W7Y>3I(0 _ (W~~~~~~~~v". /'15 WORLD BANK TECHNICAL PAPER NUMBER 316 Information Technology and National Trade Facilitation Making the Most of Global Trade Robert Schware and Paul Kimberley l.A Ihhhm.m* i]l-^ fI* _~~~~~~E . - -, RECENT WORLD BANK TECHNICAL PAPERS No. 237 Webster, The Emergence of Private Sector Manufacturing in Poland: A Survey of Firms No. 238 Heath, Land Rights in Cote d'Ivoire: Survey and Prospects for Project Intervention No. 239 Kirmani and Rangeley, International Inland Waters: Concepts for a More Active World Bank Role No. 240 Ahmed, Renewable Energy Technologies: A Review of the Status and Costs of Selected Technologies No. 241 Webster, Newly Privatized Russian Enterprises No. 242 Barnes, Openshaw, Smith, and van der Plas, What Makes People Cook with Improved Biomass Stoves? 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Copyright C 1995 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing November 1995 Technical Papers are published to cormmunicate the results of the Bank's work to the development com- munity with the least possible delay. The typescript of this paper therefore has not been prepared in accor- dance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibili- ty for errors. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatso- ever for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the Office of the Publisher at the address shown in the copyright notice above. The World Bank encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Permission to copy por- tions for classroom use is granted through the Copyright Clearance Center, Inc., Suite 910, 222 Rosewood Drive, Danvers, Massachusetts 01923, U.S.A. The complete backlist of publications from the World Bank is shown in the annual Index of Publications, which contains an alphabetical title list (with full ordering information) and indexes of sub- jects, authors, and countries and regions. The latest edition is available free of charge from the Distribution Unit, Office of the Publisher, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A., or from Publications, The World Bank, 66, avenue d'Iena, 75116 Paris, France. ISSN: 0253-7494 ISBN: 0-8213-3533-2 Robert Schware is Senior Informatics Specialist for The World Bank, Finance and Private Sector Development Vice Presidency, Industry and Energy Department, Telecommunications and Informatics Division. Paul Kimberley is an electronic commerce consultant to the division and principal of Paul Kimberley and Associates (PKA). Comments on this document may be directed to: Robert Schware, Senior Informatics Specialist, Telecommunications and Informatics Division, Industry and Energy Department, The World Bank, 1818 H Street NW, Washington, DC 20433, USA, Tel: (+1 202) 458-0794, Fax: (+1 202) 477-3379, Internet: rschware@worldbank.org Contents Foreword v Abstract vii Acknowledgments ix Abbreviations and Acronyms xi Prologue xiii 1 STUDY OBJECTIVES AND SCOPE 1 Economic Advantages to Improved Trade Management and Facilitation I Critical Path: Cargoes and Data Flows 3 Some Options 4 Best Practice 5 The Efficiency of Transport 5 A Value-Added Passenger Processing and Immigration Initiative 6 Speed or Efficiency? 7 Opening Up Trade Opportunities 7 The Internet 8 Private Networks 9 Public and Private Sectors 10 Implementing Trade Facilitation 11 Barriers to Use and Participation 13 Costs, Revenues, and Benefits 14 To Summarize 15 2 EDI: A GLOBAL PRESENCE 17 Major Participating Countries 17 Canada, Mexico, and the United States 17 The Caribbean and Latin America 17 Eastern Europe 18 Western Europe 18 The Middle East and North Africa 18 South Africa 18 East Asia 19 South Asia 19 Japan and the Republic of Korea 19 Australia and New Zealand 19 3 SELECTED CASE STUDIES 20 Brazil: Background and History 20 Current Status 21 Plans 21 . . Discussion 21 Hungary: Background and History 22 Trade Facilitation 22 Current Status 23 Summary 23 Hong Kong: Background and History 24 Tradelink 24 Overview 25 Singapore: Background and History 26 Current Status 27 Plans 27 Discussion 27 The SNS Business Case 27 Legislation 28 Business and Cultural Factors 28 Taiwan (China): Background and History 28 Current Status 29 The Next Step 29 Discussion 30 Summarizing National Models 30 4 THE WORLD BANK EXPERIENCE 32 Diversity of Entry Points 32 Trends in What the Bank Has Done So Far 32 The Next Frontier: Integrating and Standardizing the Approach 33 The 1987 Review: Lessons from the Bank's Experience in Transport Facilitation 33 The 1992 Review and Lessons 34 Trade and Transport Facilitation Guidelines 34 Conclusions 35 Jordan 35 Observations About the Jordan Project 35 Mauritius 36 Observations About the Mauritius Project 36 The Way Ahead 37 Potential National Initiatives 37 Private Sector Initiatives 37 International Agencies 37 APPENDIX 1: The Dangers of Technological Disenfranchisement 39 APPENDIX 2: Cooperating National and International Organizations 41 iv Foreword Information technology is demolishing territorial boundaries today, and bringing nations together in a single global community-but a community more fiercely competitive than ever before. Change is the order of the day. Trade, banking, and telecommunica- tions are being deregulated. Transport is getting faster, flexible, and available. Reengineered business systems are taking advantage of quick- response and just-in-time strategies; and cargoes, containers, and goods are being tracked around the globe by a variety of automatic identification devices. Electronic data interchange and electronic commerce are replac- ing the slower, more tedious paper trail. Countries now compete in global markets regardless of time zones, national boundaries, and distance, as products and processes are redesigned to adjust to the new business environment. The increasing pressures from the global market are forcing everyone to adopt these new trade practices and standards. Customs, treasuries, and lawmakers are having to reinvent themselves to adapt to the concept of electronic commerce. Nations are adjusting to new methods of finance and tax gathering, opening up their telecommunications systems to private interests, and learning to take full advantage of harmonized procedures, standards, and practices for trade documentation. None of this is easy, but for many countries of the world, it is a matter of survival. The present report, Information Technology and National Trade Facilitation: Making the Most of Global Trade, attempts to make the process of change smoother. It examines costs, benefits, and best practices in applying information technology to trade facilitation. It provides definitions and introduces basic concepts and issues in the substitution of electronics for paper, in the effort to achieve cost-effective international trade. The companion volume, Information Technology and National Trade Facilitation: Guide to Best Practice, is a practical aid for governments to understand the tasks, costs, and time involved in setting up and imple- menting national trade facilitation initiatives. Together the reports offer essential information for decision makers promoting better trade practices in concert with international standards, common practice, and most important, specific national goals. JEAN-FRANCOIS RISCHARD VICE PRESIDENT FINANCE AND PRIVATE SECTOR DEVELOPMENT THE WORLD BANK NOVEMBER 10, 1995 V ABSTRACT The objectives of this study are described in the opening section, followed by some practical results of the concepts discussed throughout this report. The focus is on world wide experience and identification of factors which make for trade facilitation through successful application of information technology (IT). Economic advantages from best practice based on the use of electronic commerce in trade management and trade facilitation are de- scribed and several case studies referenced. The case studies cover national, industry and enterprise level experiences from several countries. An analysis of information and cargo flows in international trade accompanies a discussion of the efficiency of transport and logis- tics and the concept of IT based best practice, with particular emphasis on electronic commerce and Electronic Data Interchange (EDI). The opportunities for these technologies to open up world trade are considered, as are the technologies and services them- selves. Barriers to use and participation are discussed and means by which these may be overcome. The task, time scales and costs involved in setting up and implementing a national initiative are identified, as are the potential revenue streams which accompany service provision, and the national benefits of such a program. A selection of national case studies is prefaced by a global review of participation in IT assisted trade facilitation and best practice. National case studies from Brazil, Hong Kong, Hungary, Singapore and Taiwan are followed by a status report of the World Bank's experience in this area, with particular reference to the Mauritius model. The summary contains a discussion of the main challenges and dangers resulting from technological disenfranchisement, fol- lowed by a comprehensive list of participating agencies and organizations. vii I ACKNOWLEDGMENTS Many organizations have been generous in the donation of their time and in sharing their experiences with the authors of this report. In a separate section of the report, there is a list of all cooperating agencies, organizations, and individuals who contrib- uted information and experiences. They include many international agencies, international industry bodies, government departments, technical and trade associa- -tions, vendors and a wide variety of sys- tems users from banks, corporations and governments. In addition we received the help of many hardware and software vendors, of network services vendors, and of telecommunications companies and authorities, and from private individuals. Valuable contributions have been made by professional staff within the Bank, particu- larly Hans Peters and Francoise Clottes. We would like to thank Shampa Banerjee for a fine job of editing. It is impossible to research global experiences without the help of the pio- neers. We gratefully acknowledge this help. ix ABBREVIATIONS AND ACRONYMS ACS Automated Commercial System APEC Asia Pacific Economic Cooperation ASYCUDA Automated System for Customs Data BT British Telecom CAS Community Access Service, Hong Kong CIM Computer-Integrated Manufacturing CNAB National Council for Banking Automation, Brazil EAN European Article Numbering EANCOM European Article Numbering Communication ECE Economic Commission for Europe EDI Electronic Data Interchange EDIFACT EDI for Administration Commerce and Transport EFT Electronic Funds Transfer EFTA European Free Trade Area EFTPOS Electronic Funds Transfer at Point of Sale ERS Evaluated Receipt Settlement EU European Union FACET Future Automated Commercial Environment Team FDP Finance and Private Sector Development GATT General Agreement on Tariffs and Trade GDP Gross Domestic Product IBM International Business Machines ICC International Chamber of Commerce ID Identity III Institute of Information Industry, Taiwan (China) ISO International Standards Organization IT Information Technology JIT Just in Time (inventory control) LOCODE United Nations Location Code MBK Hungarian Bank for Foreign Trade MOF Ministry of Finance, Taiwan (China) MSTQ Metrology, Standards, Testing, and Quality MTCW Ministry of Transport, Communication, and Water Management, Hungary NAFTA North American Free Trade Agreement NCB National Computer Board, Singapore OECD Organization for Economic Cooperation and Development OFTP Open File Transfer Protocol PAXLST (UN-EDIFACT) Passenger List PSA Port of Singapore Authority QR Quick Response RFID Radio Frequency Identity SITPRO The Simpler Trade Procedures Board xi SME Small and Medium Enterprise SNS Singapore Network Services SPEDI Shared Project for EDI, Hong Kong TDB Trade Development Board, Singapore TP (UNCTAD) Trade Point UN United Nations UNCTAD United Nations Conference on International Trade and Development UN-EDIFACT United Nations EDI for Administration Commerce and Transport U.S. United States U.K. United Kingdom VAB Value Added Banking VAN Value Added Network VANS Value Added Network Service WCO World Customs Organization WTC World Trade Center WTO World Trade Organization WWW World Wide Web Xii Information Technology and National Trade Facilitation: Making the Most of Global Trade Prologue: A Lamb's Tale "If it were done when 'tis done, theni 't vere ivell it zLere done quiickly." MACBETH, Act 1, scene vii No industry could be further removed from sale back to the farm, and all of the steps the mainstream of information technology in between, as his or her supply chain. The than the primary producer industry, or so it retailer advocates electronic connections would seem. between each point in the chain so that all Farmers are concerned with the ele- of the participants in the chain know the ments, with the day-to-day struggle on the exact status of sales, inventory, and orders land, and the constant battle to make ends at all times, from end to end, and at each meet between good and bad seasons. It link in the chain. would appear that of all decisions faced by The retailer captures 100 percent of sales a farmer, information technology would information at the point of sale from bar hardly rate a thought. There are many such coded product. Each night these data are sectors of the retail industry, whose mem- sent to the retailer's mainframe computer, bers-like the farmer-do not see them- which then generates orders based on selves as being part of the retail supply actual sales. The objective is to replenish chain. Do sheep farmers, who supply sales, not to make for stock. This technique export-quality product actually know who avoids building up a float of inventory, of their ultimate, or even penultimate, clients expense, and of information in the supply- are? Do they see themselves as being in the value chain. The retailer also makes sales retail business at all? How can they, when data available by electronic data inter- they have virtually no contact with a change (EDI), to any supplier or to anyone retailer, let alone a retail client. But things in the supply chain. The concept is to are changing, driven by the farmer's identify product at source, and to carry this customers and, ultimately, by the retail identity-and hence the brand-all the way client. through to the retailer. The retailer in turn What follows is the story of a current will supply sales and quality data, business initiative in the New Zealand sheep farm- messages, and value exchange (funds), all ing industry. The story is concerned with by EDI. The consequent reduction in float, current trends in retailing and the retail of stock, and of investment, leads to better supply chain. yields, and electronic connections lead to The farmer is the first link in the food closer relationships between suppliers and retail supply chain. A typical supply chain clients. may involve well over 60 weeks of time, At the other end of the supply chain, the between retail forecasts being filtered farmer identifies individual animals by backwards through the chain to the first subcutaneously injecting each with an RF link in the chain (for example, apparel and transponder (a Radio Frequency ID or chilled meat forecast-to-retail sale cycles are tagging device), or by attaching a machine- both in the 60-to-70-week region). The more readable tag to the ear or tail. These identi- steps there are in the chain, the more fying devices contain the supplier number "slack" there is. Slack, or excess stock, may (the farmer's ID), and in some cases, a be due to inflation or misinterpretation of unique animal ID for particular livestock. demand or forecasts, excess safety stock, The ID is then matched against a database transcription errors, and extra stock or- that is used to generate control information dered or produced to compensate for this all the way through the process, right up to slack, or "float" in the system. point of sale. This creates a merchandizing The U.K. retailer in this project thinks of brand and feedback through the supply the complete supply chain from point of chain on sales and quality data. In this xiii scenario a farmer holds a database on a data and calculated statistical trends, computer, referring to individual animals supplemented of course by experience, by or to a complete herd. The portable scan- knowledge of local conditions, and of nling process of bar coded tags (or RFID) special events. enables the farmer to keep individual So far, this approach has largely been records on weight, quality, diet, progeny, used by supermarkets, chain stores, and and so on. department stores. Their central computers The farmer's computer is equipped with talk to each POS device to obtain current a modem and a printer. These enable the sales data, then consolidate those before freezing plant to send contract and pay- sending them on to suppliers. Implementa- ment data to the farmer from its mainframe tion of EPOS-EFTPOS (electronic point of computer by EDI. It also allows the plant's sale-electronic funds transfer at point of miainframe to interrogate the farmer's sale) by the major retailers is now being records for information on stock availabil- followed by retailers of all types, in all ity, wveight, age, quality, so on and so forth, sectors. The mass of data they accumulate for scheduling purposes, in addition to on sales, and hence on accurate replenish- broadcast requests for stock on given dates, ment-not forecast-orders as well as on thereby enabling better management of payment details, are now enabling them to supply and produict mix. The freezing plant conceptualize the supply-value chain, and scans the animalis ID device on receipt, what it means to them. either by wireless receiver or by an ear tag The generalized concept is that retailers or tail tag bar code reader. This