55873 MAY 2010 ABOUT THE AUTHORS GEDOEL: A Powerful Regional Trade FERNANDO BARRAGAN Facilitation Tool served as the deputy chief of party in the USAID Regional Trade Program for CAFTA-DR Given the strong trade flows among the United States, Central America through May 2010. Prior to (Costa Rica, Honduras, Guatemala, Nicaragua, and El Salvador) and the that, he served as the senior financial advisor/chief Dominican Republic, the ratification of the Central America and Dominican operations officer for the Republic Free Trade Agreement (CAFTA-DR) represents an opportunity for USAID-funded Egypt Financial Services project in Cairo. the trade community in signatory countries to benefit from preferential tariff treatment through the correct application of rules of origin (ROO) and ANA ESCALANTE is the project manager for the origin procedures--a series of provisions at the heart of the CAFTA-DR that USAID Regional Trade Program set forth the requirements for goods to be considered originating from a for CAFTA-DR. particular country and, therefore, to gain access to preferential tariff APPROVING MANAGER treatment. From an importer, exporter, or producer perspective, the key to William Garcia, USAID Regional Trade Program for CAFTA-DR, benefiting from CAFTA-DR is the ability to access preferential tariff treatment, Chief of Party. which relies on understanding and using the ROO, not in a theoretical sense but in a real, hands-on way that permits the correct categorization of goods. This SmartLesson describes how the U.S. Agency for International Development (USAID)-funded Regional Trade Program for CAFTA-DR (CRT) developed an innovative information technology application to facilitate the understanding and use of complex rules of origin in order to make it possible for the trade community in CAFTA-DR countries to fully benefit from the agreement. Background Chemonics International Inc. ROO and origin procedures under the CAFTA- DR are complex and difficult to understand Chemonics is an international development con- and interpret. Traditionally, countries have sulting firm that promotes meaningful change to tried to deal with this issue through extensive help people live healthier, more productive, and training programs hosted by chambers of more independent lives. Around the world, we commerce, customs agencies, and others. design and implement projects in financial ser- These programs have relatively limited vices, private-sector development, health, envi- coverage and have not proved to be very ronmental management, gender, crisis preven- effective. Furthermore, given the reduced tion and recovery, democracy and governance, number of local resources specialized in the and agriculture. area of ROO, it is not uncommon that companies either make mistakes in the process of origin determination and in the completion Implemented by Chemonics International, the of the corresponding origin certifications, USAID-funded Regional Trade Program for thereby exposing themselves to harsh legal CAFTA-DR (CRT), developed an innovative and financial sanctions, or are forced to software tool to guide users in the origin contract the expensive services of specialized determination process and also in the issuance consultants to assist them with this task. The of electronic Certificates of Origin. This incorrect interpretation of ROO and the software system (called GEDOEL for its Spanish associated legal and financial implications acronym) is accessible for free through the disproportionally affect small and medium Internet at http://www.gedoel.sieca.org.gt/ as enterprises (SMEs). a resource for producers, exporters, and IFC SMARTLESSONS -- MAY 2010 1 importers to determine if a specific product being traded is eligible for preferential tariffs, and it has been accepted by all the CAFTA-DR countries as a legitimate trade practice. Chemonics' vision, maintained throughout the development of the system, was to provide the trade community within CAFTA-DR countries with an intelligent solution that would allow users without specialized knowledge in the area of ROO to correctly determine the origin compliance of goods under CAFTA-DR. For example, if a producer of jeans wants to export its product from Honduras to the United States, the producer can use GEDOEL to determine if the product meets the CAFTA-DR origin criteria to qualify for preferential import tariffs. To this end, the producer enters into the system the HTS1 code that corresponds to this specific product, as shown in the screen samples below. After guiding the user through a series of easy-to-understand questions regarding the materials (thread, buttons, cotton, etc.), production process, and expedition mechanisms used to produce and ship the final product, the system determines GEDOEL Welcome screen. Selection to "Validate Origin" if the product meets the origin requirements under CAFTA- selected from main menu. DR. Given the dynamic nature of foreign trade, the system needs to be flexible enough to allow changes in the underlying ROO without the need to constantly require the assistance of computer programmers. To this end, our consultants worked intensively to translate the intricate set of rules included under the agreement into decision trees comprising easy-to-understand, close-ended questions that lead users to the correct origin determination of the goods they want to trade. These decision trees can be easily modified and uploaded into GEDOEL without the intervention of information technology (IT) specialists or computer programmers. The responses provided by users permit GEDOEL to establish whether the specific goods comply with ROO under CAFTA- DR. To ensure that users understand the concepts included in the questions, GEDOEL provides extensive and detailed User inputs HTS Code for goods subject to origin determination. help files that, using simple language and examples, help users understand ROO concepts and respond the questions posed by GEDOEL correctly. In addition to origin determination, GEDOEL allows registered users to issue origin certifications used during the customs clearance of their shipments. The application allows for two types of users: registered users, who, in addition to traversing decision trees for origin determination, can issue and produce origin certifications; and unregistered users, who can only take advantage of the origin determination functionality of GEDOEL but cannot issue or produce certifications. The application development was completed in August 2009 and was subject to strict quality control tests to ensure the correct application of the CAFTA-DR ROO. In November 2009, the application was installed in the servers of the Central American Secretariat for Economic Integration (SIECA), a multinational institution that assumed responsibility for hosting the application, administration, Sample question asked by GEDOEL during the origin determina- and sustainability. Between December 2009 and January tion process. 