Why Trade Facilitation Matters – A Real Case Example

On February 22, 2017, the World Trade Organization’s (WTO) Trade Facilitation Agreement (TFA) entered into force. While much has been written about the importance of this agreement, when talking about trade, too often economists and policy wonks resort to abstract language and vague terminology that fails to capture the dramatic situation that importers and exporters face every day in many countries around the world. Therefore, I thought I’d share with you a real case that perfectly encapsulates some of the problems that people face when moving goods across borders.

I have made some minor changes to the story to protect the privacy of the characters and to avoid any embarrassment to the authorities involved. Other than that, the following is basically a word by word transcript of my conversation with “Mr. Smith” who wanted to import two small boats to resale in his own country.

 

I was shipping a container from Country A to Country B. I contacted 8 shipping companies in Country A, and 6 in Country B. All 14 companies asked me, “What was going to be in the container?” and I told them that I had 1 motorcycle, spare parts, household goods, tools, and two very small boats. Not one of the 14 shipping companies told me that, crucially, both boats required import permits issued by the Ministry of Commerce and approved by the Ministry of Security. I found that out later.

The best price I could find was with a shipping company from Country B. Let’s call them Happy Shippers Limited. They charged me USD$1,200 for their services. My container with all of my belongings was first shipped to a port in Country A where it awaited shipment by boat to Country B. Two days before the container was to be shipped, Happy Shippers informed me that the boats needed Import Permits, which would take anywhere from 1 to 4 weeks to get approved. They advised me that my best option was to unpack my container, take both of the boats out and ship them at a later date after the permits are issued for the boats. I thought that this was crazy so I informed Happy Shippers that I would deal with the permits when I arrived in Country B a few days before my shipment.

On December 15th, (6 days before the arrival of my container) I arrived in Country B.

On December 17th, I tried to submit my application for an Import License for boats to the Ministry of Commerce, but it closed early for the Christmas season.

On December 20th, I was able to finally submit my application to the Ministry of Commerce.

On December 21st, my container arrived in Country B.

On January 7th, The Ministry of Commerce informs me that my application was forwarded to the Ministry of Security. I was elated.

On January 10th, I spoke with the Ministry of Security and they informed me that they have not seen any application for my license.

On January 11, I went again to the Ministry of Commerce and they informed me that they have not sent my application yet to the Ministry of Security and that, as a matter of fact, they lost my application (coincidentally, while I was sitting in the lobby of the Ministry of Commerce, I met a local who told me that it took 3 months to get an approval to import a plastic Kayak).

In frustration, I go to the Prime Minister’s Office for help. When I visited the Prime Minister’s Office, everyone there was very friendly. The receptionist introduced me to the Administrative Officer for the Prime Minister. She was very helpful and listened to my plea. Unbeknownst to me at that time, the Prime Minister’s Office believes that their department runs the country, and this is in direct conflict with the Ministry of Security’s Office because they believe that THEY are the Ministry who runs the country. Therefore, the Ministry of Security’s employees do not like the Prime Minister’s Office and believes that the Prime Minister’s Office is always sticking their nose into National Security matters.

Anyway, the Prime Minister’s Office contacts the Ministry of Security and the Ministry of Commerce to help move things forward. The lost paperwork was, somehow, found and finally forwarded to the appropriate people.

Within 2 weeks, the Ministry of Security sends an Officer to meet with me. He was very pleasant and conducts the interview. He collected copies of all the appropriate paperwork and inspects both boats. It was obvious to me that he did not have a clue about boats and did not know the difference between the beam and the bow. Regardless, once he completed the inspection, he then informs me that the approval process for obtaining licenses for the boats will take 1 year or longer!

All inquiries to the Ministry of Security from Happy Shippers, the Prime Minister’s Office, and I are completely stonewalled with various excuses like “The approvals are in the system.” Please keep in mind that on April 14th, I already paid $1,200 in US dollars to Happy Shippers to clear my goods in Country B.

In October 2011, Happy Shippers contacts, once again, the Ministry of Security and they inform me that all of my paperwork was, again, lost!

On November 15th, I speak, once again, with the representatives from the Security Ministry and they inform me that they did find my paperwork, but it was still being “processed”. On that same day, I sent a letter to the Prime Minister’s Office begging them to get those working at the Ministry of Security to “get off of their butts.”

Finally, on December 19th, (364 days after I submitted my original request) the Ministry of Security approves my Import Permits and on December 29th, the Ministry of Commerce issues the Import Permits.

Unfortunately, 9 days later, the Ministry of Security informs me that they have lost my paperwork again! What is amazing is that, before this is all over, the Ministry of Commerce also loses my paperwork two more times!

(Please bear in mind that during all this time, I have been paying storage fees for my boats. I originally paid US800 in storage fees for my container, and then additional storage fees for the two boats at US$15 per day!).

After a few more back and forths between Commerce and Security, Happy Shippers finally clears the inflatable boat with Customs and stated that I will receive all the appropriate paperwork through First Class Priority Mail, which guaranteed delivery within 2 days. Needless to say, this did not happen.

I go to Customs again to get a final release for my boats (or so I thought) which they have been locked and chained within 600 feet from the water for over a year now. The Head Customs Supervisor was “all smiles” while I told him my stories and produce a mountain of paperwork verifying my trials and tribulations. He then informed me that it would normally be “No Problem” but, since the rowboat was cleared on January 19th, with the original shipment, they cannot trust the Clearance Copies with their own original stamps and approvals due to the fact that the copies have been in my possession. The Head Customs Agent stated that, “Since the copies have been in my possession, I could have forged them.”

The Head of Customs then informed me that she would have to get a Clerk to pull the original clearance paperwork and that, “it will be no big deal.” I waited for over 30 minutes while I watched the Clerk go through boxes and boxes of files. Now, they are digging through a mountain of boxes trying to find my file. After what seemed to be like decades, the Supervisor gives up and approaches me. I ask her, “Is there a problem?” She stated, “We don’t seem to be able to find the original entries.”

I asked her, “What does this mean?”

She said, “I don’t want to think about that!”

There were about 60 seconds of complete silence and she looked at me and I looked at her. The Supervisor then stated to me, “You will have to start all over again.”

At this point, my head was about to explode. After those words finally soaked in, I stated, “No! There is no starting again. There has to be a way around this!”

The Supervisor said, “Well, let’s go back to my office.”

The Supervisor reviewed all of my paperwork again and called the Custom’s Broker to confirm my story which he did.

The Supervisor then said, “We can have an Officer inspect the boats and then release them. ” She then stated that, “Of course there will be a charge for overtime for the off-site inspections after 4:00 p.m.”

I stated, “You have already overcharged me for the first Customs Inspections and National Security has also already inspected them.”

The Supervisor said, “That is the only option!”

I, then asked, “How much is this going to cost me?”

The Supervisor said, “$50 dollars.”

I said, “Do it.”

So, I waited at the Customs House beginning at 4:00 p.m. and the Customs Officer finally shows up at 8:30 p.m. By now, it is dark, and the Officer showed up without a flashlight and plenty of attitude since he was so inconvenienced for making the trip. We walk to where the boats are stored just off of the road. The Officer informs me that he will not walk off of the road to inspect the boats. He told me that I would have to read him the numbers on the hull of the boat and the numbers off of the transom plates. Therefore, this inspection involved no inspection because the Customs Officer refused to walk off of the road and did not even have a flashlight to inspect the boats anyway.

I asked, “When can I pick up the final releases on the boats?”

The Officer then asked, “Are you going to pay me for the inspection now?”

I said, “No. When I get the releases, I will pay the $50 dollars for the inspection per the agreement.”

The Officer then stated, “The Inspection is overtime and it will be a lot more than $50 dollars.”

I said, “No, it will not. I have a confirmed price from your Supervisor.”

The Officer said, “That was not a firm price. She gave you an estimate.”

I said, “No. It was a firm price. When do I get my releases?”

The Officer said, “Two days.” This was the end of the inspection.

I go to the Customs House after two days to pay for the releases and pick them up. But once there, Customs now tells me that I have to go to the Department of Marine Resources and register my boats to finally get my boats into the water.

Once I began dealing with the Department of Marine Resources, I was able to witness how the game of government is played to its finest. Please remember that most government employees seem to know every obscure rule made into law and some that are not. The staff seems to delight in pointing out where you are amiss. They simply tell you “NO” and the game is over until you return with your “Plan B.” I believe that the government employees are given the authority to say “NO” but not given the authority to say “yes.” Also, they never get into trouble for saying “NO”.

For example, when I sat down with the Officer from Marine Resources, I tell him my story and produce the ever-growing mountain of paperwork. When he looked at the pounds of paper, it was clear that he did not want to deal with it. He stated that the rules are if a boat is for private use (no commercial use, no commercial fishing, and no touring tourists, etc. including drug smuggling) and if the boat is less than 18 feet long, it does not have to be registered!

I thought to myself, “This is great! My boats are 14.5 feet and 12 feet long. However, the Officer has never heard of anyone with a Tourist Visa (me) having a boat to register. He said that he does not know how it got approved by National Security. Since this was a first for him, he was not about to get into trouble by saying “yes” so he informed me that this was going to have to be approved by another Supervisor.

Once the Supervisor heard my story and thought about it for a while, she concluded that “this was a grey area.”

Therefore, the translation simply means that she did not know of any law that would cause a problem but she, too, wanted to cover her back. So, she decided to pass my problem to the Head Marine Supervisor for his opinion.

Since I did not have anyone from the Division of Marine Resources tell me “NO” directly, I decided to interpret that as a “YES.” Therefore, I decided to simply go and pick up my boats and drag them to the beautiful blue water that has been calling me for over a year. And that was the end of my ordeal.

 

All in all, it took 13 months, more than 40 face to face interactions with at least 4 government agencies (Customs, Commerce, Security, and Marine Resources), almost 200 hours of work (meetings, telephone calls, writing letters, going from one place to another,…) and approximately $9,500 (VAT, tariffs, shipping costs, overtime, brokerage and storage fees) to clear two small boats that were worth about $6,000 total. There are so many problems captured by this story that it is hard to know where to start. However, these are my main takeaways:

  • In complex environments such as the one described above, mistakes are very costly. Had Mr. Smith known in advance that not having a permit would cause so much trouble, things would have been much easier. At the same time, it is fair to say that in many countries it is not easy to know which goods require licenses from which government agencies and situations like this one happen frequently.
  • The combination of paper-based processes and multiple face-to-face interactions between traders and government officials is the perfect cocktail for corruption and malpractices. The idea of creating complexity to sell simplicity is very much alive in many places.
  • Modernizing trade in an environment like this requires a multidimensional approach (people, process and technology) and the will to fight for what is right.
  • There is not one single process or government department that is single-handedly responsible for the problems. Rather, it is the combination of many seemingly small bottlenecks that create such a huge impact (which reminds of the quote “no snowflake in an avalanche ever feels responsible”).

Our in-house team of trade specialists at CIPE are committed to creating a transparent and modern trade environment that works for the government, and the private sector, to walk the delicate balance between security and facilitation.

If you would like to know more about our trade facilitation projects, or how we can help modernize the trade environment in your country, please do not hesitate to contact us at agarcia@cipe.org

 

Aurelio Garcia-Navarrete is the Senior Trade and Logistics Officer for the Global Alliance for Trade Facilitation at CIPE.