information communicate orders, shipping instructions, is converted into bar coded identifying tags amendments, payment instructions, remit- or tickets, which follow the product tance advices, and quality messages (for through the process and are carried example) to their suppliers in an electronic through to the labelled packaging for format. EDI is the widely accepted term for export dispatch, and on to point of sale to this process. It means that retailers can send complete the tracking from end to end. orders from their computer to a supplier's The final stage in this closed loop computer in a matter of seconds or min- process involves communications with the utes. The process eliminates time, cost, and retailer, whereby shipment and export data delays involved in the mail, in data entry, are sent by EDI to the retailer or customs in transcription errors, and in the build-up broker (or agent). Sim-ilarly, the retailer of intermediate stocks caused by waiting sends sales and trend data by EDI to the for information or imprecise information. processor. This same process is used for This process of sending and receiving quality data, veterinariani and sanitation business data by EDI facilitates quick data, orders, schedules, and changes. Later response (QR), or the rapid delivery of stages are soon to include on-line video precisely calculated replacement orders. conferencing of the meat grading process Replenishment is now made at the point of for an even closer remote evaluation of sale, in the right quantity, at the right time, grade and quality by the retailer. to the right quality, at the right price. It Because retailers use bar coding systems ensures that the retailer has exactly the for product ID and therefore sales data right amount of product in stock to support capture; because the sales value is consis- its particular level of service goals, and that tent across a whole retail organization; intermediate stock and distribution points because price changes are captured and and processes are minimized. At the manu- maintained centrally and downloaded daily facturer level these systems are known as to the stores' point-of-sale (POS) systems in just in time (JIT) systems. order to update price look-up tables; there The advantages of such an approach is now a mass of timely and accurate retail include a much reduced lead time through sales data available, the supply chain, hence an ability to place This information can be used for replen- much more frequent and smaller orders. ishment purposes. The retail head office, no QR strategy makes dramatic inventory matter what products or service it offers, reduction possible, giving the retailer better can replenish stock based on actual sales control over price, quality, response to XiV Informnation Techinology anid Nationial Trade Facilitationi: Making the Most of Global Trade customer demand, and customer satisfac- developed and advanced nations. The retail tion. The supplier, in this case the primary industry and its supply chains are global producer, tends to get more of the retailer's and homogenous. They are set to be elec- business, better prices and consistency of tronically integrated. orders, in addition to extra, valuable This is the underlying message behind information. Branding, better utilization of this primary producer project. To obtain resources, faster and more accurate ex- control over the supply chain, every step in change of supply and business data, and a the chain must be aware of-and able to closer relationship between supplier, communicate-supply and demand. Since processor, retailer and consumer results all of the technologies for data capture, from this EDI-facilitated end-to-end supply electronic interchange of data, and the chain management system. technical vendor infrastructure are avail- IT and electronic commerce in the able now at competitive pricing, EDI and primary industry sector is bringing about electronic communications provide the revolutionary changes, which will prove vehicle for change. What follows is more to important for emerging economies and do with transforming attitudes and busi- developing countries just as much as for ness practices. xv 1 Study Objectives and Scope The objectives for this Finance and Private program for the following nine months. Sector Development (FPD) study were to Countries in which field research took place summarize the experiences and to identify include: Hong Kong, Malaysia, Singapore, the factors that make for success in infor- Taiwan (China), Australia, New Zealand, mation technology (IT) facilitated trade Hungary, Argentina, Brazil, Chile, and processing. Since it is now apparent that IT Mexico. is inseparable from best practice in many public and private sector initiatives, the ECONOMIC ADVANTAGES TO project was designed to create a best IMPROVED TRADE MANAGEMENT practice model for trade facilitation in AND FACILITATION response to growing demand from coun- tries ready to receive technical and institu- At the national level the simplifying and tional guidance in a range of trade facilita- speeding up of trade information flows tion activities. offer significant national benefits. At one In order to identify what best practice is, level such improvements ensure that it has been necessary to evaluate practical efficient approvals and information flow experience on the broadest possible front, can be processed with a smaller number of especially in the use of IT for the trade steps, fewer people, and in less time, thus processing function. In this case, best offering savings to government depart- practice means the use of electronic com- ments and users alike. But the downstream merce techniques, most particularly elec- results of these efficiencies are even more tronic data interchange (EDI). The use of important. these techniques for trade competitiveness The use of accelerated, simplified is not limited to either the domestic or the systems and EDI to preclear imports and international scene; they occur in both. In exports means that goods can be loaded order to achieve the objectives for the study and unloaded in the most efficient manner, therefore, it was necessary to undertake an problems can be anticipated and solved extensive meeting and research program. before they become problems, facilities can This program was designed to understand be properly scheduled, and maximum use the widest range of experiences, of both made of the road, rail, ports, and harbor failure and success, and to verify them in infrastructure and installations. To take a the field with the people and organizations simple example: if a ship can be processed mandated with the task. in half a day or less rather than the entire A further set of documents have been day or more it may currently take, then the produced as a result (see the companion infrastructure capacity is effectively volume). These discuss the best practice doubled: twice the cargo, twice the number model in detail and explore a wide range of of ships, twice the number of containers. A implementation issues of interest to World nation may expect increased harbor duties, Bank professional staff (task leaders and excise taxes, and revenue from income tax project officers) and institutional staff from and company profits without increased Bank borrowers and recipients of technical investment in infrastructure. assistance from other United Nations (UN) Singapore claims that properly applied and bilateral agencies. trade facilitation is already saving it in The work began in late September 1994. excess of one percent of its gross domestic Bank staff and external consultants con- product (GDP) each year. It received a ducted an extensive research interview return on its investment in its national Stuidy Objectives and Scope 1 trade facilitation initiative, Singapore practices. Major multinational retailers are Network Services (SNS), during the second obtaining a greater variety of fresh pro- year of operation. Taiwan (China) and duce from all corners of the globe, while Korea have similar stories to tell. Hence simultaneously achieving dramatic savings the big picture shows more efficient trade, through the use of QR strategies. In some higher government revenue, and the cases supermarkets have increased profits ability to defer government investment in threefold over the last ten years, as their major infrastructure inventory stock has projects by optimiz- r _ __ been reduced from ing use of existing three to four months of installations. CREDIT supply to less than one The benefits of week. these efficiencies In the fifth century B.C., the banker Pasion The general term for translate to wider offered Stratocles, a "Black Sea Sailor," a these changes in attractions to trading letter of credit for the distant land of the international trade partners. Efficiency Scythians, in return for a suitable payment administration is improvements in in Athens. This is the earliest record of a "trade facilitation." vessel turnaround banker prepared to finance cross-border Trade facilitation have attracted new commercial transactions. Pasion was a implies an optimum entrepot and distri- metoikos-which means he was neither a use of standards bution business to slave nor a full citizen, but half free. He had risen from lowly beginnings, and troughou the wol Singapore. Advanced therefore possessed no fortune of his own. process, standards for electronic commerce He depended on the brokerage of other information formats and EDI facilities are people's capital. As he was scarcely known and layout, for codes, allowing Australia to outside of Athens, his name alone was not for procedures, and for increase their lead in sufficient for a letter of credit. But he did rules. Many of the new tourism revenue have a client who was preeminently suited techniques are de- growth. The ability for such financial transactions: the son of signed to overcome to communicate with Sopaios, the all-powerful minister of incompatibilities so its northern hemi- Satyros 1, King of the Crimea. that, where possible, sphere trading The Greeks had been importing grain from existing systems may partners has resulted the Crimea for many years in order to fill be integrated into other in a four-week the storehouses in the harbor of Piraeus systems unaltered. In extension of its and feed the population of their cities. the case of information supply season each Stratocles handed his money over to this exchange between king, who was staying in Athens at the change beteen year for ue time. He, in turn, made out a payment computers the tech- Zealand produce order to be honored by Sopaios in nique is known as industry. Trebizond. Nowadays, we would say that electronic data inter- At the enterprise the son had drawn a Bill of Exchange on change (EDI). Elec- level the adoption of his father. Armed with this paper, tronic network services quick response (QR) Stratocles sailed for the Black Sea. Appar- such as the Internet and just in time (JIT) ently, the deal fell through because of and other, private, strategies-particu- various court maneuvers and Pasion's fall services contribute to larly those supported from favor. This resulted in an early the reengineering of by EDI-are enabling commercial lawsuit in which counsel for taepoesn textile E -and a blig the plaintiff was none other than the trade processing textile and apparel famous orator Demosthenes. practices; so do inter- manufacturers all . national and develop- across Asia and Latin ment organizations America to dynamically satisfy variable helping the smaller trader participate in customer demand, and thereby gain trade facilitation services, as well as a significantly larger proportions of those range of "no tech-low tech" EDI services. customers' business. Car manufacturing The umbrella term for all of these elec- operations all over the world are reporting tronic techniques and services is electronic savings of US$200 per assembled vehicle commerce. EDI is the key electronic in cost savings through JIT and EDI commerce technique for the reengineered 2 Information Technology and National Trade Facilitation: Making the Most of Global Trade trade facilitation process. trade and in globalization of the supply Best practice trade facilitation and EDI- chain during the last part of the twentieth based industry initiatives have not only century. Paper and the mail are no longer produced economic advantages, they have adequate to process the volume of infor- become a marketing tool for their ad- mation at the speed and accuracy de- vanced users. New business is being manded by modern trading conditions. IT, attracted to EDI-compliant enterprises at or informatics, is now vital for the rapid the expense of those who are not. The and accurate exchange of the information ultimate question might be not "What does that controls and drives world trade. EDI do for me," but "What will the lack of A modern wide-bodied jet can traverse EDI do to me?" the globe in twenty-four hours, carrying fresh produce from a supplier in one CRITICAL PATH: CARGOES AND hemisphere to a buyer in the opposite DATA FLOWS hemisphere on the same or the next day. Yet it can take ten davs to process orders, The factors which determine today's to obtain customs and departmental trading methods are principally logistics, approvals, to book and schedule transport transport, banking systems, and informa- and distribution, to obtain payment and tion. The first recorded international trade insurance approvals and to complete the transactions took place over 5,000 years transaction, often before the delivery can ago. International commerce began with take place. In the case of fresh produce this the trading of natural surpluses in ex- removes 10 days from the selling season, change for needed supplies from the days that can never be replaced and whose surpluses of other trading areas or nations. lost revenue must be added onto base The principal limiting factor was then- costs. This in turn puts the grower at a and has been almost ever since-the speed disadvantage in relation to his oversees with which goods could be moved be- competitors, who may organize matters tween buyer and seller. Information about more efficiently. And the same is true for the transaction traditionally accompanied any other product or service. Information the goods themselves, as a sort of trade flows, and the speed and efficiency with passport. As industry and commerce which they are processed, are now as became more sophisticated, the paperwork important as home markets and natural covering international trade transactions resources. tended to follow a different path from the Trade is no longer a case of producers goods themselves: most often going via the or traders in one country selling to their postal service. counterparts in another. The world no So long as trade, transport, and distri- longer operates on such simple principles. bution of goods were dependent upon Goods are now assembled in different sailing ships and horse-drawn transport, locations: many firms buy materials from or even steam ships and locomotives, the several different countries, process in a paperwork generally arrived with or second group of countries and assemble in before the goods, thereby allowing ample a third, then reimport them to some of the time for processing the information. Paper original countries and ultimately reexport trade processing systems were considered them all over the globe. The United Na- perfectly adequate for the task. Indeed, tions Conference on Trade and Develop- even after the introduction of computers ment (UNCTAD) believes that one-third of for generating and storing information, all trade is now intra-firm trade, adding a paper administration and the mail re- further complicating factor to the chal- mained the norm. However, recent trans- lenge facing traders. The patterns of world port and trading revolutions have irrevo- trade are constantlv shifting, driven by cably changed that situation. economies of scale, currency fluctuations, Jet transport, fast container ships, managed trade considerations, labor and container handling techniques, and effi- market proximity, and the emerging force cient road and distribution systems have of trading blocs and trading associations, helped create an explosion in international such as the European Union (EU), the Stuidy Objectives and Scope 3 North American Free Trade Agreement * raw material and component suppliers; (NAFTA), and Asia Pacific Economic * the manufacturer or assembler; Cooperation (APEC). The Organization for * customs agents and brokers; Economic Cooperation and Development * customs authorities; (OECD) and the World Customs Organiza- * government authorities concerned with tion (WCO) further complicate the issues import-export promotion, as well as for traders, no matter what their aims and approvals, and statistics; ultimate benefits may prove to be. * local transport and warehousing If we add to those challenges the grow- companies; ing proportion of services as a component * container handlers; of world trade, the feasibility, cost and time * ports and harbor authorities; of building new ports, harbors, handling * shippers, for example, sea, air, road, rail, and distribution facilities, it is clear that the river, canal, etc.; most efficient users of the global infrastruc- * banks and insurance companies. ture are the most competitive. International trade success is conditional upon the Each of these links in the chain have to optimum use of these resources through the refer to, and possibly interact with and efficient processing and use of information. depend upon, other organizations. Each UNCTAD estimates that at least US$100 have their own set of paper forms-even if billion could be saved each year by the they are generated by, and ultimately adoption of efficient trade practices. This stored in, computers-and their own figure has nothing to do with tariff reduc- counterparts in the importing country. tions resulting