Topic: How can Technology help beat Covid-19s Cross-Broder Trade Disruptions?
Author: Pamela Ugaz, Ph.D
Company: Economic Affairs Officer, Trade Facilitation Section – Division of technology and Logistics, UNCTAD
The widespread lockdown and social distancing policies due to the COVID-19 pandemic imposed across the globe have slowed down economic activities, in particular cross-border trade. New forms of export restrictions, proliferation of border controls and constraints to the free movement of people have triggered crowded border posts, long truck queues, congested warehouses and several delays. As a consequence, trade is proceeding at a slower pace, in times where agility and efficiency should be the highest priority to ensure essential goods supply and a swift economic recovery.
To overcome these hurdles, Customs authorities and other border agencies have deployed new ways to speed up import, export and transit procedures to preserve supply chains, while preventing the further spread of the pandemic. This article explores how technology-related trade facilitation measures are helping border agencies to achieve both: safeguarding public health and increasing cross-border trade efficiency.
What are COVID-19’s challenges to cross-border trade?
Given the high degree of uncertainty about the duration and severity of COVID-19 pandemic, the world is plunging into recession, driving a slump in cross-border trade. The United Nations Conference on Trade and Development (UNCTAD) estimates a decline of 26.9% for global trade in the second quarter of 2020. Likewise, the World Trade Organization (WTO) warned that the fall in world merchandise trade to be as much as 32% in 2020. Besides these bleak projections, traders may also expect the following threats:
Rise of trade costs
In an attempt to halt the spread of the pandemic, many governments have directed traffic through fewer border-crossings, conducting at-the-border health checks, quarantining drivers, or reintroducing border controls. This additional time spent in transit for goods is at the origin of more costly trade.
The WTO reckons that the rise in trade costs will account for up to 3.4% global tariff. Other reasons driving the increase of trade costs are higher air cargo prices due to the lack of cargo-belly capacity in passenger jets. Severe travel restrictions and the delivery of equipment that needs bespoke installation also raise the costs of delivering services.
Supply chain disruptions
According to the Economist magazine, factories across the world, relying on complex value chains must cope with challenges in organizing their production as dizzying local and national shutdowns appear at different moments in time in various locations. To make things worse, uncertain supply chains are exacerbated by a rise in export restrictions. As a result, several companies had to pause production.
Transport and logistics constraints
Restrictions on free movements of transport workers have disrupted land, sea and air cargo, affecting international transport and logistics services as well as trade routes. The cancellation of more than a million passenger flights, usually transporting postal shipments and other small consignments, have seen the cost of air freight soar. The International Air Transport Association and the Universal Postal Union underscore that administrative and regulatory bottlenecks and quarantine conditions also prevented cargo flights from keeping pace with demand.
These disruptions are shaping not only traditional trade but also digital trade. The WTO asserts that commercial B2B e-commerce, relying on large-scale imports via maritime transport, has been affected. As an aftermath of disruptions, customers have been faced with delays or cancellations of their orders.
Which are the tech-savvy measures available to facilitate trade?
As countries are starting to lift lockdown and open borders, trade facilitation measures such as those set out in the WTO Trade Facilitation Agreement (TFA) provide a sound basis for supporting recovery and business continuity, while containing a future wave by reducing physical contact between border officials and traders.
The WTO TFA aims at expediting the movement, release and clearance of goods, including goods in transit, as well as promoting cooperation between Customs and other border authorities. The Agreement encourages the use of Information and Communication Technology (ICT) to address cumbersome procedures and to reduce waiting times at borders. An International Trade Center study affirms that the wide-scale adoption of ICTs and implementation of trade facilitation measures determine countries’ competitiveness in international trade.
Therefore, countries have accelerated the implementation of the following breakthroughs in trade procedures, contained in the WTO TFA, to enable the smooth cross-border flow of goods given the COVID-19 crisis:
Acceptance of electronic copies
Customs and other border agencies have swiftly adopted the exchange of electronic trade-related documents in place of physical copies to boost procedure efficiency while maintaining social distancing. To illustrate, South Africa has relaxed requirements for certain commercial documents and specific procedures, and accept documentation transmitted electronically, subject to regularization, where necessary.
