortalecimiento y Modernización de la Administración Fiscal (PROFOMAF).Primer Informe Semestral. Enero a Junio del 2005. Asunción. Paraguay. - Ministerio de Hacienda-IDB. (2007). Programa de Fortalecimiento y Modernización de la Administración Fiscal (PROFOMAF), Informe Estado Indicadores. Asunción, Paraguay. - Ministerio de Industria y Comercio - UNIDO (2007), Negocios en el Paraguay, Elementos del Costo País. - OMC – BID/INTAL (2007) “Las Negociaciones de Facilitación del Comercio en la OMC: Identificación de las Necesidades y Prioridades”. Junio 2007, Bs. Aires, Argentina. Peña, Félix (2008). “Trade Facilitation and Cooperation – Recommendations Base on the Mercosur-UE Experience and Proposals for a 2008-2009 MEBF Trade Facilitation and Cooperation Programme”. In A. Valladao and M Marconini (org) Reviving the EU-MERCOSUR Trade Talks. Sciences Po-Chaire Mercosur-Fecomercio. Rio de Janeiro (Brazil). - Transparencia Paraguay. (2008). Índice de Transparencia, Integridad y Eficiencia. Asunción, Paraguay. - UNCTAD, (2006), “Resumiendo las principales conclusiones de una misión de cooperación técnica a Paraguay”. Geneva, Switzerland Consulted webpages • Administración Nacional de Navegación y Puertos: In www.annp.gov.py • Banco Central del Paraguay: In www.bcp.gov.py • Cámara Nacional de Comercio y Servicios del Paraguay: In

www.ccparaguay.com.py • Cámara Paraguaya de Exportadores: In www.capex.org.py • Cámara Paraguaya de Exportadores de Cereales y Oleaginosas: In

www.capeco.org.py • Centro de Importadores del Paraguay: In www.cip.org.py • Dirección Nacional de Aduanas: In www.aduana.gov.py • MERCOSUR: In www.mercosur.int • MERCOSUR: In www.mercosur.int • Red de Inversiones y Exportaciones: In www.rediex.gov.py • Ventanilla Única de Exportaciones: In www.vue.org.py Interviews conducted in Paraguay (01/08/2008 to 09/2008) 1. Administración Nacional de Navegación y Puertos (ANNP)

Department of Marketing and Sales Department of Marketing and Sales


- Navemar S.A. Agencia Marítima 10. Instituto Nacional de Alimentación y Nutrición (INAM)

- Department of Health Record 11. Ministerio de Hacienda (Ministry of Finance)

– Head of the Direction of Integration 12. Puertos Privados (Private Ports) - GICAL S.A. - Terminales Portuarias S.A. 13. Red de Inversiones y Exportaciones (REDIEX)

- Manager of Business Intelligence General Manager of Industries and Services Logistics Bureau for International Business - Manager of Forest Products

14. SENAVE

– Departament of Operations Department of Operations

15. SIF- América Paraguay

Computer System Analyst. Computer System Analyst.

16. Single Export Window (VUE)

- Technical Coordinator


APPENDICES 1. Special Import regimes unilaterally adopted by P araguay • “Regimen de Envío de Asistencia y Salvamento” (“Rescue and Assistance Delivery Regime”. Section 10. Art. 239 and 240. Customs Code. Law No. 2.422/04. • “Franquicia Diplomatica” (Diplomatic franchise). Section 9. Art. 237 and 238. Customs Code. Law No. 2.422/043. That determines the rules of the franchises with diplomatic and consular. Law No. 110/92 • “Sustitución de Mercaderías” (“Replacement of Goods”). Section 11. Art. 241. Customs Code. Law No. 2.422/04. • “Envío postal Internacional” (“International Postal Consignment”). Section 2. Art. 218 and 219. Customs Code. Law No. 2.422/04. Expresses consignment. Section 3. Art. 222 and 223. Customs Code. Law No. 2.422/04. • “Muestra”(“Displays”). Section 4. Art. 224. Customs Code. Law No. 2.422/04. • “Mercaderias generales en situacion de ser comercializadas” (“General Merchandise in a position to be commercialized”). Art. 300. Code Customs. Law No. 2.422 / 04. • “Tráfico fronterizo”(“ Border Traffic”). Section 8. Art. 234, 235 and 236. Customs Code. Law No. 2.422/04 (with third countries only) “Acuerdo de alcance parcial de cooperación e intercambio de bienes en las áreas cultural educacional y científica” (“Partial scope agreement on cooperation and exchange of cultural property in the areas of education and science”). Law No. 367/94. • “Exoneración de Tributos a la Importación y Comercialización de libros, periódicos y revistas.” Tax Exemption on Imports and Sales of books, newspapers and magazines. Amendment of the Law No. 22 of August 6 1992. Law No. 94/92. • “Reembarque”( “Reshipment”). Art.93, Law No. 2422/04. • “Exención de Pago del Tributo por destrucción Total o Pérdida de Mercaderías”. (“Exemption from payment of Taxes due to total destruction or loss of goods”). Art. 267. Customs Code. Law No. 2.422/04. • “Exonera el pago de tributos las donaciones otorgadas a favor del Estado y Otras Instituciones y modifica el Art. 184 de la Ley N° 1 .173/5. Ley N° 302/93. Decreto N° 6.359/05” (“Exempts the payment of taxes the grants provided to the State and other institutions and amends the Art. 184 of Law No. 1173 / 5. Law N° 302/93. Decree No. 6.359/05). • “Inmigrantes Repatriados” (“ Repatriated Immigrants”). Law 1095/84 art. 8.