from the completion of the Moreover, this simple list of participants in Uruguay Round, which has made traded a linear trading cycle presupposes a totally goods 2.5 percent cheaper in their import domestic manufacturing supply chain and markets; it refers solely to the savings goods that are supplied direct to the con- produced by the adoption of best practice suming market. As we have already seen, in international trade, specifically IT- this is likely to be the exception rather than supported trade facilitation. Many interna- the rule as trade gets more sophisticated tional agencies attribute an overhead of as and accelerates faster. much as 7 percent of the value of world Even the most uncomplicated trading trade to the current costs of administration transaction probably requires the coopera- and the downstream effects of those sys- tion of at least 20 organizations and as tems. These systems are still based over- many as 100 different forms. Most of the whelmingly on paper forms and traditional information is distributed across the forms procedures. The challenge of best practice and throughout the process, probably in is to reengineer these practices and to different formats and positions. Generated properly deploy IT in pursuit of the great- by computer, the information is reentered est efficiency. into the computer of the next party in the process. (It has long been accepted that as SOME OPTIONS much as 70 percent of all information entered into one computer has already been A typical international trade transaction generated by an earlier computer system. can take as many as 150 different docu- Trade information processing systems are a ments to complete, according to the Trade classic case of multiple entry of the same Finance Department of The Hong Kong data.) Shanghai Bank. Some of these documents, In order to react more flexibly and such as the bill of lading, are surrounded promptly to market demand, new logistics by 500-year-old practices and rules about technologies are being adopted, such as JIT their use. The types of documents in use inventory control and QR retail supply can be illustrated by following a typical systems. Unfortunately, QR and JIT prac- supply chain, involving a simple seller-to- tices impose enormously heavy burdens on buyer transaction in two different coun- administration and procurement systems. tries. They include: The thousands of small deliveries to the factory assembly line or retail point of sale 4 Information Technology and Nationial Trade Facilitation: Making the Most of Global Trade that replace the traditional weekly or called evaluated receipts settlement (ERS), monthly batch delivery to the warehouse, in which goods are delivered against a require very high volume and precision of purchase order. The packaging bar codes information to maintain continuous supply are then scanned on receipt of the ship- of the product. The only way to manage a ment, and receipt details are compared QR or JIT system is to eliminate paper from against the purchase order in the computer. the procurement process and arrange for If matched, the record is passed straight trading partners' computers to talk directly through to accounts payable systems, to each other. which in turn generate an electronic funds Today we see the emergence of systems transfer direct to the supplier's bank. This designed to eliminate paper from the has resulted in the elimination of supplier trading process and to simplify-or to invoice checking, accounts payable recon- reengineer-processes based on standard- ciliation processes, and the vendor payment ized methods of information exchange. enquiry function, at an average saving of Harmonized customs processes among US$25 per (replaced) invoice. nations, or standardized transportation Similar reengineering principles are timetables and freight modules or contain- possible in trade facilitation. The concept of ers, for example, along with accelerated replacing paper documents with EDI, information processing and information representing much of the detail with codes exchange, can lead to preclearance and and harmonized processes (trade facilita- prereconciliation of transactions at all tion), and the simplification of procedures stages in the trading process, independent (reengineering) represents the complete IT- of time, distance, and technology incompat- facilitated trade process. ibilities, and at a fraction of the cost of The subject of this report is the rationale, paper systems. the technologies, the practices and the implementation of IT-based best practice BEST PRACTICE for trade facilitation with particular empha- sis on electronic commerce and EDI. It is The purpose of best practice within the supported by case studies, by cost-benefit context of trade facilitation is to replace examples, and by supporting information paper documents with electronic equiva- and references and guidelines on what to lents, but not in an exact substitution. Much do next. of the information transmitted on paper, such as names, addresses, product and THE EFFICIENCY OF TRANSPORT service descriptions, or terms of trade may be represented by simple codes, recogniz- For most of recorded history, human beings able by computer software. For example, were born, lived, and died within a 15-mile the United Nations Location Code (25-kilometer) radius: the maximum dis- (LOCODE) is a mnemonic which describes tance of a day's return journey from their all ports, harbors and airports in the world home base. There were a few exceptions to that are active in the import and export the norm, of course: soldiers and sailors, processes. Similar codes are applicable to merchants, adventurers, and noblemen, for other industries, other countries, and other example, but the vast majority had to stay professions. Therefore the only information close to their immediate village area be- that must be represented in electronic cause of the limitations of available modes format in detail is transaction variable of transport. The steam age and the atten- information, such as numbers of units, dant advances in transportation methods discounts, dates, special delivery instruc- changed all that, as did the massive dis- tions, clearance and approval numbers, and placement of people after the agrarian so on, and so forth. revolution and the still continuing urban- In a reengineered environment it may be ization resulting from the industrial revolu- possible to eliminate certain messages tion. Now there are signs that the develop- altogether. For example, the retail industry ing information revolution may finally halt, is working hard to replace its most costly and perhaps even reverse, the migration of document, the invoice, with a process people from rural to urban areas. Stu,dy Objectives and Scope 5 The technology of the industrial revolu- information processing, and waiting tion initially depended upon steam for (storage!). powering its transport and machinery. Coal Many different forms are involved in the gradually gave way to other fossil fuels administration process, in addition to such as oil, gas, and petroleum-gasoline airline reservation and information sys- products. Today's wide-bodied jet aircraft tems, baggage tracking systems, customs represent the culmination of 100 years of and immigration systems (and associated development of the internal combustion government information systems). Any engine. In about 150 years the speed of goods or samples that accompany the travel has risen from a walking speed of 3 traveller, trigger a whole array of support- mph (5 kph) to over 600 mph (1000 kph). ing freight and customs processes. Lan- Increase in the speed of transportation has guage, currency, and time differences, been matched by increase in efficiency. It is incompatible customs systems, businesses this increase in efficiency that forms the processes, and culture, all add complexity. basis for modern logistics and trade facilita- The travel example is an analogy for tion initiatives. Such a proposition may freight processing, the lifeblood of interna- easily be tested by looking at the example tional trade. If passenger transport is so of a person making a journey between two complex, then how much more complex countries using the fastest available mode and inefficient is trade transportation. of transport. Clearly, the efficiency and speed of trans- For a simple one-to two-hour flight port are crucial considerations in world within, say, Europe, the passenger has to go trade, but the harmonization and simplifi- through at least 10 different stages; travel cation of processing information are at least time possibly totals five hours or more, and as important as increase in speed. The differences in time zones may also influ- European Free Trade Area (EFTA) claims ence effective use of time. The documents that as much as 5 to 10 percent of the value involved in this simplest and most common of goods may be taken up with the prepara- form of travel include: tion and processing of information alone, in addition to the costs that inefficiencies * passport; impose. - airline tickets; So here is the challenge and the opportu- * boarding card; nity for trade facilitation: to remove those * visas; inefficiencies, to make optimum use of * health certificates; today's speed of transport and the existing * baggage tags and receipts; port and transport infrastructures, and not * departure forms; the least, to streamline government proce- * arrival forms; dures. * customs declarations; * possibly insurance certificates, including A VALUE-ADDED PASSENGER PROCESSING health insurance; AND IMMIGRATION INITIATIVE * currency; * travellers checks; Several years ago, New Zealand had a * credit cards. monopoly domestic air carrier and three ports of entry, all nationally owned and Passenger airline travel is the most operated: Auckland, Wellington, and highly organized form of international Christchurch. Customs and immigration travel, but in order for it to work smoothly, operated on a conventional full-disclosure passengers must present themselves to the passenger processing basis. At least one of system to be processed in a highly regu- the airports, Auckland, had a baggage lated and user-unfriendly fashion. Even so, handling service so inefficient, it was taking all these personal inconveniences legendary. Delays of up to one hour in the into consideration, jet transport only arrival of baggage were not unknown. accounts for something like 30 to 40 percent Then, an enlightened customs service of elapsed journey time, the remainder adopted EDI for import clearances; later on being consumed in local "feeder" travel, the airlines were deregulated and became 6 Information Technology and National Trade Facilitation: Making the Most of Global Trade competitive, and airports passed into the logistics efficiencies. First, for the move- hands of the local authorities. Customs and ment of freight, speed, of itself, is not immigration decided to extend the prin- necessarily the most important factor in ciples of EDI, or computer-to-computer journey times. Second, removing informa- exchange of standardized information tion processing from the critical path makes across electronic networks, to the passenger the greatest contribution to efficiency clearance process in New Zealand. improvements, better use of existing They participated in the development of resources and infrastructure, and hence a standard message for the purpose, known growth in trade information and freight as PAXLST, or Passenger List. For this processing capacity. process, the passenger manifest is consoli- dated after a flight has closed, just before SPEED OR EFFICIENCY? departure. This manifest is then transmitted in an electronic format to the electronic Although speed is an important factor, and mailbox of the New Zealand Customs and increased speed a welcome innovation, Immigration Service. In a matter of minutes administration, information processing, the information is received and reformat- and the reduction of the overall journey ted, so that it can be entered into and read time are the keys to enhanced efficiency. by their own computer systems. The New Indeed, speed changes affect a sophisti- Zealand authorities are thus able to process cated and complex set of international passenger names and passport numbers schedules. Some speed enhancements could and to identify individuals judged worthy actually increase journey time because of further investigation before the passen- schedules may become unsynchronized. gers actually arrive on New Zealand soil. Trading partners, although mindful of As a consequence, most passengers receive speed, also require predictable and reliable only cursory attention and are processed deliveries, which are largely dependent very quickly, subject, of course, to the upon international published schedules. A discretion of the individual officer on duty coordinated approach to efficiency im- at the time. provement is the only practical way to The results have been dramatic. For proceed. This will involve electronic com- example, at Wellington Airport, where, as merce and EDI, trade facilitation, systems in the other New Zealand ports of entry, reengineering, changed legislation, and a they have also upgraded terminals, passen- closer integration of business systems and ger handling, and baggage handling facili- business practices. ties, the time from disembarkation to UNCTAD offers an appropriate formula- departure from the terminal is now gener- tion in the context of its Special Programme ally less than 20 minutes, down from an on Trade Efficiency: average of over 45 minutes in 1990. Target trade efficiency = trade facilitation + time for clearing customs and Immigration trade information + best practices. is 14 minutes from aircraft arrival time. The objective of this reengineered OPENING UP TRADE OPPORTUNITIES system was to remove customs and immi- gration processing from the critical path of As business and trade become truly total journey time, in order to better service globalized, the requirements for national New Zealand's tourist and business guests. competitiveness are changing. Once it was It also achieved better use of customs and sufficient to provide scarce commodities, immigration resources, more predictable out-of-season produce, or cheap manufac- and improved work load balancing, en- tured goods for the markets of more ad- hancement of arrivals supervision, and a vanced European or American economies. dramatically improved level of customer Today progress in transport and informa- service. Every customs and immigration tion technology make virtually all products officer in the country is trained in EDI and and services from all countries available to in what it can do for them. any purchaser on the globe. Trading blocs, The air passenger example illustrates preferential arrangements, and quotas still two fundamental points in transport and have a major effect on market access, but Stuidy Objectives and Scope 7 assuming these arrangements will play a connects computers from all over the diminishing role in the overall proportion world. It has doubled in size each year of global trade, what will be the new since 1988. Although it is virtually impos- limiting factors to market access and sible to accurately count the number of net economic growth? users at anv given time, the number of Essential as EDI and the reengineered "hosts" (computer processors) connected to process might be, they are geared to trade the net can give an approximate guide. transactions, to the supply-value chain, to Based on an average five users per host at buying and selling. Once the contract has the beginninlg of 1995, the population of been signed or the order placed, these users is estimated to be 24 million today. systems come into their own. EDI is also The net was originally designed to widely used in price and catalog inquiry in enable academics and researchers, and the marketing and presales phases of defense establishments to get access to commerce. But there is more to trade and information data bases on each other's trade information than the administration computers. In this way, researchers on one of the supply chain and the movement of cointinent could have instant access to data goods between buyer and seller. on another continent, direct from one How can technologies that make EDI computer to another. Electronic mail was such an important part of trade and supply added, thereby allowing users to corre- administration help create or find new spond with each other using the same markets, compete for new business in technology and speed of access. The net established markets, and ensure a level provided this access or transfer of informa- playing field with traders with better tion for a minimal cost, virtually instanta- market access and more sales and market- neously, independent of time, distance, and ing resources? technology incompatibilities. Any computer There can be no substitute for superior cani now talk to any other computer, any- marketing and professional selling, but where in the world through the Internet. technology is beginning to help balance the Over the last two years, as Internet scales between those witlh many resources capacity has increased, a new "multimedia" and those with few. Technology is begin- facility has been added, providing access to ning to redefine the rules for successful and transferring pictures, moving images, international marketing. sound and voice signals in addition to the traditional Internet information services THE INTERNET and electronic mail. This facility is known as the World Wide Web (WWW, or the The Internet (or the "net") is a global family "web"). The web has extended its usage to of telecommunications networks that purely commercial organizations who now 69.50 Hosts (%) Users (M) 22.47 ~~ - ~~~5.43 7.10 16.85 _ _ 1.00 0.24 North Europe Asia Other America Pacific I inforniation Teclhniology anid Natilo)nl Tr,7aie Fa.cilitationl: