99065 JUNE 2015 ABOUT THE AUTHORS GAGIK GABRIELYAN Implementing Trade Logistics Reforms in Operations Officer, joined the World Bank Group in 2010 and served as lead technical advisor Complex Multi-Country and Regional on the Western Balkans Trade Logistics Project. He now leads trade logistics components of Settings: The Case of the Western Balkans investment climate reform projects in Armenia and Belarus. Gagik has private sector Trade facilitation connects economies and provides opportunities for business experience in trade, business management, and strategy, and growth. However, the national agencies involved in trade often have different teaches at the American University of Armenia. objectives, lack coordination with peer agencies in other countries because of different national priorities, high workloads, and absence of platforms to VIOLANE KONAR-LEACY Operations Officer, joined IFC in consult with each other. Such a divergence of interests is a challenge when the 2012, managing the Western Balkans Trade Logistics Project, goal is to address, and seek consensus on, trade issues on the regional level, and is the trade logistics focal point for the ECA region. Prior to while undertaking capacity building and reform activities at the country level, joining the World Bank Group, Violane managed USAID-funded all with the objective to benefit the private sector. The IFC Western Balkans private sector development and legal reform projects in the Trade Logistics Project faced this very challenge. In addition, the project was Balkans, Moldova, Ukraine, Lebanon, and Tanzania. constrained by limited financial resources, so “marrying” effectiveness and efficiency was key to achieving results. This SmartLesson summarizes lessons APPROVING MANAGER Lisa Kaestner, Practice Manager, learned from the project implementation. Europe and Central Asia, Trade and Competitiveness Global Practice. BACKGROUND in other countries. Reasons for this diver- gence of interests range from different Trade facilitation between countries is im- national priorities to high workloads that portant and should be promoted. How- offer little opportunity to consult with ever, the objectives of national agencies each other. A primary goal of the project involved in trade are often diverse and was to address—and seek consensus on— lack coordination with their peer agencies trade issues on the regional level while undertaking ca- pacity-building and reform activities at the country level. From 2012 to 2015, IFC’s Western Balkans Trade Lo- gistics Project operated in six countries—Albania, Bosnia and Herzegovina, Kosovo*1, the Former Yugoslav Repub- lic of Macedonia, Montene- gro, and Serbia. Five of these countries (all except Albania) 1 This designation is without prejudice to positions on status, and is in line with Border-crossing point in the Western Balkans.(Photo by G. Gabrielyan) UNSC 1244 and the ICJ Opinion on the Kosovo* Declaration of Independence. SMARTLESSONS — JUNE 2015 1 had been part of the former Yugoslavia and had expe- LESSONS LEARNED rienced unrestricted movement of goods and people within Yugoslavia. These six countries (plus Moldova) Lesson 1: In a complex multi-country, multiagency environment, segmentation and prioritization are parties to the Central European Free Trade Agree- help maintain focus. ment (CEFTA) and aspire to be members of the Euro- pean Union. Bosnia and Herzegovina and Kosovo* are It was a real challenge for the team to identify a com- potential candidates for accession to the EU, Albania mon thread among the different needs of stakeholders and FYR Macedonia have been accepted as candidate and their various perspectives on the scope and nature countries, and Serbia and Montenegro are already in ac- of reforms. Trade logistics interventions are complex. cession talks. They can be focused on simplifying procedures or build- The Western Balkans have benefitted from significant ing IT systems, ranging from a one-country, one-agency donor and EU support, including with physical infra- approach to regional integration initiatives involving structure and trade facilitation. However, inefficiencies several countries and multiple stakeholders. in the trade logistics supply chain persist, as is evidenced National authorities and businesses were mostly inter- by the World Bank’s Doing Business report. On average, ested in addressing their own country-specific issues—for the Western Balkans continue to require three to five instance, enhancement of the capacities of customs and more documents than OECD countries for export and SPS agencies, wider use of electronic data, or reforming import, and it takes four more days to trade in the West- selected agency-specific procedures—that may have lim- ern Balkans than in the OECD, resulting in 20 percent ited impact on the broader regional agenda. Businesses higher costs for traders. The Western Balkans Trade Lo- wanted fewer inspections of their goods at the border and gistics Project was tasked with bringing about greater more electronic processing of documents and payments. efficiency to