The implementation of the General Agreement on Tariffs and Trade (GATT) following WWII ushered in the new age of global trade. Following the devastating lows of the 1930’s, the world economy has seen marked increases in trade since the GATT’s implementation.

Most recently, in support of the global recovery from the 2008 financial crisis, the members of the World Trade Organization successfully negotiated the Trade Facilitation Agreement (TFA), also known as the “Bali Package”.

This was the first major global trade negotiation success since the commencement of the Doha Round in 2001. The WTO’s TFA, which came into force in February 2017, focuses mainly on customs administrative processes in order to speed up the movement, release and clearance of goods.

The agreement also aims to increase cooperation measures between customs and other authorities to better facilitate the movement of goods. One of these processes is the post-clearance audit (PCA).

Easing trade flow is not without its challenges

A PCA is the verification of customs declarations through the examination of documentation held by traders or their agents after the goods have been “released” from customs control. This is a key control method used to ease the movement of goods through a risk-based selection process. This also marks a departure from a purely transaction-based approach to an audit-based process.

The approach to post-clearance audit has evolved over the years. The Revised Kyoto Convention (RKC) gave greater focus to modernizing and improving customs processes in border management administrations.

A major challenge in the post-clearance audit processes is finding an accurate way to measure the effectiveness of the audit program and the compliance level or ‘compliance health’ of trade.

Due to the complicated nature of the import and export industry, compliance challenges can be significant. There can be a lack of documentation to support or challenge the importer’s or exporter’s records. Third parties that are in foreign jurisdictions may not co-operate with auditors, and variances in how different regions conduct audits and verifications may result in confusing and inconsistent decisions for traders.

The reality is that importer and exporter compliance behaviour is complex, with multiple factors to consider when attempting administration of border regulations.

6 rules for audits as per the OECD

The OECD Centre for Tax Policy and Administration (CTPA) provided recommendations in 2006 which, although specific to tax administrations, could apply to any audit-based program. In accordance with the OECD’s CTPA, audit programs must:

1. Promote voluntary compliance
2. Detect noncompliance at the individual importer or exporter level
3. Gather information on the “health” of the import and export systems, including information on compliance rates and trends in noncompliance
4. Gather intelligence
5. Educate importers and exporters
6. Identify areas of the law that require clarification

Post clearance audits are critical in encouraging the trading community to be in compliance. At the same time, the reality of limited resources requires a strategic approach to planning, implementing and maintaining an effective PCA program.

Unlike a tax audit, a customs PCA is rarely a full audit.  A full audit is all encompassing, including a comprehensive review of all aspects of a taxpayer’s liability. Whereas a PCA, on the other hand, is similar to a limited-scope audit or a single-issue audit, where one or two programs are generally reviewed around a sampling of commodities – consequently, a full picture of trader compliance is difficult to achieve. The application of a risk-based audit process is critical, as is a method for capturing and sharing audit results at an enterprise level.

The WTO TFA states border management administrations must ensure that there is a comprehensive legal framework to support post-clearance audits.

In addition, organizations should also follow established management processes, including a comprehensive measurement framework with well-defined verification and audit procedures. This framework should also include a necessary support structure with robust human resource management and development programs to support the entire process according to the OECD.

PCAs play a key role in empowering developing trading nations

Through the use of PCAs, fewer resources are required at the border for inspection, freeing up resources for other important border work. These audits are critical in reducing lost revenue for both developed and developing countries.  Even countries with relatively low duty rates can benefit significantly from an effective PCA regime.

The challenges faced by both developing and developed countries are chiefly around resources. Regardless of the return on investment for PCAs, often there are too few tools, too little training, and underdeveloped or nonexistent systems.

A strong, well developed post-clearance audit program can be a critical tool in managing trade, provide important intelligence on the functioning of the trading community, and increase revenues for governments.

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The WTO projects that the agreement will lower international trade costs for member countries by an average of 14.3%, and increase international trade by up to $1 trillion.

The TFA will also reduce import times by 47% and export times by 91%, equivalent to a day and a half and two days, respectively. The WTO’s aim is that the agreement will aid the economies of developing countries by facilitating their involvement in global trade, and help more small and medium-sized businesses enter the global economy.

So with such high hopes for the TFA, just how does your business stand to benefit from the agreement?

1. More transparent trade laws

Businesses who import or export know how cumbersome customs compliance can be. For every international market you enter, you have to keep track of trade restrictions, classifications, laws and fees. The TFA aims to make the process much easier.

With the TFA in place, participating countries will be required to publish their trade regulations and fees online. That means businesses will be able to find all regulations that will apply to their shipments from a simple search. Additionally, countries will be required to have an easily accessible “window” through which companies can ask questions regarding trade laws.

2. Easier customs processing

Companies will not only be aware of the trade laws, complying with them should also be easier once the TFA is in place.  TFA-compliant countries must create a single place in which companies can file the necessary customs paperwork. Once the proper customs information is submitted, companies won’t be asked to submit the same information again, barring any extraordinary circumstances.

If a trader receives an unfavorable customs ruling, the TFA grants that the company will be able to file an appeal.

3. Faster customs processing

One of the primary goals to the WTO’s TFA is to ease the transit of goods and shorten shipping times by reducing the amount of time that goods are held up in customs.

In addition to making it easier for companies to file customs paperwork and pay fees, there are several provisions in the TFA that will speed up international systems.

The agreement will expedite the customs process by allowing shippers to submit their customs information and payments in advance of their shipments. International shippers will also be able to request customs rulings in advance, and those rulings must be valid for a reasonable period of time. Should shipments be held up in customs for any reason, customs officials will be required to notify shippers. TFA-compliant countries will be asked to make their customs processing times public on a regular basis.

4. A say in trade law

The TFA also aims to give the businesses affected by international trade laws more of a say in those laws.

When WTO countries consider changes to trade laws, they will be required to make the changes public and give those affected by the laws a chance to weigh in. Customs agencies in TFA-compliant countries will also have to take on international trade consultants, and will be required to hold regular meetings with those consultants.

So when will be benefits of the TFA go into effect? The TFA has to be ratified by two-thirds of WTO members, or 110 countries. Saint Vincent and the Grenadines is the 106^th nation to ratify the agreement, and the projection is that the remaining four ratifications will come in the early months of 2017.

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