iV1akinig the Most of Glo1al Trade regularly use its global facilities to market the Middle East, and Africa, and programs and promote products, services, and are being developed to accelerate the support. By January 1995, 27 percent of all growth. hosts connected to the net were commercial computers. PRIVATE NETWORKS This means that firms now accept and promote products and services across the A numbLer of private networks have devel- Internet; they receive trade inquiries, oped at the same time as EDI, Value Added provide marketing, product, service, and Netwvork (VAN) services and the Internet. support information, accept orders, send Private networks may be defined as being invoices, and accept electronic payments, restricted to subscribers, hence access to Electronic brochures, prospectuses, cata- more than one would require multiple logues, price lists, specifications, designs, sUbscriptions, or the payment of fees for illustrations, advertising materials, anid a interconnection. Private networks include wide range of complementary marketing such companies as Microsoft network, activities are now carried out over the net. Prodigy, America Online, CompuServe, It can provide the same level of service for eWorld and others, most of whom have a a one-person company as for a large multi- gateway to the net and can exchange national; it is as immediate for a company electronic mail with each other. Some of in distant countries, no matter how small, them have started offering full Internet as for large companies on the U.S. or access. In this way, information services, European mainland. trade anid tariff databases, transport and The net and a wide variety of comple- scheduling information, and the widest mentary networks and services now offer possible variety of professional and recre- equal access for all players, to all markets ational information services are directly of the world. While many areas are still available to the user, as are a new family of denied access at the moment, the fastest trade matchinig services and trade opportu- growth of access is now in Eastern ELurope, nity databases for buyers and sellers UNCTAD's Trade Point Iinitiative The concept of a service center, or that the addition of access to trade necessary ingredients for interna- bureau, for EDI input/output pur- databases and information services tional trade under one roof. These poses designed for non-automated for the purposes of countertrade, ingredients will include informa- traders is not new. No tech-low tech opportunity matching, and trade fa- tion, trade facilitation, communica- initiatives are well under way in cilitation information, is a perfect fit tion, enhanced transaction, and several Asian countries, in North for Small, Medium Enterprises educational and consulting services. America, and in Europe. No tech- (SME) and developing countries. It A subscriber to the service will have low tech techniques include service also offers facilities for EDI transac- access to every step of a transaction, centers and a range of alternative tion processing. TP prices are in- from finding a trading partner to ne- technologies which provide EDI ac- tended to be affordable to local com- gotiating a sale, to making payment, cess for nonautomated organiza- munities, but the concept is still at or getting paid. tions. (See companion volume, an early stage. A very important part of TP's Technology and Cost Options.) mission is to build overall aware- However, service center transac- TRADE POINT GOALS ness of the benefits of international tion charges can be considerable; a trade through electronic commerce. charge of US$10 is not unusual to Each TP coordinates and shares in- Ongoing efforts are being made to send and receive a single message formation with all other TPs. But the educate companies through a busi- or small file. design of each TP is undertaken lo- ness community outreach program Even so, the usage costs of a bu- cally, following UNCTAD guide- and the formation of partnerships reau can be relatively painless com- lines. The staffing and financing are with universities and other educa- pared to the start-up and capital primarily local; therefore, each TP tional institutions. TP initiatives costs necessary for self-sufficiency. takes into account the unique cir- now exist or are planned in 48 coun- Trade point (TP) complements cumstances of its location. tries. the concept of low-tech EDI. It says Trade points aim to place all the Stuidy Ob1jectives and Scope 9 around the world. These include parts of the world where governments UNCTAD's trade point service, IBEX from pursue different ideologies. Hence the AT&T, International Chambers of Com- relationship between the sectors must be merce (ICC) services and the World Trade fluid enough to allow a profound change in Center's (WTC) information services. the way trade is carried out in the future. Prerequisites for access to these aids to Butsiness Cuiltuire. The ideal is a relation- trade efficiency and trade expansion are the ship of mutual trust between trading tools of information technology: computers, companies and government departments. telecommunications networks, modems In reality, a history of mistrust and failed and communication systems, software, and initiatives may have a strong inhibiting the skills base. Services that complement effect. Any new initiative, therefore, needs trade facilitation, reengineer processes, and to distance itself from potentially damaging feed modern transport and trade infrastruc- recent history, in experiences or relation- tures are EDI, electronic messaging and ships. network services, the net, and the web, Strengthl of Need. If there is a strongly felt together with the emerging family of trade need for change in the business community, and opportunity matching services. All are then the ground has already been partially available and in use today. This array of prepared. The next step is to temper strict electronic services and tools for competi- commercial interests with wider national tiveness is generically known as electronic considerations. Vendors, consultancies, commerce. third parties, and industry and interna- tional agencies will often offer conflicting PUBLIC AND PRIVATE SECTORS advice, much of which may need to be carefully examined before adoption. This section discusses the concept of a There is, as well, the influence of the nursery for new private and public sector most important group-a nation's trading business practices and a greenhouse for a partners. Wherever such groups are begin- new kind of national enterprise. ning to express a preference for electronic Although there are case studies for commerce, the choices are already made on universal adoption at the national level of behalf of both the public and the private IT-facilitated best practices, there are no sectors. In such a case, information becomes perfect precedents. However, there is a vital factor in making the most efficient enough experience to identify some key technological decisions within a short time. factors that make for success or failure. Financial Strength and Independence. Decisions on the best model may take the There may be a history of independent following into account: action by certain strong industries which National Strategy. If there is a national compels them to adopt an early industry- strategy for IT already in existence, much of or company-focused initiative. These what follows will be irrelevant. However, if initiatives may need to be modified in order such a strategy exists but does not take into to integrate with the wider cross-industry account electronic commerce and the community, and then with the national and synergistic relationships between national the international community. The process is competitiveness and IT, then the following not an easy one, and it is important to comments may be particularly relevant. achieve the widest cooperation for the best A national strategy will have to take into cross-industry and national interests, in account the political beliefs of the govern- which everybody is a winner. ment that may be affected by electronic At the same time, there is need for commerce and the resulting integration of funding in the early stages. Initially corpo- public and private sectors in the facilitation rations may be the only willing parties. But of trade. Much of the implementation work in the case of national best practice for IT- will involve restructuring present work and facilitated trade, where the benefits, if business practices, and simplifying govern- properly applied, are spread across the ment approvals. It will also be necessary to nation as a whole, governments can ill achieve closer interaction between trading afford long-term loss of national competi- partners and international agencies in other tive advantage by refusing to involve 10 Information Technology and National Trade Facilitation: Making the Most of Global Trade themselves in the effort. The most produc- in consonance with the electronic commerce tive scenario will see industry and govern- world. ment together formulating and adequately Indeed, because of the size of the mar- funding a strategy for trade facilitation. ket, or because of vendor or technology Infrastructure. If an initiative is to suc- infrastructure, it may be necessary for the ceed, it requires people with the ability to public sector to fund the organization that grasp the concepts, to apply them to local provides the technology to the marketplace, conditions, and to help obtain commit- as well as the technology itself, because ments of the right level of funding. It is there may not be another valid alternative. unimportant where such people originate Alternatively, it may be possible to from, be they private industry, consulting operate a joint venture with an existing firms or international agencies, provided vendor or a start-up company. Or in some technology and knowledge transfer are circumstances, in well developed, techno- contracted. Further, success will be directly logically literate markets, it mav be possible dependent upon technology infrastructure, to totally subcontract the task to the private on the computers installed, the quality and sector. Whichever choice is made, there flexibility of telecommunications, and the must be strong and continuing coordination base of skilled and experienced people between the public sector, the private available to the project and to its early sector, industry bodies, EDI associations, users. trade facilitation bodies, international Secondary and tertiary education will be agencies, and the vendor. a key component, so that the flow of Finally, if the vendor is partly or wholly appropriately trained and educated people funded by the public sector, there is a continues. Adequate funding must also be strong argument for privatizing the available to ensure that the private sector government's share once the vendor be- can comply with personnel and technology comes well established with a positive cash needs within the implementation time flow and good financial prospects. frame. This means that programs for helping smaller enterprises must be in- IMPLEMENTING TRADE cluded in any national strategy and vision FACILITATION statement. Titmzin,g. Many countries have been using This section is solely concerned with the technologies for five to seven, or even technologies and practices that are of direct 10 years. Their period of learning and relevance to the application of IT and experimentation is over. They are already at electronic commerce to a national initiative work building even more technologically in trade facilitation. competitive trading systems. Each day's The Goal. The ultimate goal for a technol- delay widens the gap between them and ogy-based scheme for the facilitation of the nations which are yet to adopt EDI for trade processes would be a system by trade facilitation. Decisions on timing, which a trader's computer-or any other participation, means, structure, and meth- party in the supply-transport-facilitation ods may be painful and resource-hungry, chain-may be considered part of a net- but they have to be made, and the sooner work that seamlessly connects all of the the better. concerned parties' computers. This ideal To summarize: the major areas in which system enables any party to enter informa- the public sector can-indeed must- tion into their systems once only, in order contribute, include: initial funding for a for the appropriate information to be national vision statement, a national aware- passed to all other parties. The information ness campaign, and a commitment of is transferred in such a format that all other government organizations to work side by computers can read the information with- side with the private sector on implementa- out any additional processing or external tion issues. It also needs to commission intervention. reengineering work on government sys- The design aim is to reduce the trade tems, evaluate existing legislation, and information processing cycle to an irreduc- gradually enact changed or new legislation ible minimum critical path, achieving Stuidy Objectives and Scope 11 maximum economies and optimum trade EDI for rapid, accurate transfer of data competitive advantage. This is a heady between computers. This implies alignment goal, one that no country has yet reached, with trading partners' systems and adop- but some are well along the way, notably tion of world standards for best practice. Australia, Finland, Singapore, and Taiwan Any plan to implement best practice (China). Many European, Asian, and conditions presupposes a knowledge of American countries are now' in the early EDI, trade facilitation goals, the appropri- stages of implementation of their own, or ate technological infrastructures, willing their trading bloc's, plans. participants, and a nationally agreed Best Practice. The term "best practice" is program. Key steps in the implementation subject to wide interpretation and to much of the process follow. abuse, but in the context of EDI-based trade 1. Feasibility study. Documentation of facilitation it may be considered to be the information flows and identification of key implementation of the goals of trade players for the early stages of implementa- facilitation as previously defined. Such tion. implementation involves simplifying 2. Project plan. This includes broad processes, removing excessive and obsolete awareness, concept marketing, and educa- controls, shortening and easing lines of tion program. communication, and using barcoding and 3. Documentation of existing systems. Documenting the systems as they are currently being used, not as they were American Customs Service: Trade Data Processing originally designed. The two conditions are often significantly different. By 1993, the American Customs "Automated Commercial 4. Review knowledge of what is pos- System" (ACS).was collecting trade data on 95 percent of sible. This involves an awareness of, and all imports, producing electronic releases, and communi- education in, all of the technologies previ- cating by EDI with 1500 traders. ACS is connected to 40 ously discussed. It also involves knowledge government agencies and helps enforce compliance with of case studies, understanding of trading revenue, environmental, public health, safety, and trade partners' business processes, and aware- laws. It has electronic interfaces with seven of those agen- ness of what is required for an international cies; more are planned, as are links with other govern- alignment of systems, both in technology ments. aineto ytm,bt ntcnlg It is evident that ACS is creaking at the joints. It was and business practice. designed to automate manual processes, hence there is a 5. Reengineering. Having documented great deal of key entry and resultant errors. ACS modules existing systems, and evaluated how they are not integrated, so intersystem handovers are manual, work, it is now possible to redesign and and therefore slow. By the end of 1994, a Future Automated reengineer current systems, based on a Commercial Environment Team (FACET) report concluded knowledge of what is possible. that the ACS process was outdated in view of changes in 6. Standard messages. Having business and government processes. reengineered the information flow it is now The traditional customs methodology of examining, ap- praising, and classifying merchandise assumes that there necessary to examine the newly-defined is one cross-border or overseas supplier, that there is a data to be transferred between computers. single carrier, and that all transactions are represented by This data then needs to be compared with a single invoice. existing approved standard messages. This is clearly no longer valid. In 1994, there are multi- 7. Message design. Message design and source suppliers and manufacturers from different coun- approval can be a time consuming process, tries, inter-modal carriers, and highly detailed electronic and should be avoided if possible. If new invoice messages. In addition, after 30 years of continu- messages are deemed necessary and the ous tariff negotiations, there have been significant inter- design process therefore unavoidable they national shifts in regional and bilateral trade agreements. d p t u Present customs systems cannot easily cope with the more must be based on guidelines discussed in precise data demands now placed on them. In particular, detail in the EDIFACT message syntax and the demands of NAFTA, drawbacks (reexport duty claims design guidelines. (See companion volume, and refunds), and Foreign Trade Zones have pushed ACS Annex 5: UN-EDIFACT.) to the edge. There is no room for expansion and change. 