the process of clearing goods in the region At the same time, regional organizations, such as the so that they can be delivered to market more quickly and at lower cost. CEFTA Secretariat and the South East European Transport Observatory, had a broader outlook on what needs to be The project’s core focus was to facilitate trade in the done to benefit the entire region. Their interests ranged Western Balkans by reducing regulatory and administra- from harmonizing clearance procedures to achieving mu- tive constraints related to trade logistics and by stream- tual recognition of documents, certificates, and operators lining and harmonizing border clearance procedures. Its to improving regional transportation infrastructure. primary counterparts were the customs administrations and sanitary and phytosanitary (SPS) agencies in the six To respond to this gamut of interests and needs, the countries. project grouped its activities into four tiers: regional; supply-chain driven; bilateral cooperation; and single- country specific. This segmentation enabled the project to prioritize and focus its work within each tier while keeping the links between them under the overarching goal of achieving more efficient clearance procedures with clear benefits to the private sector—the lens the project consistently used to focus its approach. The al- location of limited resources became easier when the scope and scale of activities within each segment were clear. Figure 1 lists examples of work performed at these different levels of interventions. Regional: The project closely tracked the CEFTA objec- tives2 and initiated a regional interagency trade-facili- tation forum to share best practices and experiences with risk management and data exchange. It organized a hands-on training for post-clearance audit practices with staff from the regional customs administrations, in collaboration with the World Customs Organization. Map of Western Balkans 2 These objectives include expanding trade in goods and services, fostering investment by means of fair, stable, and predictable rules, and eliminating barriers to trade between the CEFTA parties. 2 SMARTLESSONS — JUNE 2015 Figure 1: Four-Tier Segmentation tween Albania and Kosovo*, which will contribute to faster and simpler REGIONAL - Regional Workshop on Post Clearance Audit for Customs (with WCO) transit of goods from the Albanian -  Support to the CEFTA Risk Management Working Group seaport of Durres to landlocked -  Promotion of regional information exchange systems (e.g. SEED) Kosovo*. The agreement addressed -  Collaboration with OECD on Administrative Barriers Report in South East Europe -  Regional conferences on trade facilitation for Customs and SPS agencies issues related to customs coopera- -  WTO TFA Self assessment workshops (with USAID, UNCTAD) tion and SPS controls for streamlining -  Regional Trade Facilitation Meetings transit procedures. It also addressed SUPPLY CHAIN application of risk-based controls, in- - Agribusiness Supply Chain Analysis of Documents, Procedures, Border Crossing Time teroperability of electronic systems, - Review of documents required by customs and SPS enhancing information exchange, BI-AND/OR MULTI-LATERAL LEVEL - Albania-Kosovo transit facilitation arrangement application of joint border controls, and enhancing interagency border COUNTRY LEVEL coordination. This work was comple- -  Training of SPS agencies on development of risk based trade controls (MK, KS, BIH) and introduction of risk management system with Macedonian mented by the project’s advisory on technical agencies the regulation of the customs-broker -  Customs risk management and PCA (ME) -  Improvement of electronic processing (AL, ME) profession in both countries and its -  Extension/harmonization of Working hours between agencies (BIH) support for the upgrading of Alba- -  Protocol on procedural harmonization between agencies - BIH -  Improving Airport cargo clearance procedures (RS) nia’s customs IT system to the level of Kosovo’s*. The agreement could 1 be replicated with other countries in *Country abbreviations: AL=Albania; BIH=Bosnia and Herzegovina; KS=Kosovo*; ME=Montenegro; the region to support regional cor- MK=FYR Macedonia; RS=Serbia. Source: Project team. ridors. Moreover, through replicating a methodology for risk- based SPS inspections implemented in FYR Macedonia, Single countries: Country-specific reforms included the the project demonstrated how an initiative or reform following: can go from being country-specific to regional. • Interagency synchronization of working hours in Supply-chain based: The project carried out a detailed Bosnia and Herzegovina, which along with other ac- tions reduced time of trade clearance by 13 percent; trade-logistics process mapping for processed fruit and vegetables for three corridors/supply chains (see Figure • Reduction of physical controls of imported goods 2), which helped with identifying country-level and re- subject to excise tax from 100 percent to 23 per- gional issues and selecting focus areas for project activi- cent in Montenegro