New CBRA report for the European Parliament

ABSTRACT: The subject of trade facilitation and border management lies at the heart of EU trade policy, which seeks to take advantage of global value chains for the benefit of workers, consumers and businesses. This demands that goods may flow smoothly across borders without jeopardising EU values and standards. Trade facilitation principles help reduce the cost of cross-border trade in goods while safeguarding regulatory control objectives. Good border management practice is integral to trade facilitation. In this study many ideas and examples about how borders management can be improved are shown. The key is coordination, cooperation and integration within the respective border agencies (intra-agency), between the many border agencies (interagency) and international (with colleagues across the border and EU trade partners). Despite considerable policy interest, research is still in its infancy. There is much demand for further enquiry. This paper discusses relevant principles, ideas and concepts and concludes with a list of recommendations. This includes the recommendation to develop suitable EU institutions in aid of trade facilitation as well as for research.

RECOMMENDATIONS: This study, in line with its terms of reference, has had broad ambitions. The subject of border management in trade policy is still evolving. As authors, we acknowledge that our work is open to criticism and might benefit from being further developed. However, it does provide an introduction to the complexities of trade operations (Section 2) and underlying trade facilitation ideas (Section 3) to help bring down the costs while safeguarding regulatory objectives and ensuring the smooth flow of goods across borders. Border management (Section 4) as a subject is also still evolving, while remaining intrinsically linked to trade facilitation. Indeed, many of the EU’s multilateral, bilateral and regional trade commitments hold the EU and its trade partners accountable to their performance in border management. The key dimensions as discussed in 4.1 are:

1) inter-agency cooperation between offices and facilities of the same agency, in different parts of the country;

2) intra-agency cooperation, such as the example of the Finnish Border Guard with Finnish Customs, and also stressed by Article 8 of the WTO Trade Facilitation Agreement; and

3) international cooperation, examples of which include not only the arrangements between Sweden, Finland and Norway or between Germany-Switzerland and France-Switzerland, but also in other forms and shapes of customs cooperation agreements and bilateral trade agreements.

However, the question that begs itself, and touched upon in Section 5, is how to hold countries accountable to their performance in trade facilitation and border management? We argue that the EU and its member states need to develop suitable institutions to help identify business concerns with regard to trade facilitation and border performance. This is a binding obligation within the WTO Trade Facilitation Agreement (Article 2 and 238). The commitment to transparency, dialogue and consultation is also a promise within the Commission’s “Trade for all” (3.1) strategy. Coordinated National Trade Facilitation Bodies across the EU are essential to help to ensure that policy makers are able to adequately capture the experienced frustrations and other observations of relevant stakeholders at home and with trade partners. More and more countries are launching National Trade Facilitation Bodies (as required by WTO TFA Article 23), and the EU and its member states are advised to follow suite. Considering the complexity of trade arrangements (Section 2) the work of such bodies is no small task and needs to be able to effectively hold border agencies accountable to performance at home and abroad.

This leads to our next recommendation that was touched upon in Section 5. Although there are a number of established comparative benchmarking tools to cross-border performance, they are not without critics. Robust assessment tools have not yet been developed and are needed. The development of suitably tested assessment methodologies and tools is recommended. In this context, we also sense that there is a vast pool of data to draw upon that has not yet been tapped. Big data analytics could provide for new ways of untangling complexity (Section 2), while developing insights into the performance of border facilities. For example, tracked mobile phone data and GPS signals from truck drivers can give insight into the performance of ferry ports like Dover. Investments into explorative research projects and pilot studies is strongly advised.

It needs to be stressed that although there are many ideas about how to reduce the regulatory burden at borders, innovation does not stand still. As the FloraHolland example shows (4.3.4), reconceptualising the border away from the frontier and along trade lanes could be one particularly fruitful approach that could be neatly packaged within a bilateral trade and/or cooperation agreement. Again, further explorative work is recommended.

A trade lane (or supply chain) perspective towards controls also provides opportunities for finding synergies and efficiencies between the economic operators and border agencies. Many companies may have their own internal control measures in place – for example to ensure that the goods they

received were in line with contractually agreed performance indicators. It would be worth exploring to what extent the internal controls of businesses within supply chain operations can be aligned with or recognised in lieu of official controls. An extension of the Authorized Economic Operator and Trusted Trade Lane concepts could serve as a model (Hintsa, 2013; Hintsa, Urciuoli, & Tan, 2016; Widdowson et al., 2014). Further enquiry is recommended.

We also sense that the relationship between border controls and their effectiveness in terms of safeguarding EU values and standards needs to be developed further, too. It goes without saying that many risks are home grown, and, where risks have international dimensions, the use of irregular border crossings needs to be better understood. Research is advised.

One line of enquiry is to measure the performance of border agencies with regards to protecting society. CBRA has developed an initial model that is being currently tested in a handful of EU member states. This model uses parameters and data known to customs administrations, including percentage of containers selected for targeted and for random controls, and hit rates of various categories of controls. As the main output, the model provides an estimation on how many percent of the potential illicit imports to a certain country (or, EU) – can be containers, parcels, bulk etc. – each customs administration is capable of detecting / stopping / seizing, during a given year (or any other time period). However, the work is still in its infancy and would benefit from further testing and application.

In line with commitments to trade facilitation and border management reform the EU and its Member States have already made many significant investments into trade and border management infrastructure. It might be prudent to develop quantitative and qualitative measures to assess the overall quality of the EU trade and customs environment. By reference to these measures the effectiveness of improvements can be better assessed. Standardised measures may also assist policy makers tasked with producing costbenefit analysis on a case by case basis. The development of an EU wide assessment framework is advised.

REFERENCE: Grainger A., and Hintsa J. (2017). The role of border management in implementing trade policy goals. Brussels: European Parliament.