8. Pilot operations. An initial EDI group ACS must be totally reengineered, redesigned and rede- of trading partners is then set up and veloped. extended to a small number of competent 12 Information Technology and National Trade Facilitation: Making the Most of Global Trade trading partners. This involves installing literate organizations are always among the translation software, integrating that pioneers, and tend to dominate the stan- software with existing application software, dards-setting process. These are the people connecting to a VAN's EDI service, and who can afford the right software and the then exchanging test messages. As the pilot right VAN service. develops, it is possible for partners to begin On the other hand, the unautomated and to trade electronically and to gradually hence technologically disenfranchized remove the paper systems it was designed small companies fall even further behind to replace. the wealthy organizations as the adoption 9. Ramp up. This is the term given to of technology widens the gap between the extending the new electronic methods to smallest and the larger organizations. the widest range of participants. The Funding, however, is not the only techniques used to enlarge the user com- barrier to the use of EDI. Even in wealthy munity and to encourage participation may countries there can be equally effective vary from mandating compliance at one barriers, such as competing infrastructures, extreme to a range of financial and business lack of leadership, and inappropriate inducements at the other. Only full partici- message standards. pation will yield the desired results. This section briefly looks at the most 10. Progress. The management and the common limiting factors in order to sound project review of each pilot and major a note of caution on the methods that may initiative will involve public and private be adopted and implemented at the na- sector organizations, as well as many of the tional level. major trading partners. The purpose of Funding. Clearly the most common reviews, apart from commercial and opera- reason why EDI is imperfectly imple- tional necessity, is to confirm that the mented or adopted at all is lack of adequate original design parameters are being met, funding. This manifests itself at the na- and to improve them where possible. tional and the enterprise level alike. At the 11. Legislation. To the extent that legisla- national level an inadequate telecommuni- tion needs to be changed, attention should cations infrastructure, lack of a sufficient be paid to the Customs Act, the Evidence base of IT equipment, or the absence of a Act, and any other legislation that concerns body of skilled and experienced people, the validity of electronic commerce, taxa- would clearly make it difficult to achieve a tion, and banking regulations. critical mass of users. When presented in this fashion the task There are some appropriate aids, such as may seem overwhelming, but a properly the no tech-low tech initiatives, but an constructed plan will create a staged effective telecommunications infrastructure approach, phased and balanced for local and an EDI VAN are the mirtimum prereq- conditions, with as much expert help as uisites for EDI, for which government necessary. The plan should take into con- funding should be available. sideration the non-automated small- and At the enterprise level there are a range medium-sized enterprises through a local of aids and inducements. "EDI In" and variation of no tech-low tech EDI initia- "EDI Out" service bureaus, fax input- tives. Enterprises and industries from output services, voice input-output ser- nations of every size and from every vices, and inducements from government continent have already embarked on such a and industry bodies can help. Loans for plan. The fundamental prerequisite is equipment and training to be repaid from determination. savings, the rental of hardware and soft- ware by VANS, fixed monthly billing and a BARRIERS TO USE AND range of shared operation options, all work PARTICIPATION under the right circumstances. Finally, banks and financial institutions On one hand, EDI is seen as a tool for the may choose not to cooperate in clearing larger enterprise, the wealthy industry, or house functions for electronic funds trans- for government departments. The well- fer, trade payments, and electronic trade funded, well-resourced, technologically documentation. Whether this is the result of Stutdy Objectives and Scope 13 cynicism, of perceived technological superi- COSTS, REVENUES, AND BENEFITS ority, or the desire for market advantage over domestic competition, it happens all There is no magic formula that guarantees a too frequently, to the detriment of national safe return on investment in EDI and best interests. The banks and financial institu- practice. The most successful case histories tions must become part of the best practice are from those countries who were able to movement; they must be persuaded to conceptualize solutions to their fundamen- adopt EDI and financial EDI from the tal trade processing problems, and then outset. committed themselves to the approach, Visionz and Leadership. An EDI initiative is with the conviction that substantial benefits rarely successful when driven from the would follow. Much of the investment bottom up. Success requires a strategic plan made for implementing best practice and and a shared vision of the outcome and EDI is indirect in nature, but must never- benefits. Without this form of leadership theless be taken into account: for example, from the highest levels or from a strong, the commitment of the time of key people unified commercial interest, the result is a to the project. They represent real costs, but fragmented effort with consequent wasteful they may possibly be absorbed within use of scarce resources. This breeds only normal budgets. partial commitment and gradual disinter- Investments also depend upon the scope est. It may be necessary to mandate certain and the size of any project. Three different national processes in order to achieve the models illustrated in the companion vol- necessary critical mass vital to the overall ume show a range of costs from between success of the initiative. US$4 million to US$40 million, depending Knozoledge. Until a sufficient number of on take-up rates and end user revenues. people concerned with trade facilitation Totally reengineering a nation's trade issues know what is possible, it is very process from a base of clerical and bureau- difficult to make progress. Unless a cam- cratic systems involves commitments of a paign of awareness and education is under- significantly higher order than those taken at the right level and for the right required when an individual enterprise duration, the pioneering implementers and adopts best practice where EDI and a good users will have an uphill task. An aware- technology infrastructure already exist. ness and education program is possibly the Two extremes illustrate the differences most important key to success, and con- in more detail: the macro view (a national versely, the lack of such a program is the perspective) and the micro view (an enter- most likelv to cause failure, delay, or prise-level perspective). Take the example compromises. of a nation or territory where there is no Too Mutclh Comipetitioni. Unfocused initia- existing national program and few, if any, tives or lack of leadership can breed unnec- EDI users. Assume also that the country has essary competition among vendors, each the traditional paper and lengthy approval seeking competitive advantage over the customs export-import system. Further, other. An absence of leadership can also there is no natural candidate for a national encourage an environment of noncoopera- organization which can provide technology, tion among vendors, nonstandard ap- commercial leadership, and project man- proaches and, consequentlv, higher costs agement. There are several categories of and noncompliant systems. The choice and costs needed to build the infrastructure and adoption of industry, national, and interna- awareness from the ground up, assuming tional standards, and their application in a that there is an adequate basic IT infrastruc- uniform fashion, so as to be aligned with ture (telecommunications, computer usage overseas trading partners, are particularly and skills pool). important. An uncoordinated vendor The first is discovery, which includes infrastructure leads to confusion and lack executive time and travel, and external of cohesion. advice, such as some external agency involvement in the debate on objectives and options, potential scale, and sources of funding. 14 Inifornmation Technology and National 7rnde Facilitation: Making the Most of Global Trade Next is awareness, or the creation of a operations of electronic commerce initia- national promotional campaign, education tives in developing countries. The funding courses, conferences, and the use of the of the infrastructure and market develop- media, spread over a lengthy period. ment costs are outside the normal span of The evolution from the launch of the commercial viability for existing technol- program to its adoption by the education ogy suppliers. Their business is to provide system may take about five years. The access to the specific technologies necessary public sector will almost certainly have to for electronic commerce, but as case studies bear the brunt of these establishment costs illustrate, the technology alone is a rela- if the job is to be done properly, especially tively small cost component when com- in the market start-up and consolidation pared to overall costs. However, to take a phases. A nascent technology vendor-VAN wider perspective, although the payback industry would be unable to fund such an may be longer than for many other com- extensive program in advance of revenue, mercial enterprises, the revenue stream is although it should be able to make an also correspondingly longer, and ultimately increasing contribution as the market more profitable. expands. This phase of the project is vital Finally, there are the costs of implemnenta- for a successful national implementation; tioni. Increasingly, as the project matures therefore, sources of funding must be and the local VAN or EDI vendor grows in established at the outset. experience, the technical people and the The third cost category is the teclinology technology are provided by the local provider. It may be necessary, at one ex- authorized organization-once again the treme, to establish a new organization and local VAN. VAN revenue comes from to install new equipment and software in software sales, education and training, order to provide the necessary technologi- consultancy, and network traffic, perhaps cal facilities and level of service required from supporting electronic commerce for a national approach. To prepare for this services as well as EDI. possibility, and in order to make realistic The first three categories are once-only commercial decisions, this exercise will activities; network traffic increases with involve feasibility studies, cost benefit volumes of transactions and the variety of assessments, and business planning activi- applications. Virtually every case study ties. Thereafter, the organization will illustrates a cash flow break-even of be- require investment and support until the tween four to six years on this type of enterprise breaks even, or achieves a level operation. So the challenge is to bring of business performance at which it may forward that break-even point, or to sup- attract private sector funding or may even port activities until returns can be made. be completely privatized. The national benefits must be assessed Plans need to take into account all direct in the same way as costs. They will involve costs of technology, staff, and other re- direct benefits of efficiencies, of cost reduc- sources, pricing models, and "rate of take tions, in better use of resources, and in up" models. Case studies have shown that deferral of capital expenditure. Growth in the direct costs of technology are typically trade needs to be considered, as does the considerablv less than 10 percent of the value of the new skills and industries total project costs, and in some cases as fostered by the new technologies and little as 3 percent. The balance of costs is techniques introduced to support the trade concerned with people from the technology facilitation initiative. One percent of GDP, provider and end user organizations, in or even a fraction of that one percent, both public and private sectors. It is essen- should be sufficient incentive to justify the tial for a national organization to take the investment. lead and transfer the technology; tradi- tional vendors either cannot justify the local To SUMMARIZE investment, or do not have local expertise. This last point is a crucial one, and At the level of the individual enterprise, the explains why commercial vendors are not costs and potential benefits are much more breaking down doors to fund the start-up tangible and more immediate. The costs of Study Objectives and Scope 15 installing EDI obviously vary with com- are now actively using EDI. Traders in pany size and project complexity. Although virtually all these countries are using EDI some organizations might have a main- for trade clearances and trade facilitation frame computer handling high volumes of purposes. There are many more times the complex transactions, well over 90 percent number of users using EDI for industry and of all EDI users around the world use a efficiency purposes. The cost-benefit case personal computer for the purpose. At the depends very largely upon local conditions level of the smaller enterprise, staff in- and the local starting point. But the appar- volvement may be measured in hours. ent business case mav no longer be the The benefits may take some time to most important consideration. accrue, in line with the number of trading The fact is that the more advanced partners who are or already have adopted trading partners, at both national and EDI practices. But in some cases-for enterprise levels, are beginning to demand example in the case of a customs broker EDI compliance as a condition for doing making export declarations-the benefits business in the future. Already some begin to flow from the first day. General organizations will only accept new suppli- benefits include direct cost savings, in- ers if they can demonstrate EDI capability. creased productivity, improved trading There are cases of companies, particularly partner relationships, greater marketing traditionally small, older firms, that have opportunities, and reduced inventory gone out of business because of inability- levels. Faster response times often lead to or unwillingness-to comply, or disbelief in increased sales volume but in a greater the need to comply. This has been particu- number of smaller batches. EDI is the only larly true of some "middlemen," or inter- reliable way to cope with this trend. New mediary occupations. business opportunities, particularly from Ultimately, there is an even harder fact overseas trading partners, can occur simply to consider. There is no longer any choice because of EDI compliance. about compliance; the market has made the There are about 100,000 users of EDI decision for everyone. The remaining operating to national and international choices involve timing, and the level of standards in 1995. The number increases at participation. It may be possible to adopt a a rate of around 25 percent each year; the cosmetic approach, or minimum-level volume of transactions and new applica- compliance. But that represents consider- tions goes up at a significantly higher rate. able pain for a limited, and transient, gain. Not all of these users have experienced the Market conditions will, in time, demand suggested benefits, but many have, and maximum participation and the adoption of more expect to do so. best practice for survival. At the moment, The same is true for national initiatives. there are still opportunities for competitive In one form cr another, over 50 countries advantage. 