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MOFCOM Department of WTO Affairs Interprets Items of the Trade Facilitation Agreement

In December 2013, the WTO Bali Ministerial Conference passed the Trade Facilitation Agreement. By the end of November 2014, the WTO passed the relevant protocol and delivered to all members to perform domestic approval procedure. Approved by the State Council, China submits the approval letter to the WTO on September 4 2015. On February 22 2017, after Rwanda, Oman, Chad and Jordan submitted their approval letters to the WTO, there have been 122 members accepting this agreement, surpassing the WTO Agreement’s requirement that every valid WTO rule must get the approval of two thirds of the WTO members.. . The Trade Facilitation Agreement goes into effect.

1. Major content of the Agreement

The Agreement consist of three parts and twenty-four items. The first part (from the first item to the twelfth item) rules the substantive obligations of all members in respect of trade facilitation, including 40 trade facilitation measures all together, with contents such as information release, pre-ruling, goods discharging and clearance and customs cooperation.

According to the second part (from the thirteenth item to the twenty-second item), the developing members can have the special and differential treatment when implementing the items of the first part of the Agreement, which is mainly reflected in the two aspects of implementation period and capacity building. According to the agreement, as to the items of the first part, developing countries can define the items that are implemented immediately (namely Class A measures) after the Agreement takes effect, the item that can be implemented after a certain transitional period (Class B) and the items that can be implemented after gaining the implementation strength after a certain transitional period and capacity building (Class C), and report them to the WTO.

The third part (from the twenty-third to the twenty-fourth item) is about organization arrangement and the final items. It requires that op all the WTO trade facilitation committee should be built up, all members should set up national trade facilitation committee or appoint one existing mechanism to promote the domestic coordination and implementation of the Agreement and the dispute settlement mechanism that can be suitable for the Agreement.

2. Interpretation of the Major Items of the Agreement

I. Relevant Items of the Transparency of Trade Regulations (from the first item-the fifth item)

1. The publication and acquisition of information (the 1st item). The Agreement stipulates that members should promptly release import and export procedures and forms and documents, tariffs and tax rates, import and export fees and charges, classification or valuation requirements, rules and regulations relating to the rules of origin and administrative adjudication and other information in a non-discriminatory and available way, and announce import and export procedures, import and export required forms and documents at the Internet, and set up the inquiry site to answer consultation of government and traders.

Acquiring information in detail clearly and timely can reduce the uncertain factors for enterprises to judge the trade conditions exactly. This is more important for small-and-medium sized enterprises. In import and export trade in the past, compared with relatively large enterprises the small-and-medium sized enterprises were in disadvantageous situation regarding information acquisition because of insufficient personnel, finance and materials. The increased transparency in laws and regulations makes it easier for SMEs to obtain relevant information.

2. Release and comment on trade regulations in advance (the 2nd item). The Agreement stipulates that members shall publish and give traders opportunities to comment as soon as possible before the commencement of laws and regulations (except for changes in tariff rates and except that releasing in advance will affect the effectiveness of implementation). The border agencies shall consult with traders on a regular basis.

Newly developed or revised trade regulations are announced in advance and traders can be informed in advance. This helps traders make necessary adjustments to their trade practices and strategies in time, thereby minimizing the adverse effects caused by the adjustment of trade regulations and increasing the predictability of trade regulations. In the process of formulating or revising trade regulations, border agencies actively listen to the traders' opinions or requests by consulting with the traders on a regular basis. It will help the formation and execution of relevant laws and regulations better reflect the concerns of the enterprises.

3. Advance Rulings (Article 3). The Agreement stipulates that the members shall issue an pre- ruling before the importation of a good with regard to the good’s tariff classification and the origin of the good. And the members are encouraged to provide pre-rulings on the customs value, the applicability of relief or exemption from customs duties and the application of the quotas, etc.

The pre-ruling pushes the examination of customs clearance forward, so as to reduce the customs clearance time of the enterprises and improve the efficiency of customs clearance. Before the importation of the good, the customs could make an initial evaluation on the goods’ classification and origin through the materials submitted by the enterprises. After the arrival of the good, the customs only need to conduct simple verification.

4. Procedures for Appeal or Review (Article 4). The Agreement stipulates that each member shall provide that any person to whom customs issue an administrative decision has the right of an administrative appeal or judicial review. Each member shall ensure that, in a case where the decision on appeal or review is not given either within the certain period as is specified in law or regulations, or is delayed unduly, the petitioner has the right to apply to the administrative or the judicial originations for further appeal or further review.

It is known that, at present, few Chinese enterprises could use the appeal or judicial review of the importing countries, and more of them are inclined to take traditional methods like “backhander” to solve the problems. After the implementation of the Agreement, Chinese enterprises shall adopt legal measures to safeguard the legitimate interests when meeting with unreasonable treats.