Regarding Sanitary and Phytosanitary (SPS) certificates, eleven WTO members reported to accept scanned documents instead of requiring originals. At the same time, six have implemented electronic signatures, and three have also set up dedicated websites for the verification of documents. Some countries go even beyond, i.e. the United Arab Emirates are developing electronic health certificates and agreeing to verification procedures of certificates to reduce the use of paper health certificates.
Governments allow traders to lodge import documents and other required information electronically before the arrival of goods to enable the pre-assessment of such documents, also giving the opportunity to identify, prioritize and coordinate import procedures, i.e. Cameroon and members of South African Development Community (SADC). Indeed, the WTO TFA strongly recommend electronic submissions of those documents, avoiding visits to border posts needlessly.
Given the high risk in the circulation of physical currency, border agencies have entirely shifted to electronic payment for duties, taxes, fees and charges incurred upon importation and exportation. This measure does not only prevent handling money, but it also limits that traders are physically visiting banks or government agencies. Jamaica Customs Agency, for example, has recommended carrying-out all Customs’ related payments through the e-payment feature developed by UNCTAD Automated System for Customs Data (ASYCUDA).
Single Window for Trade
Single Window for Trade also plays an essential role in speeding up contactless border procedures. This electronic platform allows traders to submit the relevant documents and data requirements and receive decisions regarding the release of goods through a single-entry point. It works round the clock, making available automated processing of trade declarations.
Some systems deploy blockchain technology for electronic certificates such as rules of origin or SPS. Others employ artificial intelligence and big data to develop algorithms that assist different authorities in undertaking risk management of specific consignments (WTO, 2020).
According to the Organisation for Economic Co-operation and Development (OECD), many economies across Europe, Central Asia, North America, Asia-Pacific, Latin America and the Caribbean already have Single Windows for Trade in place along with other digital mechanisms, limiting physical interaction (see Figure1). After COVID-19 outbreak, such countries have increased their use by making available more targeted user manuals for both border officers and traders.
African countries are also progressively implementing this measure. Rwanda has urged stakeholders and the general public to use ASYCUDA and the online services available in Rwanda Electronic Single Window. Members of the SADC are exploring the automation of the submission and approval of trade documents through single windows to reduce interactions between border officials and trader’s representatives.
Notwithstanding the benefits, single-window is the measures with the lowest implementation rate according to the WTO TFA database. The issue is that while Customs authorities often employ ICT systems to process declarations complemented with risk management, other agencies are lagging behind in the modernization process.
Timely and accurate information is the bedrock of countries’ response to COVID-19 as informed traders can make sound decisions. The WTO TFA requires members to publish trade-related information on the Internet, also known as trade portals. Governments can upload information on recent trade measures adopted in awake of COVID-19 crisis. This online facility is particularly crucial for Micro-Small-Medium Sized Enterprises (MSMEs).
WTO reported that 90 countries have so far implemented transparency measures, including Enquiry Points. Countries are privileging new digital means of providing information through apps, special online advisers and others. Xiamen Customs is holding online meetings with importers, answering questions, and guiding traders in filling declaration forms. Kenya published information on COVID-19 trade-related emergency measures on InfoTradeKenya Portal, which was set up with UNCTAD technical assistance. Kenya’s COVID-19 webpage is updated regularly and covers step-by-step guides on export and import procedures of pharmaceutical products and medical devices.
Virtual inspections and administrative procedures
ICTs can even help procedures that traditionally required physical contact, such as inspections. Countries set out alternative procedures enabling compliance verification amid COVID-19’s lockdown. In Brazil, conformity assessment procedures are conducted through remote inspection by videoconference technologies and transmission of data.
Administrative procedures can also resume deploying IT tools. India allows video conferencing for personal hearings under the Customs Act, complemented with submissions of documents through emails, adopting a digital way of working during the COVID-19 outbreak.