16 Information Technology and National Trade Facilitation: Making the Most of Global Trade 2 EDI: A Global Presence Reengineered trade processes based upon MAJOR PARTICIPATING COUNTRIES trade facilitation principles and EDI are CANADA, MEXICO, AND THE UNITED STATES now a global phenomenon. But there is no single thread spinning through all of the A private sector-dominated market has initiatives on earth. Quite the contrary: produced a large number of active and local conditions have created a wide diver- successful EDI users. There is government sity of approaches: involvement in a range of applications, particularly in healthcare, social services, * an approach driven, funded, and man- and procurement activities, but not too aged by the government; much in the way of trade facilitation, * a strong cooperative arrangement, driven especially UN-EDIFACT. North America either by a government department or by has the largest number of VANS, software a joint venture with the private sector; houses, and practitioners, perhaps 50,000 * a private sector-driven initiative based total users in 1995 for the whole NAFTA on existing competitive infrastructure, region. Financial EDI is extremely strong in possibly in cooperation with a nationally North America, possibly in response to approved or mandated facilitating diffuse and fragmented national banking organization; systems. With the exception of Canada, the * a range of random leaderless examples; national EDI and trade facilitation organi- * very little or no activity. zations operate in a very low-key way, where they operate at all. The major determinants for ultimate success, and for a high overall number of THE CARIBBEAN AND LATIN AMERICA EDI users are clearly the active and willing involvement of the public sector, well While Chile is organizing itself along with organized and funded, and the enthusiastic its Asian and Pacific competitors for EDI, participation of the private sector. A sophis- most of Latin America has not initiated ticated, well-resourced technology infra- much in trade facilitation and domestic EDI structure with access to the right skills and applications. Trade facilitation, in particu- experience also has a direct effect on early lar, needs strong government participation, success. funding, and leadership. None of these There are probably 50 cases of countries factors are yet evident in the region. in transition from paper-based trade With the exception of Brazil's electronic information processing systems to EDI banking and financial EDI user base, the trade facilitation systems. Each continent total number of users of EDI in the region is has its examples, as described in the follow- probably no more than 1,000; trade facilita- ing pages. It should be remembered that the tion users are probably no more than 10 user mentioned in this report is the end percent of that number. Leadership is user, not an organization which may have coming from national European Article many end users. Also, to qualify as an EDI Numbering (EAN) and ICC organizations, user for this report the user must be using especially in Colombia, Chile, and Brazil. an approved message standard, either a Until the governments of Latin America national standard, or the international and the Caribbean begin to play a serious standard, UN-EDIFACT. role in EDI and trade facilitation, the techniques and usage will continue to languish. Meanwhile they still have to solve EDI: A Global Presence 17 the problem of private sector cynicism. Individual country initiatives exist, but the larger, pan-European initiatives are now EASTERN EUROPE being funded by a range of EU and ECE programs. A number of initiatives are emerging from At the same time, much of the UN- the former Soviet bloc. Each major country EDIFACT activity is Europe-oriented, in the region, with the assistance of aid including language, location of secretariat, organizations and international agencies, is message content and compliance require- working hard to catch up with the West. ments. Since manufacturing and retail Once again, trade facilitation has a heavy operations have advanced user groups, the emphasis, although the Hungarian case commitment to cross-border trade facilita- study later in this report illustrates some of tion EDI is very strong. the problems many of these countries face The number of Western European EDI for the next few years. EAN organizations, users in 1995 is probably in the order of local EDI Associations, international 30,000, of which 10 to 15 percent are trade agencies, consulting firms, and trade facilitation users, using EDI for import- facilitation organizations are the high- export purposes. Trade Points are being set profile groups leading the move towards up in close cooperation with Working Party EDI in the region. The EU and Economic 4 of the UNECE. Commission for Europe (ECE) are also very important organizations in this regard. THE MIDDLE EAST AND NORTH AFRICA There may be around 1,000 active EDI users in the region in 1995. There is some activity in Morocco, a great deal of activity in Israel, and an excellent WESTERN EUROPE example of a port using EDI for trade facilitation in the port of Dubai. With the The United Kingdom initiated EDI for trade exception of Israel, which has strong local facilitation early in the 1980s. The British infrastructure, local conditions do not make Simpler Trade Procedures Board's (SITPRO) EDI easy to contemplate in this region. At pioneering efforts did much to pave the the moment, many of the countries in the way. Also, the U.K. Article Numbering region are at very early stages of implemen- Association and the implementation of a tation. national standard gave it the lead well Including the unusual example of Israel before EDIFACT was conceived. All these, there may be 500 EDI users in the region, in addition to the efforts of the retail, although accurate figures are hard to come manufacturing, distribution, and export by. There are certainly a number of local industries, have not only ensured that the branches of multinationals who use EDI by United Kingdom adopted that lead position long line from other countries. in Europe, but also that it developed a significant electronic commerce export SOUTH AFRICA industry. As early as 1986, the U.K. government, Over the last three or four years South through the Department of Trade and Africa has been preparing for a large-scale Industry, HM Customs and Excise, and EDI movement. It has had an EDI associa- several British port operations, cooperated tion for about five years, in which several with the VAN industry to promote an VANS are represented, directly and through extensive and effective national awareness resellers. Although it started comparatively campaign. late for a Western-style economy, there is The Netherlands and the Scandinavian serious interest from customs and ports and countries followed close behind. Now all of harbors. the Western European countries have active It is possible that there are as many as trade facilitation and EDI campaigns and 1,000 EDI users in South Africa in 1995. programs. France, Ireland, Italy, Germany, Spain, Switzerland, and the Benelux coun- tries are all enthusiastic participants. 18 Information Technology and National Trade Facilitation: Making the Most of Global Trade EAST ASIA In spite of recent infrastructure building there are probably no more than 200 users China, Hong Kong, Malaysia, Singapore, in the region, and virtually none in trade and Taiwan (China), are all active territories facilitation. for EDI, and particularly for trade facilita- tion. There are several national initiatives, JAPAN AND THE REPUBLIC OF KOREA constructed along classic lines. All have government sponsorship; most had govern- These countries represent a paradox. ment funding. In addition, there are active Between them they probably have over EDI associations, EAN organizations, trade 30,000 EDI users, but virtually all of them facilitation organizations, chambers of use private-format EDI. There are about commerce, and all take the EDIFACT 1,000 VANS in Japan alone, but very little process very seriously. Indonesia and interconnection, almost no EDIFACT, and Thailand are lagging slightly behind, but very little trade facilitation. Japan has both have had (rather unsuccessful) private erected electronic barriers to electronic sector initiatives for a year or two. Vietnam international trade, but it is hoped they will is currently installing an SNS system but soon announce a solution. Korea has a does not expect too much usage for a national initiative that is government couple of years. Brunei, Myanmar, Laos, funded and dedicated to EDIFACT. But the and Cambodia have very little EDI activity majority of domestic users are on private or but interest is building. industry VANS. There is virtually no The total regional number of EDI us- interconnect arrangement. ers-most of them in Singapore-is prob- ably around 7,000, of which at least 50 AUSTRALIA AND NEW ZEALAND percent are trade facilitation users. Australia and New Zealand have followed SOUTH ASIA similar paths, New Zealand lagging slightly behind. Both countries are active EDIFACT At the end of 1993, India committed itself to users, and European Article Numbering domestic EDI usage through its overseas Communication (EANCOM) is also finding telecommunications company. However, a following, along European lines. Both local business practices are making it countries' governments have stayed out of difficult to make rapid headway, most trade facilitation, New Zealand's more so especially in trade facilitation. There are than Australia's. Nevertheless, the private very few active EDI users in India at the sector has stepped in to fill the void. moment; the same is true of Pakistan, There are probably around 10,000 users Bangladesh, Sri Lanka, and other South of EDI in Australia, and about 1,000 in New Asian countries. The region also plans to Zealand. Around 15 percent in both coun- have financial EDI available in the near tries are trade facilitation users. future. The followving chapter- presetnts five of the more tha n 20 case studies investigated during this project. They have been selected to illustrate the variety of conditions that trade facilitation initiatives must meet, and the correlatio n between results and the approach taken. A com7- panion volume contains details on the costs and benefits and respec- tive r-oles of tle public and private sectors in these initiatives, as well as in AIalaYsia, Austrailia, New Zealand, Argentina, Chile, andMexico. EDI: A Global Presence 19 3 Selected Case Studies accounts payable and receivable, and cash management, usuallv through a dedicated terminal and using proprietary standards; but there is no interconnection between the central bank, the interbank network, and other individual bank networks. Although a large number of banks offer electronic banking, these are neither EDI BRAZIL nor financial EDI systems. They are private- BACKGROUND format, dedicated-terminal, direct-entry AND HISTORY networks. Nevertheless, they operate as paperless systems and provide a vital A volatile and confused economic history is service for corporations that must exist in paralleled in the use of electronic commerce times of volatile currency and interest rates in Brazil. Led by the banking sector for fluctuations. many years, most of the necessary tech- An interbank network was developed in nologies have become commonplace. A the 1980s through a cooperative arrange- deregulated VAN market has also helped ment of around 70 banks (from a total of create the basic infrastructure; but lack of 240 banks in Brazil). A new interbank central direction and cooperation between switch, known as Interchange, owned by the public and the private sector has Unibanco, Citibank, and Banco Real is created a multiplicity of initiatives, many of currently handling 10 million banking which are in technological conflict. transactions each month, something like 40 The astonishing difference between percent of the national total. Interchange is Brazil and virtually every other country is now converting to UN-EDIFACT message that EDI started in the banking sector. sets for users, although it will continue to Many years of inflation and uncertainty switch between banks in private formats. about future costs forced the banks to There is still no interconnection for the cooperate very early on such things as central bank and transactions from a bank's formats for data transfer between them- own network. selves, usually by file transfer. Beginning in Currently at least 650 industrial groups, the 1970s, the National Council for Banking representing possibly as many as 15,000 Automation (CNAB) specified standard end users, are using existing proprietary message and file layouts in order to recon- banking formats. Fifteen percent of these cile intra- and interbank holdings at a new have indicated a willingness to migrate to reconciled daily value every day. Because of financial EDI and then into business sys- the rapidly diminishing face value of bank tems EDI using EDIFACT. The Banking notes, automation was employed as early as Association is still supporting both private possible for collections and settlements. standards and EDIFACT for corporate and Similarly, automation has been consistently banking clearance purposes. The central used in order to operate on predictable bank does not yet appear to have a position costs and minimum staffing levels, and to on EDIFACT. mitigate the impact of rampant inflation, as The auto manufacturing industry has far as possible. been operating a private-format version of Some banks operate their own networks file transfer data exchange for some years. and offer complete electronic services for The customs appears to have no position on 20 Information Technology and National Trade Facilitation: Making the Most of Global Trade EDI, nor on EDIFACT, at least in public. EDI modules in its service for traders. Mercosud, the Latin American trade group- CURRENT STATUS ing, should require EDI between its mem- bers quite soon. Telecommunications is only deregulated for At this point there are no tertiary educa- VAN services, while voice is still regulated. tion courses on EDI or electronic commerce. The national carrier, Embratel, launched an E AN runs regular courses for its own EDI service in 1995. It also offers electronic members specifically on EDI implementa- mail and will soon provide the nation's first tion and technology. There is also no law commercial Internet access. Also in 1995, covering EDI or electronic commerce so far. the Brazilian Federal Government began work on EDI for customs usage. Initial PLANS discussions are still in progress. The same year, Unibanco, a major EAN Brazil has the clearest plans and Brazilian bank, in concert with its partners expects to have 350 major users within 18 in Interchange, began to offer value added months. The auto industry plans may need banking (VAB) services based on EDIFACT revision in the light of best practice in other standard messages. Interchange will re- auto industries and standards trends. The trieve and deliver messages to all VANS, banking industry is well on the way to other banking or private networks, or even migrating at least part of its user base to direct to the clients' own networks. full EDIFACT-based EDI in the near future. In 1994, SINDIPESA, the Brazilian The Brazilian trade simplification authority, manufacturers' association, recommended a SIMPRO, and customs, electronic commerce national standard for the auto manufactur- law, education, and training are all at fairly ing industry. It contains 17 message types early stages. VAN EDI experience is limited and is based on ODETTE, the European but there is no serious obstacle to a rapid proprietary EDI system for auto manufac- growth in EDI at the technological level. turing. ODETTE is, in fact, a message set and an open file transfer protocol (OFTP). DISCUSSION The Brazilian banks have rejected this proposition; discussions are still on. Leadership is fragmented, but peak indus- EAN Brazil has been developing com- try bodies and nongovernment agencies mercial EANCOM message sets since 1993. appear to be playing a useful role. The It has helped some 60 commercial compa- absence of any government initiative to nies into EDI, using 8 to 10 EAN messages. legalize electronic commerce is a concern, There are now several EAN initiatives as are the different views prevailing on including hardware, wholesale, the super- standards; but informed debate should market industry (which is now nearly 100 resolve these issues. percent product bar coded), pharmaceuti- A national shared vision articulated by cals, and transport. EAN Brazil's targets are the government is considered only partially 100 users by the end of 1995 and 350 users useful. A joint initiative with agencies such by the end of 1996. A user is defined as a as SIMPRO and EAN Brazil (which also act large company, or hub. They also hope to as the defacto EDI Association) carries more attract 20 percent medium-sized companies support in the business community. Gov- into these projects, in addition to large ernment-only guidance would be unwel- companies. EAN Brazil is now attempting come, although the issue of mandating EDI to develop national EDIFACT message for customs clearance has some support. guidelines, integrating Brazilian codes into In summary, inflation led to an informa- EANCOM and EDIFACT messages. The tion explosion which led banks in Brazil to first two messages to be completed are an electronic regime much earlier than in PAYMLT (multiple payments) and its many other countries. The arrival of VANS response message. over the last three years has given rise to Siscomex, a service bureau specializing concerns about bypassing intermediaries in in trade documentation, is talking to the banking, which in turn has created greater customs about the possibility of including concern for banking or financial EDI. Selected Case Studies 21 Private sector agencies and peak industry sales processes. The urgency of these bodies are now taking up the challenge for actions is heightened by the fact that business systems EDI. Although there are foreign competitors have started to aggres- only 100 to 200 true EDI users in Brazil at sively penetrate Hungary's domestic the moment, there are few technological market. The lifting of import quotas and inhibitors to growth. The missing elements growing liberalization of regulations that include: electronic commerce law, educa- govern the provision of services in Hun- tion, a national public sector partnership gary have created a situation in which and a shared national vision, the participa- foreign parties can expand their networks tion of customs, and a central bank EDI into the local economy. These foreign interconnection initiative. traders and service providers have a built- in advantage: they employ advanced informatics systems that the Hungarian business community cannot match. Hence, many local producers and traders have found themselves increasingly marginalized. With the help of foreign aid institutions, the government has started several initia- tives for effective EDI-based management ~ _ HUNGARY information systems in trade, industry, and BACKGROUND the agricultural sector. Notable among the AND HISTORY aid providers are the Economic Commis- sion of the European Union (EU) and the World Bank. Both organizations engaged in In Hungary, there is widespread ignorance market analyses and the derived design for of EDI as a potential business facilitator informatics systems. The EU focused on the within the trade and industry communities. agricultural sector. The World Bank concen- Interindustrv relations and trading arrange- trated on measures for developing competi- ments still reflect past practices of hoarding tive markets for consumer goods while inventories and production. As a result, maintaining emphasis on agro-industrial inventory turnover rates and order process- products. Meanwhile, the Ministry of ing cycles remain excessive by international Transport, Communications, and Water comparison. Interestingly, computer-aided Management (MTCW) in Hungary collabo- design and manufacturing have a tradition rated on EU-sponsored research in the in several branches of the Hungarian application of EDI concepts in the service industry, but these were confined to indi- sector, especially transport. vidual plants in the local economy and did not serve as a medium for interindustry TRADE FACILITATION communication, let alone as an instrument for interacting with consumer markets at In the 1970s, the Hungarian government home or abroad. Still, the existence of established a specialized body- computer-integrated manufacturing (CIM) HUNGPRO-that was mandated with trade points to the fact that there have been facilitation measures. The organization and substantial research and development goals were modelled after the British capabilities in Hungary. All CIM hardware Simplification of International Trade and software were locally designed and Procedures Board (SITPRO). SITPRO's manufactured. terms of reference are to "guide, stimulate, The challenges for the Hungarian and assist the rationalization of interna- government and the local business commu- tional trade procedures and the documenta- nity have been to encourage the reluctant tion and information flows associated with industrial, agricultural, and service sectors them and, where appropriate and in consul- to adopt informatics concepts, and to tation with the Department, to undertake integrate EDI-based management arrange- consultancy work in the trade facilitation ments into their production, marketing, and field in the United Kingdom and overseas." 