2. Import Taxes, Tariffs and Fees - Customs Valuation Services: 0.50% over CIF Paraguay taxable value. - Port Fees (negotiable with private ports for the storage of goods). Average 0.60% + VAT over / FOB or CIF value tax. - Value Added Tax - VAT (Law No. 125/91) 10% s / CIF Paraguay taxable value + Customs Valuation Service + INDI + Customs Law + Consular expenses. Agricultural products in their natural state are exempt from VAT. - Selective Consumer Tax (Law No. 125/91). 2%, 5% and 7% Average over / CIF Paraguay taxable value+ Customs Valuation Service + INDI + Customs Law+ Consular expenses. Alcoholic beverages, carbonated, fuels and computers are taxed. 3. Cost of transport The main import and export products have the following transportation costs: 3.1 Import Freight for perfumes and liquor From: Bremen, Antwerp, Rotterdam, Hamburg and Tilbury To: Asuncion For containers of 20 ‘dc:

Sea freight: Euro 1,450 Transshipment Expenses:. U.S. $ 140 River Freight: U.S. $ 650

For containers of 40 `hc:

Sea freight: Euro 2,000 Transshipment Expenses: U.S. $ 200

River freight: U.S. $ 1,000 Composition of expenditure transshipment - Ocean Vessel Unloading. - Carrying container to square. - Customs procedures for transit to Asuncion. - Portering for composition to batch of river holds. - Hauling up the side of the river hold. - Load the river hold. Source: Shipping Agency and Customs broker Rodolfo Gauto (2008)


3.2 Export Freight for corn and soybeans in bulk From: Asuncion To: Rotterdam, Antwerp, Hamburg and Bremen Fluvial Freight: U.S. $ 22.50 per ton Transshipment Expenses: U.S. $ 6.50 per ton Sea freight: U.S. $ 18.50 per ton Source: Shipping Agency and Customs broker Rodolfo Gauto (2008) 4. Cost of port services To: Rotterdam, Antwerp, Hamburg and Bremen. Fluvial Freight: U.S. $ 22.50 per ton. Transshipment Expenses: U.S. $ 6.50 per ton. Sea freight: U.S. $ 18.50 per ton. Source: Shipping Agency and Customs Broker Rodolfo Riego Gauto (2008) 4.1. Import Fees / ANNP (2008)

Value Storage

(First 30-day Calendar Period)

Sling (US$)

Handling (US$)

To US$20,000 0,50% 1 0.70 From US$ 20,001 To US$50,000

0,48% 1 0.70

From US$ 50,001 To

US$100,000 0,43% 1 0.70

From US$ 100,001 Hasta US$200,000

0,40% 1 0.70

More than US$ 200,001

0,35% 1 0.70

Raw Materials 0,40% 1 0.70 Dangerous

materials Type 1 (explosives) and

Type 2 (flammable gas)

0,65% 1 0.70

Import Vehicles – Stored in open areas


Storage (Primer periodo 10 días

calendario)

Sling (US$)

Handling (US$)

Cars 30 US$ 1 0.70 Van 40 US$ 1 0.70

Trailers. Tractors. Trucks and semitrailers

80 US$ 1 0.70

The previously described cars, that are stored in covered areas at the request of users, will be charged with 25% on fares set.

Storage of loaded containers Loaded

Containers. Sling.

Handling Period 20 Feet 40 Feet

Provided Services

20 feet 40 feet

First (30 calendar days from the date

of entry into the port)

Free Free Removed Empty / Area

US$ 5 US$ 5

Second (20 calendar days

each) US$ 8 US$ 10

Removed Empty / Area US$ 5 US$ 5

Third (20 calendar days each) US$ 12 US$ 15

Removed on board Vessel US$ 5 US$ 7

20 Feet US$ 8 US$ 5

40 Feet US $15 US$ 5 Additional (since

91 days an additional fee per

day and per unit of container will

apply)

US$ 1 US$ 2 Removed Vessel/Dock

US$ 10 US$ 20

Storage of empty containers Empty

Containers Sling.

Handling Period 20 Feet 40 Feet

Provided Services 20 Feet 40 Feet

First (15 calendar days from receipt of the empty container

at the port)

Free Free Moving Dock / area

20 US$ 20 US$

Second to sixth (15 calendar days each

unit per day)

US$ 0.50 US$ 1

Sealing Loaded / Empty

3 US$ 3 US$

20 Pies 8US$ 5 US$

40 Pies 15 US$ 5US$ Additional (from 91

days an additional fee per day and per container will apply)

US$ 2 US$ 4

Fumigation cleaning

wallpaper Repairs

10 US$ 10 US$


4.2 Export tariff - Storage: 65% of the tariffs set for the storage of general goods for import. Use of the F.O.B. value recorded in the corresponding Customs Clearance. Classified by the same criteria used for the importation of goods. Export of agricultural products in their natural state will pay 0.20% on the taxable value established by DNA. Sling: US$ 0.75 per ton or cubic meter Handling: US$ 0.38 per ton o cubic meter Source: Commercial Department ANNP (2008)