1 An internationally standardized system of names and numbers for classifying traded products developed and maintained by the World Customs Organization (WCO) 2 IFC SMARTLESSONS -- MAY 2010 · It facilitates trade by reducing the possibility of errors in origin certifications that may lead to clearance delays and/or refusal to access preferential tariff treatment. Given the short life span of GEDOEL to date, the impact generated by the system is still modest. However, as more and more users start to use and benefit from GEDOEL, we expect its impact to grow exponentially. As of February 2010, the GEDOEL Web site received more than 13,000 hits and had more than 300 registered users who were issued Certificates of Origin. If we conservatively assume that only 10 percent of the users that visited the site benefited from the use of GEDOEL, and we consider the approximately $1,000 fee charged by a specialist to perform a determination of origin, we conclude that trade users in the region have achieved potential savings of approximately $1.3 million. Lessons Learned Sample Help Screen provided by GEDOEL during the origin determination process In retrospective, there are many things that could have been done differently regarding GEDOEL. However, to expand the systems' benefits going forward, the following lessons learned should guide future actions to ensure its sustainability: 1) Employ an aggressive, structured plan aimed at broad dissemination. The presentation of the system in public events where the CRT and SIECA made presentations of GEDOEL's functionality to private-sector representatives in the CAFTA-DR countries was a positive start, but a more aggressive and structured dissemination plan is needed to broaden the user base. These are some possible actions now being considered: · Hiring the services of a massive regional marketing campaign through a marketing company to develop and execute a comprehensive dissemination plan; Sample showing final origin determination generated b y · Enhancing engagement with government agencies and GEDOEL based on information provided by user. private-sector associations involved in foreign trade so that they can promote the use of GEDOEL among 2010, the application was presented to the trade community producers, importers, and exporters; and through public events hosted in Costa Rica, Nicaragua, El Salvador, Guatemala, and the Dominican Republic at which · Holding additional dissemination events in CAFTA-DR more than 300 private-sector representatives witnessed the countries, building on other events in the region that system's functionality. discuss foreign trade to promote and enhance the participation of private-sector representatives. Benefits and Impact 2) Ensure the adequate administration, support, and The adoption of GEDOEL provides the following benefits to maintenance of the system. the trade community in CAFTA-DR countries: Late in 2009, the GEDOEL system was transferred to SIECA, · It facilitates the correct application of CAFTA-DR ROO which is responsible for the system's administration, hosting, to customs operations, thereby reducing the risk of and maintenance. At the time of the transfer, CRT trained incurring legal violations. SIECA employees in the tasks and procedures required to effectively administer and maintain GEDOEL. Nonetheless, · It enhances the knowledge of users in the area of ROO. given that a long time has elapsed since the training and that no maintenance to the system has been performed by · It lessens the costs for trade users by reducing the need SIECA employees so far, CRT is concerned about SIECA's to hire specialized services for the origin determination ability to make the necessary changes to the decision trees of goods. associated with ROO changes derived from the newest IFC SMARTLESSONS -- MAY 2010 3 version of the Customs Harmonized Coding System. To mitigate this risk, USAID and SIECA are considering taking the following actions: · Providing additional training to SIECA employees, enabling them to make changes to decision trees; and · Entering into a service agreement with the consultants that developed the decision trees for GEDOEL. Conclusion GEDOEL is a useful resource for foreign trade, with the potential of providing great economic benefit for producers, importers, and exporters alike. The tool has replicability and scalability features that can be used, with minor modifications, in other free trade agreements beyond CAFTA-DR. This tool helps facilitate the complex task of applying ROO for the origin determination of goods, which is central to gaining access to preferential tariffs under a free trade agreement. The broad dissemination of tools such as GEDOEL to implementing partners, counterparts, and the private sector in beneficiary countries is the gateway to its success. DISCLAIMER IFC SmartLessons is an awards program to share lessons learned in development-oriented advisory services and investment operations. The findings, interpretations, and conclusions expressed in this paper are those of the author(s) and do not necessarily reflect the views of IFC or its partner organizations, the Executive Directors of The World Bank or the governments they represent. IFC does not assume any responsibility for the completeness or accuracy of the information contained in this document. Please see the terms and conditions at www.ifc.org/ smartlessons or contact the program at smartlessons@ifc.org. 4 IFC SMARTLESSONS -- MAY 2010