22 mn.fortnation Techniology and National Trade Facilitation: Making the Most of Global Trade But HUNGPRO did not evolve into any- in-house EDI systems (through a banking thing even remotely resembling SITPRO. Its EDI interface) to connect to MBK. successor organization, HUNPRO, which The national headquarters of the cus- the government set up during the 1980s, toms is planning the introduction of an EDI failed to create consensus among govern- module in its new computer system. In ment institutions, and the national trade early 1995 a project was launched to create and industry community, about required the proper customs environment, primarily actions. with boniafide partners who are entitled to HUNPRO established links with the delayed customs payment. A TP project has ECE, and became a member of the Eastern recently been initiated in Budapest. European EDIFACT Board. But because of rivalries among government ministries, SUMMARY HUNPRO was ineffective in propagating the principles and measures to be applied The new HUNPRO shows much promise, within the Hungarian business community. and although hurdles remain to be over- All efforts to introduce EDI systems in come, infrastructural issues appear to have Hungary were bogged down in an adminis- eased. HUNPRO reports: "Data exchange trative quagmire by officials who were still can now be realized in many areas of the philosophically attached to former central country through telephone lines, and planning practices. through dial-up modems at a quality approaching European standards." Interna- CURRENT STATUS tional connections are possible to 27 coun- tries. According to evaluations carried out A new HUNPRO was established in 1993. by HUNPRO's transport forum, the "data Leadership in the Ministry of Industry and transmission infrastructure does practically Trade was streamlined and objectives more not impede future development of EDI clearly defined, as were the institutional applications." Despite the truth of these responsibilities. This time, HUNPRO observations, there is a continuing need to includes three levels of EDI activity. At the entice potential domestic trade and indus- first level, an Interministerial committee try users to participate. HUNPRO is aware decides upon the work plan, coordinates its of this need and has special plans for execution, ensures appropriate financing, information dissemination and training. and represents Hungary in international The following observations were formu- forums. A second executive level includes lated during a workshop organized by a the secretariat and other auxiliary groups World Bank mission in February 1995. The responsible for the execution of the work participants represented a wide spectrum plan and providing assistance to other of the Hungarian trade, industry, and groups within HUNPRO. The third level service communities. The issues they raised comprises so-called EDI forums or EDI were based on what they considered working parties from different sectors of necessary conditions for a well-functioning the economy. EDI system: The transport EDI forum has become the most active; MTCW undertook to orches- * reliable competitive and cost-effective trate its work program. As one of its first telecommunications networks in which initiatives, MTCW arranged for seminars in all users are free to choose from a range which participants could learn the basics of of telecommunications solutions; EDI, meet Hungarian software developers, * a secure electronic environment in which and discuss how to take part in transport business users can communicate free of pilot projects. Several pilot projects have risk to the confidentiality and integrity been started in the areas of freight forward- of proprietary business information; ing, trucking, inland waterways transport, * an environment in which it is possible to and railway management. A financial EDI protect personal data to address legiti- experiment was launched with two users mate concerns, while ensuring that EDI by the Hungarian Bank for Foreign Trade achieves the benefits arising from free (MBK). This solution enables those having flow of information; Selected Case Studies 23 * an environment in which a manufacturer TRADELINK of any product or a provider of any service distributed over the information In 1985, the Hong Kong government helped infrastructure is afforded strong and sponsor a special council to improve trade binding intellectual property rights; through trade facilitation. The council * an environment in which telecommuni- proposed an EDI system-a database of cations and information technology consignments-called Hotline; it suggested standards are simple, unambiguous, that the government build the system. The timely, and set at a truly global level; government's reply was that such a system * an environment based on a free flow of would be of benefit mainly to business, and products and services, and in which therefore declined to fund it. Its reticence in barriers to trade are the exception rather taking the lead on Hotline resulted in a than the rule; hiatus in EDI for trade in Hong Kong. Still, * a stable legislative environment that the belief that EDI was needed for trade attracts international investment capital persisted, and several companies that had to the telecommunications and informa- participated in the council started their own tion technology sectors; forum, Tradelink, to support a consultancy * an environment in which business takes study investigating the commercial viabil- the clear lead, and governmental and ity of a trade-related EDI system. intergovernmental activity on the legisla- The resulting report indicated that such tive, regulatory, or institutional front is a system would probably not be profitable discussed with the input of users, manu- from a strictly business point of view, and facturers, and service providers. further obscured what roles should be played by the government and the private sector in its creation. In March 1990, the government an- nounced it was setting up a shared initia- tive with Tradelink to take the project closer to a working system. The shared initiative was called SPEDI (Shared Project for EDI). Of special interest to SPEDI and the Tradelink partners were: a gateway to HONGKONG government svstems such as customs and BACKGROUND quota systems, VANS and IVANS intercon- AND HISTORY nection and common access, EDIFACT message development, Chinese language standards development, economic methods Hong Kong's experience illustrates what of EDI usage, access for the 80 percent can happen in a totally private initiative Hong Kong firms with less than 10 employ- funded by trading companies with vested ees (Community Access Service, or CAS), interests, and with no national vision, no and a service bureau or paper-based trade customs or government commitment. Add facilitation service for these small compa- to this the uncertainty about future political nies. Tradelink finally became the national and economic direction, and Hong Kong's EDI service for trade facilitation (one of at Tradelink is the result. With its small land least three of that name in the world), mass and population of around six million, owned by a local consortium of public Hong Kong, like Singapore, has major land organizations and private companies. and sea ports and depends on trade, par- Around July 1993 Tradelink announced ticularly reexports. Both countries started that it had concluded negotiations with to implement EDI in the 1980s. What has IBM to provide the Tradelink EDI service, happened since then is symptomatic of the due to go live late 1994 or early 1995. This difference between the two nations. left very little time before 1997, when Hong Kong is due to rejoin China. Unfortunately, in 1994, IBM and Tradelink abandoned their negotiations, 24 Information Technology and National Trade Facilitation: Making the Most of Global Trade each side blaming the other for either very limited in scope. Commercial procras- rewriting the specifications or not adhering tination and lack of central leadership in to original agreements. Tradelink itself, Hong Kong have combined to allow which at one stage had 23 employees Singapore to take the lead in EDI and gain engaged in system design and message significant commercial advantage in the development, is now having to rethink its region. implementation, marketing, and support Which is not to say that Hong Kong is roles, all of which were originally to be backward in establishing the infrastructure. contracted out to IBM. CAS for non-auto- It has deregulated the VANS market and mated users appears to have been placed has an excellent telecommunications on hold. There has so far been no public system, with 17 suppliers of paging ser- announcement on the government's partici- vices, 3 mobile radio operators, 3 telepoint pation in the project. personal communication systems, 2 opera- The launch date for Tradelink's initial tors of trunked radio systems for voice and service is now March 1996. In the mean- data, and over 30 licensees of value-added time, the transport and distribution indus- services for electronic mail, voice mail, and try has set up an alternative, Cargonaut. store and forward fax services. The retail industry also launched its own EDI users in Hong Kong belong to the service in May 1995. Both these important retail industry, shipping lines, freight user bases are now lost to Tradelink, which forwarding companies, some airlines, and a will pose technical and marketing problems few U.S.-based multinationals. Textiles and to them downstream. apparel manufacturers and importers- As mentioned before, what happened exporters are also developing electronic with Tradelink emphasizes the differences connections to major U.S. and European between Hong Kong and Singapore, the clients. Even so, with all of this activity, in most obvious of which lies in government the absence of commercial unanimity and philosophy. Singapore is interventionist government leadership there are probably and paternalistic, and hence offers strong no more than 500 EDI users in Hong Kong. leadership and direction. This has led to the Other factors are having an influence, great success of Singapore's TradeNet EDI compounded by the 1997 deadline; among services. Hong Kong has a laissez-faire them the most lethal to the economy is the approach: anything that is good for trade brain drain. From 1989 to 1993, an esti- and industry should be paid for and oper- mated 40 percent of the top IT professionals ated by private commercial interests. Since in Hong Kong have either left, or have the most relevant interests are represented obtained a British passport, thereby en- by a small number of large trading and abling them to leave in the near future. commercial companies, some of whom are in fierce competition with one another (and OVERVIEW competition in Hong Kong is much fiercer than the European or North American Tradelink is a private company formed by variety), any collection of strictly commer- an equity partnership of 11 major Hong cial interests actually tends to delay action. Kong enterprises. It has government The situation has clearly not been helped backing to run a community EDI service, by the "1997 syndrome." with equity of between 30 percent and 48 An additional brake on progress is the percent being taken up by the government. practical concern that any trade facilitation The arrangement is that Tradelink will get EDI should have the active support of an exclusive EDI gateway to the govern- customs. However, Hong Kong, which is a ment for a period of seven years. The virtually free port, collects very little in the gateway will provide two-way EDI access way of duties. The main role of the customs to trade, customs, and statistics depart- is to police borders, oversee trade quotas, ments. In return Tradelink must provide and try to contain the drug trade. Conse- electronic input and outplut facilities for up quently, Hong Kong government and to 120,000 Hong Kong trading companies. customs trade processing IT systems, with This last item presents the real chal- the exception of quota management, are lenge. Most experts agree that after about Selected Case Studies 25 10 years of true EDI experience, the total Hong Kong Hotline project began. The number of EDI users worldwide is cur- objective was to boost Singapore's competi- rently around 100,000. Thus, to fulfill its tive status in the world market. Trade was mandate, Tradelink must revolutionize the selected as the target for EDI, a natural way EDI is implemented, and pay special choice, bearing in mind Singapore's attention to the needs of small traders, and entrep6t activity and ambitions. to Chinese language issues. Many in Hong SNS was incorporated to operate the Kong are uncertain about the government's Tradenet service, which was inaugurated in intention to make EDI mandatory. But January 1988 with a pilot group of 50 without some compulsion it is doubtful if companies, including traders, customs Tradelink will come anywhere near that agents, and the Trade Development Board total of 100,000 plus users in within the (TDB), which handles much of the statisti- stipulated seven years. cal and licensing work traditionally per- The crucial importance of Tradelink's formed by customs in other countries. The success to Hong Kong's commercial well basic purpose of Tradenet is to enable a being-in particular to the export-oriented trader to make an electronic declaration of industries of textiles, electronics, and imports and exports directly from his own banking-cannot be overestimated. Delays computer, which would typically, but not have enabled other private sector competi- exclusively, be a personal computer. The tors to erode Tradelink's potential customer declaration is transmitted, using EDI base, its authority, and ultimately its techniques, to the TDB. It issues the appro- participation in the full trade facilitation priate approvals within 15 minutes, after process in Hong Kong. But Tradelink will routing details to various other government be breaking new ground. Nowhere in the departments, depending on the goods. As world, has anyone developed such a large many as 20 controlling agencies may be EDI community from scratch. involved. On receipt of the EDI-delivered With 1997 looming in the horizon, approval, the trader prints it out and signs procrastination, lack of commitment, lack it to obtain release of the cargo. of leadership, and crucially, lack of a shared End user software was developed by vision embracing both the public and the SNS and offered through a cadre of ap- private sector, have all contributed to the proved Singaporean software houses (non- growing confusion. What could have been SNS software requires certification by SNS, an opportunity for a quantum leap in trade which costs US$6,000). End user benefits competitiveness and regional advantage, include 20 to 30 percent productivity has been turned into an exercise that will improvements and cost reductions by as need considerable good fortune for Hong much as 50 percent. Traders no longer have Kong to catch up with its neighbors. to make personal trips to obtain approvals; repeat trips to resolve errors or disputes now hardly ever occur, which has enabled ________________________________ _ them to reduce their labor force. From the perspective of Singapore, storage of goods awaiting clearance is no longer necessary. Goods go straight to the consignee from the cargo plane or vessel. This is particularly important for Singapore, where space is at an absolute SINGAPORE premium. The flow of goods has been BACKGROUND expedited even further by the Port of L __ -- AND HISTORY Singapore Authority's (PSA) own port, container, and real time vessel management system. It is claimed that ships can now be Singapore Network Services (SNS) evolved turned around in less than 10 hours, offer- from a Singapore National Computer Board ing considerable improvement in the (NCB) research project that began with five utilization of port and harbor facilities. EDI people in December 1986, a little after the preclearance has added to these extra 26 Information Technology and National Trade Facilitation: Making the Most of Global Trade efficiencies to help make the PSA possibly add value to existing ones. In addition to the most efficient port in the world. These multimedia services for the home and "trade center management" efficiencies education, real time EDI is likely to be high have been valued by the Singapore govern- on the agenda. For all its success, the ment as being worth annually in excess of Tradenet service is still a batch-oriented S$1 billion, or around US$700 million. In store-and-forward service. 