through the application of ties. For dairy products, the project carried out a detailed risk-based controls; comparison of the documents required by SPS agencies on import, and it evaluated their level of compliance with • Streamlining and automation of customs clearance the EU’s documentation requirements. This work provid- processes in Montenegro, which helped expedite ed the basis for much of the project’s reform initiatives. processing time by up to 50 percent; Bilateral cooperation: The project was instrumental to • Reduction of time required for customs clearance the conclusion of a Trade Facilitation Agreement be- by up to one full day through introduction of elec- Figure 2: Agribusiness Trade-Logistics Mapping   Source: SEETO maps and project team highlights. SMARTLESSONS — JUNE 2015 3 tronic payment of fees and duties and upgrading of the customs electronic system in Albania; and Box 1: Measures to Improve Clearance Times • Introduction of a risk-based approach in SPS control Clearance time can be improved only if all agencies in- volved improve their performance. Goods in cross-border in FYR Macedonia, resulting in a 40 percent reduc- trade may be controlled by several agencies, in particular tion of the sampling rate of imported consignments. where human, animal, or plant health are concerned. In addition to customs, the following agencies may be in- Lesson 2: Maintaining focus is key for achieving volved: tangible outcomes and impact with limited project • Veterinary, phytosanitary, and food-safety inspec- resources. tions agencies; • Sanitary or public health inspection, for cosmetics From the initial fact-finding mission, the project team and hygiene products; identified a long list of disparate agency requests. How- • Pharmaceutical or medical inspection of medicines, ever, as our resources were limited it was critical to identi- medical instruments, and equipment. fy reform initiatives that had the potential for replication For goods subject to such technical controls, customs and regional impact. We therefore prioritized issues com- clearance can be completed and goods released only mon to all or several countries in the region. One such once these controls are completed. Measures designed to facilitate clearance can be effective only if they are ap- issue was the absence of risk management in SPS controls, plied by all involved agencies. where improvements would result in faster processing times and therefore in reduced costs for traders. The project achieved its best results when activities not We had identified this issue through our supply-chain only included in-depth analysis and presented recom- mapping exercise, during which we baselined the pro- mendations for improvement—which we provided in cesses and procedures applied by the different countries all countries on multiple occasions—but also when we during clearance. We found that SPS agencies were en- provided step-by-step, hands-on support over a period gaged in high levels of controls and sampling—up to 100 of several months. This was the kind of assistance our stakeholders appreciated most. percent of physical checks and up to 50 percent sampling of consignments—in an effort to ensure protection of The Macedonian Food and Veterinary Agency’s intro- consumer health and safety. These high rates of physical duction of risk-based controls, described above, demon- examinations, sampling, and testing delayed clearance strates well how the project helped implement change, from one additional day to up to two weeks, adding to despite the client’s initial hesitation. The agency was the cost of transporting the goods. (See Box 1.) concerned that its financial and human resources might be too limited to allow for the development of such a To support more efficient SPS processes, we first of- seemingly sophisticated system—and that it lacked sys- fered all SPS agencies in the Western Balkans introduc- tematized data collection and analysis. The client also tory workshops on the application of risk-management wanted to be sure of continued support from the proj- practices for trade controls. We then followed up with ect while reducing the levels of controls, since the agen- hands-on training of selected staff on how to develop cy is responsible for consumer health and safety and risk criteria and risk profiles and, based on this classifi- needed to educate other parts of the agency and the cation, annual sampling plans. Several agencies in the public about the new approach. Not only did we help region are now using this method, resulting in a consis- the agency understand and apply a new approach, but tent approach across the region. In its first six months of we also helped with the drafting of a strategy; the writ- applying risk management, the Macedonian Food and ing of standard operating procedures; the training of Veterinary Agency generated savings for the private sec- border inspectors on how to apply the new approach in tor of upwards of $1 million.3 their day-to-day work; training in communicating with the public; and the design, development, and introduc- Lesson 3. “Walking the talk” and hands-on support tion of a new software system that will help the agency in implementation are critical for sustaining change. more effectively collect and manage data related to im- port controls. 