5. Other Measures to Enhance Impartiality, Non-discrimination and Transparency (Article 5). The measures include strengthening the disciplines of announcing to the members notices of tightening inspections on imported food , the customs and other departments in charge shall immediately inform the carriers or importers when detaining goods, and the second inspection chances shall be given to the importers if the first inspection is disqualified.

The members adopt strict and tedious inspection and quarantine procedures to imported food and agricultural products with many inspection items and high inspection frequency, which largely increases customs clearance time and inspection and storage cost, and weakens the competitiveness of imported agricultural products and food. The Agreement, through strengthening the related disciplines, such as the strengthening of inspections of importing countries, shall be based on risk evaluation, and shall only be applied to specific point of entry, while the importing countries should adopt manners that have little restrictive influences on trade and should terminate the inspection after the situation changes or the risk disappears. The traders could get the second chance for inspection after application if the first inspection is unqualified, which has substantial significances to the traders to safeguard their own legal interests.

II. Disciplines on Fees and Charges on importation and exportation (Article 6)

1. General Disciplines on Fees and Charges on Importation and Exportation. The Agreement stipulates that information on fees and charges shall be released except tariff and domestic tax, and there shall be a transitional period between the releasing and its taking effect. The charges shall be reviewed regularly, so as to reduce the quantities and varieties of the fees and charges. The fee taken for customs service shall be restricted to the approximate cost of the service provided.

The above contents could help the traders understand the quantity, varieties, time of payment and mode of payment, so as to better plan the trading. At the same time, the Agreement also requires that the fee for customs service shall be restricted to the approximate cost of the service provided, which will avoid the arbitrary charge of the customs, so as to help the enterprises to further reduce trading cost.

2. Penalty disciplines. The Agreement requires that the penalties made by members’ customs shall commensurate with the degree and severity of the breach. The confirmation and collection of the penalties should avoid the conflicts of interests and should avoid creating an encouragement for the customs officers. When making penalty decisions, the customs shall provide written document to the penalized person with the nature of the breach and the applicable law, regulation or procedure. When a person voluntarily discloses to the customs a breach, the Agreement encourages the customs to reduce punishment.

Those contents will help to normalize the punishment through Customs and increase its transparency, and uphold the legitimate rights of traders. That the agreement encourages the Customs to mitigate punishment also promotes the traders

III. On Customs Clearance (Article No.7)

The agreement stipulates that all members shall permit importers to submit import documents like shipping bills before the cargo arrives so as to make rapid clearance when the cargo arrives. Customs clearance shall be made in advance when the tariffs and fees of the goods can not be confirmed for the moment and when the traders could provide guarantee. All members should take risk management and goods auditing measures and they are encouraged to release the average time of clearance. Easier Customs clearance could be given to certified operators (traders with good law-abiding record, good internal control record management system and financial solvency), for example, to lower documents and data requirements, to decrease check percentage and to accelerate the clearance. Easier Customs clearance could be given to air express freight that satisfies certain conditions (necessary information has been provided before goods arrive, express enterprises have high control over goods through internal security guarantee or track technology, possessing good law-abiding record), for example, to lower document requirements, accelerate clearance and exempt tariffs and domestic taxes of goods with small value. Prior check will be given to perishable goods (mainly fresh agricultural products) to make clearance as soon as possible.

For traders, to declare before goods arrive, and to separately decide customs clearance, tariffs and fees and to separately make payment reflect optimal Customs clearance service, and will speed up clearance procedures after goods arrive, reduce trade cost and shorten delivery time.

For port management departments like the Customs, to carry out risk management and the follow-up check will improve the efficiency of actual supervision.
IV. Imports and exports procedures (Article No.10)

It includes lowering and simplifying import and export procedures and document requirements, receiving copies of import and export documents, encouraging members to abide by international standards when formulating import and export procedures, trying to set up single window, cancelling pre-shipment inspection relating to tariff classification and price assessment and prohibiting from requiring members to use customs agent compulsively.

Complex document requirements will certainly prolong the clearance time and increase business cost, and to simplify import and export procedures and document requirements will shorten the detention time of goods, reduce trade cost and increase business opportunity. The establishment of single window will improve the collaboration among port management departments, and make clearance easier and quicker.
V. Transit freedom (Article No.11)

The agreement stipulates that when members transit shipment, laws and procedures cannot make disguised restrictions, neither can they seek for voluntary restrictions. Transit fees shall be in line with its service, procedures and documents requirements shall not go beyond necessary limits. Technical laws and regulations and conformity assessment procedures will not be applied to transit goods..
VI. Customs cooperation (Article No.12)

The agreement mainly stipulates that all WTO members’ Customs should conduct cooperation on Customs declaration information exchanges so as to make easier check.
Contents of information exchange include specific information about the declaration list for imports and exports, such as business invoice, packing list, certificate of origin and bill of lading. Applicants should abide by the requirements on information protection and business secret protection proposed by the applying party; the requested party has the right to refuse to provide information out of public interest or domestic legal requirements.