Is there a silver lining to the COVID-19 cloud?
In the last four months, countries have accelerated the digitalization of trade procedures driven by two motivations: stopping the spread of the pandemic and ensuring business continuity. In their fight against this disease, ICT-oriented trade facilitation measures have become a major ally of governments in the implementation of social distancing policies, while maintaining the supply of essential goods.
Hence, G20‘s Trade Ministers have encouraged the use of electronic means for Customs processing, which minimize face-to-face interactions without lengthening processing times. Moreover, the G20 promotes the application of online services to facilitate the flow of essential goods and services during the pandemic, while strengthening cooperation between authorities responsible for the regulation of trade, including Customs authorities, concerning the issues relating to electronic document management.
Countries have embarked in a journey of non-return to digital trade. Harnessing digitalization of trade procedures in Africa could have a positive impact on increasing regulatory compliance, reducing illicit practices, and reaching more inclusive participation of MSMEs in the digital global economy. To reap the full benefits, those countries may want to consider the following recommendations:
Go beyond crisis-management
The tech-savvy reaction of border agencies must go beyond the short-term response to the pandemic. Indeed, the digital trend should draw out the path towards economic resilience for managing a future crisis. As a lesson learned, interoperability among trade partners at the regional and international level must be further foster to ensure a coherent crisis-response and multiply the benefits from e-services across the regions.
Recovery plans and any future crisis-responses must involve economic operators in the identification of priorities for trade facilitation reforms. This is particularly relevant for regional agreements such as the African Continental Free Trade Area (AfCFTA) as the pandemic has highlighted potential reliance on regional supply chains.
Governments must also ensure that transparency and e-services are at the reach of MSMEs, which lack of workforce to cope with cumbersome procedures. The OECD affirms that measures such as automation of the border-processes, or consultations with traders have the most substantial differentiated impacts on SMEs compared to larger firms.
Bridge the digital divide
The pandemic has stressed out the benefits of digital trade facilitation, but also the economic and social inequalities in access, use and impact of ICTs. The digitalization of trade procedures in developing countries is limited by their infrastructure capacity to speed up the processing, such as the lack of broadband infrastructure or the gap in broadband uptake. Even if developing countries have access to ICTs, they still need to get over several hurdles, including skills gaps and the high costs of online access.
In a post-COVID-19 scenario, African countries could focus on a digital trade facilitation strategy pulling together regional efforts to strengthen capabilities, and build infrastructure, leveraging the platform offered by the AfCFTA. An initial step is the development of a regulatory and institutional framework enabling digital transactions coupled with efficient ICTs infrastructure.
Rely on development partners
International cooperation in trade facilitation will remain essential to keep trade flowing. Continued aid for trade will be particularly important to assist developing countries to implement trade facilitation measures needed in the crisis, as underscored by the OECD.
Technical assistance programmes as ASYCUDA affords Customs, cross-border agencies and traders to electronically submit and exchange data and documentation, and computerize procedures to expedite the clearance of imports, exports, transits and other trade transactions, thereby reducing to a great extent the need for face-to-face interaction. Those systems can be adapted to implement the WTO TFA and the AfCFTA.
The COVID-19 pandemic is a global crisis with dramatic human consequences also afflicting the global economy. Leveraging digital trade facilitation plays a pivotal role in maintaining trade flows during and after the pandemic, ensuring access to essential supplies and mitigating the negative impact on jobs and poverty. As highlighted by UNCTAD, concrete trade facilitation measures help to facilitate transport and trade and to protect the population from COVID-19 at the same time.
Nonetheless, automation will not display full advantage if digitalization does not come along with cooperation between the public and private sector in coordination with regional as well as international partners. At the national level, Trade Facilitation Committees could serve as a focal point to coordinate the recovery plans to the pandemic and sow the seed for further cooperation with regional and international partners. At the regional level, it is critical to maintaining the momentum towards the AfCFTA’s implementation, an engine for intra-regional trade and continental economic recovery.