3 The team used a private sector cost-savings time model to calculate the impact of the reform, based on the total value of goods cleared by the agency, the 40 percent reduction in sampling time, and an approximation of The team drew on previous experience to assist the cli- the time reduction based on the reduction in sampling. The model uses UN ent all the way through implementation to ensure that Comtrade data for value of goods and IMF World Economic Outlook October estimates for forecasting trade value for the subsequent year. the change is sustainable. One example is the signing 4 SMARTLESSONS — JUNE 2015 of the Trade and Transit Facilitation Agree- rum for coordination and harmonization ment between Kosovo* and Albania in of processes and procedures. Similarly, 2014 (after over a year of project-led bi- the project shared findings and recom- lateral meetings of the customs and food mendations with—and provided expert agencies of the two countries), which has advice to—the CEFTA Subcommittees on resulted in streamlined, much faster tran- Customs and SPS, and the Working Group sit procedures for consignments passing on Risk Management. The project col- the Albania-Kosovo* borders. Another laborated with the OECD in designing a example is the introduction of risk-based regional tool for evaluating and compar- controls for excise goods, which reduced ing trade-facilitation reforms in the re- inspections numbers from 100 percent to gion. The team also cooperated with the 23 percent by the Montenegrin Customs EU-funded SEED (Systematic Electronic Administration. Exchange of Data) project, which had established bilateral links between the The time, effort, and dedication of support- customs systems in the region to enable ing the client throughout the implemen- the provision of pre-arrival information, tation process built trust and confidence data matching, and customs performance among clients and earned the project team measurements. a reputation of those who “walk the talk.” CONCLUSION Lesson 4: Foster structured communi- In a challenging multi-country environ- cation and information sharing across ment with diverse needs, interests, and agencies and across countries. operating environments, identifying pri- The project team ascertained that not orities and maintaining focus on results only were practices not harmonized, but for the private sector are key to achieving also agency staff often were not aware of results. The project team’s effective four- how their peers in the neighboring coun- tiered segmentation strategy achieved tries dealt with a particular issue, including sustainable results and helped capture what documents or procedures they used. and link regional and national-level pri- orities and initiatives. It also focused the Similarly, there was often little communi- team’s efforts on reforms that were fea- cation between the customs administra- sible within the project’s time frame and tion in a country and the other agencies limited resources. For promoting and im- involved in cross-border trade. There was plementing reforms, a key element was no formalized process for exchanging in- building a constructive regional trade-fa- formation, discussing common issues, and cilitation forum for interagency dialogue. having a dialog on how to jointly resolve For building and applying reform momen- issues faced by several or all agencies. tum, it was of utmost importance that the The project initiated a regional forum for project not only identified what needed DISCLAIMER customs and SPS agency staff, which gave to be done but also explained how it can SmartLessons is an awards agency staff involved in trade controls a be done—and provided hands-on assis- program to share lessons learned in development-oriented place to network and to discuss topical is- tance in implementing the reforms. advisory services and investment operations. The findings, sues, including risk management and in- interpretations, and conclusions teragency coordination. The project or- expressed in this paper are those ganized two large events of this nature. of the author(s) and do not necessarily reflect the views of Agency staff were very appreciative of this IFC or its partner organizations, initiative and expressed a strong interest in the Executive Directors of The World Bank or the governments the continuation of such regional forums. they represent. IFC does not assume any responsibility for the completeness or accuracy of the The Central European Free Trade Agree- information contained in this ment Secretariat has now established the document. Please see the terms CEFTA Trade Facilitation Forum, which will and conditions at www.ifc.org/ smartlessons or contact the be a formal structure to enable the con- program at smartlessons@ifc.org. tinuation of this dialog and provide a fo- SMARTLESSONS — JUNE 2015 5