This is the twentieth in a series of articles Interest.co.nz has commissioned reviewing the key chapters and issues for New Zealand in the Trans-Pacific Partnership Agreement (TPPA). Links to all the analysis in this series are below.
By Ryan Greenaway-McGrevy*
Time is money. Imported goods that spend time sitting on the docks are costing someone, somewhere. And as any small business owner who has been involved with exporting goods overseas can tell you, customs officials are not always the most helpful bunch.
Customs delays and related impediments are one of the non-tariff barriers to trade that the TPPA seeks to address.
Chapter five is titled Customs Administration and Trade Facilitation. The general goals of the chapter are stated up front under the first Article: Each Party shall ensure that its customs procedures are applied in a manner that is predictable, consistent and transparent. The subsequent articles in the chapter outline the various provisions designed to meet these goals.
Consistency and cooperation
Article 5.2 (Customs Cooperation) encourages information sharing and cooperation in the implementation of the preferential tariff treatment and rules of origin for goods traded between TPP members. Parties must also endeavour to provide notice of any changes to their customs laws and regulations that will affect the implementation of the trade pact.
The Article requires signatories to cooperate and share information in order to implement the WTO Customs Valuation Agreement (CVA).
The CVA sets out a uniform and neutral system for the valuation of goods for customs purposes. Because customs rates are typically assessed on the value of imported goods, both importers and governments have an incentive to manipulate the stated value of the goods entering the country: Government agencies hungry for revenue may want to overstate the value, while importers have an incentive to understate it.
Under the CVA the basis for customs valuation is the “transaction value”, which is defined as “the price actually paid or payable for the goods when sold for export to the country of importation”. The CVA is mandatory for all WTO members, but establishing the transaction value requires cooperation and information sharing between trading partners - which is what the Article aims to achieve.
Timeliness and predictability
The chapter also aims to speed up the transit of goods through customs.
Article 5.10 (Release of Goods) requires Parties to allow goods to transit through customs as quickly as possible – preferably within forty-eight hours of arrival. It also requires Parties to adopt customs procedures that do not involve the temporary transfer of goods to warehousing facilities.
To further encourage faster transit of goods, Article 5.6 (Automation) promotes the use of international standards in customs transit procedures. It also encourages signatories to follow the guidelines of the World Customs Organization (WCO) or the Asia Pacific Economic Cooperation organization (APEC) in respect to automation.
Other articles in the chapter that encourage faster processing include: Article 5.7 (Express Shipments), which requires Parties to maintain an expedited transit procedure for qualifying shipments; and Article 5.9 (Risk management), which requires all Parties to adopt risk management systems for high risk goods that may require additional screening before entering the country.
The chapter also aims to make the whole customs process more predictable.
Under Article 3 of the WTO (to which all TPP members are signatories), importers also have the option of filing their paperwork in advance of the goods arriving to expedite transit through customs. This provides the importer with some reassurance that their products are not going to spend time on the docks tied up in red tape. The TPPA contains some additional provisions that affect this process.
Article 5.3 outlines the process for “advance rulings” under which a customs authority provides a decision about elements such as tariff classification for the imported good or whether the imported good is originating and therefore qualifies for preferential tariffs. A ruling must stay in place for at least three years – provided that the law and facts of the case remain unchanged. Under Article 5.5 (Review and Appeal), Parties must ensure that there is access to an administrative and or judicial review process for any determinations made on a customs matter.
Other provisions in the chapter target transparency in applicable customs regulations and protocols.
Article 5.11 (Publication) requires Parties to publish all of its applicable customs laws, regulations and procedures online and in English. They must also provide more than one contact point for enquiries related to their customs protocols, and these contacts must be published online. Parties must also publicise any proposed changes to their customs procedures.
The chapter also attempts to cut back on spurious penalties and fines for supposed breaches of customs laws or procedures.
Article 5.8 (Penalties) requires Parties to adopt or maintain laws that allow the customs administration to impose penalties for breaches of customs laws or procedures. But penalties must be imposed based on the facts of the case and must be “commensurate with the degree and severity of the breach”.
Measures must also be taken to avoid conflicts of interest. For example, Article 5.8.4 prohibits remuneration of government officials from being based on penalties or duties collected.
The headaches of customs
I have heard some terrible tales from small businesses that have tried to export to Asia, the Pacific, and elsewhere. More than once an uncooperative foreign customs official has been enough to make a small exporter think twice about seeking out new markets with our supposed trading partners. Goods in transit can sit in warehouses for months while the appropriate paperwork is filed – which often requires the appropriate pockets to be filled first.
Small outfits typically do not have the personnel to deal with the complications and roadblocks set up by foreign customs officials. All the grand talk about opening markets means little if customs officials are permitted to be unwelcoming. Developing a more efficient customs process will make it faster and cheaper for both the big and little players throughout the trading bloc to do business.
*Ryan Greenaway-McGrevy is a senior lecturer in economics at the University of Auckland. Prior to that he was a research economist in the Office of the Chief Statistician at the Bureau of Economic Analysis (BEA) in Washington DC.
*Amber Carran-Fletcher contributed to this article.
The series so far: