Trading Up: Improved Customs Processes, Appropriate De Minimis Commitments and Overall Trade Facilitation are Critical to Growing Exports in the Asia Pacific

By November 15, 2013Trade

As Trans-Pacific Partnership (TPP) negotiators continued significant intercessional discussions this week, manufacturers are focused on their priority issue areas in the 12-country trade talks, from market access to strong protections for intellectual property (IP) and cross-border data flows.  Another key component of growing U.S. exports and one that must be addressed in the final TPP agreement is cutting red-tape at the border and improving customs processes and rules.

The elimination of red-tape at the border would have a significant impact on improving opportunities through trade. A recent World Economic Forum (WEF) study found that reducing global supply chain barriers could increase world GDP by nearly 5% and boost international trade by nearly 15%!

Manufacturers are increasingly linked to a global web of interconnected supply chains. Inputs, materials and components come from all over the world to create products with the greatest value for consumers. As a result, 56% of all international trade today is in intermediate goods – semi-finished products and other inputs.

TPP negotiators should include in the final text of the agreement as many provisions aimed at easing trade facilitation and minimizing customs burdens as possible. Doing so would greatly enhance the tangible outcomes of the TPP agreement.

In addition, unnecessary red-tape can increase transit times, which can disproportionally impact small- and medium-sized manufacturers (SMMs) and increase production costs. One of the most essential provisions in this regard is agreeing to appropriate de minimis standards – basically setting a value below which no duty or tax is charged and clearance procedures, including data requirements, are minimal. To help SMM growth through trade, TPP negotiators should ease the burden of customs paperwork that SMMs face with even low-value shipments of necessary manufacturing inputs. Negotiators can achieve this objective by increasing the de minimis threshold, which would greatly benefit SMMs by stimulating their output.

According to a 2003 paper by the OECD, which recommends the adoption of de minimis thresholds, firms with fewer than 250 employees face trade transaction costs that are 30-45 percent higher than those incurred by larger firms because they don’t have the same “simplified procedures” that large companies implement. These transaction costs become more important during periods of economic turmoil, when SMMs are even more vulnerable to cost burdens. Appropriate de minimis thresholds abroad can also benefit U.S. exporters who are shipping directly to foreign consumers or supplying to foreign companies.

A commercially meaningful de minimis threshold also creates efficiencies at CBP that can benefit manufacturers of all sizes. Collecting duty revenue involves manpower on the part of CBP, and the costs of collecting duties on low-value goods often exceeds the revenue generated from those tariffs.

TPP partners should stay at the table to ensure that the TPP negotiations yield the “comprehensive, next-generation regional agreement that liberalizes trade and investment and addresses new and traditional trade issues and 21st-century challenges” that TPP leaders called for two years ago. Manufacturers look forward to an ambitious, high-standard and comprehensive agreement that includes strong customs and trade facilitation provisions to ensure that transaction costs and burdens are reduced, easing the flow of goods across borders, and improving the competitiveness of manufacturers big and small throughout the United States.

Trading Up is a blog series from manufacturers, which focuses on the need for a comprehensive, high-standard Trans-Pacific Partnership (TPP) that eliminates barriers, creates concrete new market access and levels the playing field for manufacturers in the United States.

 

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