1994 this was worth more than 1 percent of If SNS decides to introduce a real time Singapore's GDP and around 0.4 percent of EDI service, and it has already demon- total external trade. strated a prototype, it will once again be For users with no computers of their pushing the standards and performance own, SNS set up a number of service frontier. Real time EDI will need real time centers, or EDI service bureaus. At one standards, which is a significantly greater stage there were 10 of these bureaus, but challenge to end user and server systems their numbers are decreasing as more than batch operations. traders install their own computers. SNS SNS is now promoting access to the now has 12,000 users, but probably only 50 Tradenet service through communication percent are EDI users (of whom less than nodes in Malaysia and connections facili- 3,000 are traders). The remainder are tated by exported systems to countries such mostly users of electronic mail, information as Mauritius. Experience suggests that such services, and bulletin boards, as well as a international traffic peaks at 10 percent of range of new services designed for health transactions and 15 to 17.5 percent of care, legal systems, electronics, manufactur- revenue, a useful addition to domestic ing, retail, and distribution. revenue, if support costs can be contained. CURRENT STATUS DISCUSSION SNS claims to have broken even in year SNS has demonstrated great success in the three of operation. It employs 200 people; application of EDI to trade facilitation. In the average burdened salary for a particular, it is illustrating where national Singaporean IT professional is in the order benefits lie for newer entrants. But how of S$250,000 a year. For its 12,000 users, 70 much of what has been learned through the percent of revenue is derived from the experience of Tradenet has genuinely higher value added services of EDI. SNS is universal application? How much of its now installing several exported versions of claimed success is in fact due to the efforts its service in such countries as China, India, of the PSA and the NCB? What are the Mauritius, Canada, Silicon Valley-USA, levels of costs and benefits that might be Vietnam, Malaysia, and the Philippines. expected from SNS if it were planning it Many of these installations are actually today, in isolation from the special joint ventures with government depart- Singapore factors? ments, such as Mauritius Network Services or with commercial enterprises, such as THE SNS BUSINESS CASE Ayala in the Philippines. By now, SNS may be handling as many as 10,000 declarations In 1988, when SNS was just being planned, a day, each of around 700 characters, a government spokesman was reported as charged at S$0.50 per thousand characters, saying that a financial payback for the plus S$6.00 per declaration. Tradenet service would "take many years." By 1991, the CEO of Tradenet was saying PLANS that technology investment in Tradenet was only around S$3 million and that it broke SNS has embarked on a very aggressive even in its third year of operation. international marketing campaign, with In 1993, Tradenet management was particular emphasis on joint ventures. Its quoted as saying "we have been profitable home market is already reaching maturity, since our second year of operation. Rev- especially for higher-revenue earning enues grew from (about) S$4 million in 1989 services, so it needs new services, and must to more than S$20 million with profits of Selected Case Studies 27 S$3.2 million in 1992. We have no debt; our republic, and by inference its traders, is of paid-up capital was financed from funds paramount concern. As a consequence, if a provided by our boards." Another article at government announcement promotes a new the same time says that the investment in efficiency initiative, then it will be taken up technology, including hardware, software, without much opposition, and quickly. and IBM consultancy assistance and devel- Singaporeans traditionally expect that their opment was US $20 million. government has thought through any Even if technology was assessed at 30 commercial implications and that the new percent of the total investment, this would initiative will be of benefit to all. Although raise the project cost to around US$65 this is fine for Singapore, which long ago million or S$100 million-much more in shared its national vision with every line with all other cases studied as part of citizen, it is less likely to work elsewhere. this project. Perhaps the efforts of the other Most countries have not articulated a set of participating bodies such as NCB, PSA, and national goals and persuaded their busi- government departments had not been nesses and citizens to sign off on them. The counted. Undoubtedly, technology invest- type of uncritical acceptance of government ment can be a much smaller component initiatives that is the norm in Singapore is today. Companies like SNS, GEIS and most unusual elsewhere. Tandem now have products that eliminate The technology and business skills much of the need for pioneering effort. But infrastructure, and the general levels of each country has its unique characteristics. education in Singapore are all much more It is hardly likely that any product can be conducive to the success of a technology installed as a plug-in-and-go system. The initiative. At the same time, the regulated capital cost must be assessed realistically, nature of state enterprises does not encour- and efforts to customize systems for local age funding for competition, or for compe- adoption properly counted. At the end of tition with government enterprises as part December 1994, with 200 people employed of the business mindset. at an average of S$250,000 per year, SNS's On balance, the SNS experience is total annual cost was around S$50 million. invaluable; but because of a series of local special factors, it is unlikely to be repeat- LEGISLATION able elsewhere. This is of concern, because there are evidently many government It was widely rumored at the time that the agencies around the world who believe Singapore government intended to legislate they can repeat the Singapore experience by that EDI would be mandatory for trade buying their hardware and software. This declarations by 1989. Legislation did not may make start-up cheaper, but only for prove necessary; a combination of enlight- that proportion of the task that is technol- ened self-interest, and statements from TDB ogy dependent. And even the cheaper that paper declarations would not be technology will only work properly if all of accepted after this date, ensured over 95 the preparation work has been completed. percent compliance. Paper is still handled by the service centers on behalf of smaller, nonautomated traders. Paper is also used for declaring personal effects, for vessel provisioning, and numer- ous other specialized imports and exports. TAIWAN BusINESS AND CULTURAL FACTORS (CHINA) BACKGROUND There is no doubt that AND HISTORY Singaporean businesses are much more complaisant than their counter- TradeVan was initiated in 1989, following a parts elsewhere: the economic health of the period of research by the Institute for 28 Information Technology and National Trade Facilitation: Making the Most of Global Trade Information Industry (III). Start-up capital CURRENT STATUS was provided by the Ministry of Finance (MOF) and set at NT $2.1 billion (US$85 TradeVan now has about 800 users includ- million). The objective for the initiative was ing 300 customs brokers. By December to speed up international trade and im- 1994, 98 percent of export declarations and prove the use of airport and harbor facili- 80 percent of import declarations, by ties. More formally stated, TradeVan's volume, were made by EDI. The number of mission is to improve the international customs documents has been reduced from competitiveness of Taiwan (China). thirty-two to two: a customs declaration During the period of the initial III study, now takes about 15 minutes for approval to it was recorded that there were five million be granted for shipment release. The paper sea and air declarations recorded in number of brokers has been reduced from 1988. The clearance system involved 222 4,000 to 1,300. Customs staff have been data entry operators and four divisional reduced by 119 data entry staff and 41 staff officers. The system demanded 32 customs officers. However, paper is still different clearance documents. Four thou- required for audit purposes, but audits now sand customs brokers dealt directly with occur after the event, once the goods have the customs on a regular basis. Typically, it been released and after the duty has been took two days to clear a declaration because paid. of the bureaucratic process, multiple Ten local software houses are the certi- queues, dense city traffic, and the use and fied software vendors to the TradeVan user management of key staff, messengers, and community. A typical software package couriers. from TradeVan or one of the certified Naturally, this process had developed its vendors can cost between US$400 and own inevitable cycle and resultant methods US$2,000, depending on the amount of of working with-and around-the system integration and implementation effort for importers and exporters. The conse- involved-less than half the price of corre- quences were extra labor costs and idle sponding products and services in Europe time, unnecessary cargo delays, and hence and North America. the need for extra and expensive storage TradeVan has over 100 staff, and gets space, making physical customs inspections significant help from III and various minis- more complex and time consuming. In its tries. Of the NT$2.1 billion capital allocated turn, this led to the need for extra customs by the MOF, approximately NT$1.5 billion staff, adding to the costs, delays, and had been spent by December 1994 (US$60 inefficiencies. million). TradeVan estimates that only 10 to TradeVan installed a trade facilitation 20 percent of this amount was spent on EDI system, the software for which was technology; the majority was spent in the developed by British Telecom (BT). Much of reengineering, awareness, promotion, and the translation and enabling software was education phases. These figures do not developed from scratch with significant include the investment from other sources local language capabilities. Legislation such as III, other ministries, and the private affecting customs clearance was amended sector. Allowing for the investment from by the administration. these other sources in attending training TradeVan capabilities include a national and promotion sessions and the wide range packet-switched telecom network, central of meetings concerned with implementa- or application level translation, mailbox tion, liaison, and consultation, the total services, various databases, audit trails, and figure of NT$1.5 billion to date could be a bulletin board. It also features message dramatically understated. design and EDI strategy and planning, software design, training, and software THE NEXT STEP certification. The process of implementation included a review of customs processes, The government and the banking industry significant redesign, substitution of vital have now sponsored a financial EDI initia- data with UN-EDIFACT messages and a tive for the payment of customs duties, and redesigned approval process. at a later stage for full electronic funds Selected Case Studies 29 transfer (EFT) and remittance advice nect agreement with other VANS. Apart processing. A sea cargo clearance initiative from its certified partners it appears to went live in November 1994. Other initia- operate as a monopolv service, which is an tives in the retail industry are being incongruity by EDI terms. planned. In line with the promised deregu- lation and ultimate privatization of the SUMMARIZING NATIONAL MODELS telecommunications sector, it is proposed to privatize TradeVan in 1995. There are, in sum, varying national ap- proaches to implementation. At one ex- DISCUSSION treme there are national monopoly organi- zations (even though they may not be In November 1994, it was reported that the thought of as such by their operators), such TradeVan project had already saved Taiwan as TradeVan in Taiwan (China) and (China) over NT$4.3 billion (US$125 mil- Tradenet in Singapore. These organizations lion). It is understood that this figure was have obtained government funding and adduced from faster turnaround of vessels, agreement for exclusive access to govern- improved use of storage facilities and ment data. Further, they have obtained space, and reduced delays, leading to better government assistance in mandating use of staff, reduction in time lost, and certain procedures, such as import-export reduced impact on traffic density. The declarations. report also drew attention to the "green" It takes a particular form of business aspects of the TradeVan initiative: less culture to ensure enthusiastic end user paper used and reduced fuel emissions. participation under these circumstances. Although by any standard Taiwan has Trade facilitation EDI will operate satisfac- achieved much, there are two further points torily where government employs the to be made. First, it seems that the power to mandate usage and impose reengineering effort was not subscribed to penalties for default, but the overwhelming by all government departments. Paper is evidence is that, except under these par- still required for audit purposes. The ticular conditions, compulsion does not development of 24 new UN-EDIFACT work and soon becomes counterproductive. documents suggests that some existing This is why shared vision and enthusiasm internal processes were simply automated, is so important. It is certainly questionable not reengineered. whether this positive climate will generate Second, because the whole process was the same levels of participation where underwritten by the MOF, it is possible that public sector approvals are not so crucial to much of the planning and implementation the process, such as in the national manu- was not subject to normal commercial facturing and retail industries, for example. management control. Although it is difficult Another facet of the compulsion scenario is to contest the savings quoted without the emerging clash between nationally detailed investigation, it is possible that approved message sets and those agreed other interpretations could be made of the for common international use, such as those data. emerging for international transport, The key asset of TradeVan is the owner- container shipping, handling, and stowage. ship of exclusive access to customs systems At the other extreme are the hands-off and data. Might this not be achieved more approaches seen in Australia, New Zealand, equitably by the creation of a customs and especially Hong Kong. Lack of shared gateway, for example? Once again, the issue vision, minimal public sector participation of the "shared vision," especially with the in the organization, and the constant need private sector, together with a more active to compete and justify the existence of a involvement of the private sector in the national initiative operated by a private planning and implementation, needs to be organization, have deflected the mission addressed. from national competitive advantage to At the technical level TradeVan does not survival and revenue generation. Some yet have an international telecommunica- Latin American countries exhibit an even tions license, nor does it have any intercon- more extreme version of the hands-off 30 Information Technology and National Trade Facilitation: Making the Most of Global Trade approach, generated by a lack of practice and understanding of potential, as well as because of traditional conflicts between the public and the private sectors. Hungary has finally been able to achieve a coordinated approach from its public service departments. But now it must overcome entrenched private sector atti- tudes toward the public sector before any truly national initiative may move forward. The middle path is quite clear: a coop- erative arrangement between government and the private sector, initially set up and funded by government, but ownership and operations migrating to the private sector as the user and revenue base expands, and as the techniques become commonplace. Mandated processes are probably inescap- able in order to ensure that this shared responsibility model is successful, but a reasonable lead time-say three to five years-should be allowed. Facilities for nonautomated traders should also be made available in order to avoid technological disenfranchisement. Selected Case Studies 31 4 The World Bank Experience Experiences everywhere indicate that target trade facilitation, export develop- international, regional, and domestic trade ment, or product and services market translate into better market integration, development. more efficient allocation of national re- sources, better focus on national compara- TRENDS IN WHAT THE BANK HAS tive advantage, and increased productivity. DONE SO FAR All these ultimately lead to improved product or services competitiveness. The first transport sector work on facilita- More than 80 percent of exports from tion was carried out in Latin America in developing countries are headed for mar- 1976. Since then, there has been a lot of kets in the principal Organization for similar work, particularly in the African Economic Cooperation and Development region, where a number of studies on (OECD) economies; therefore, enhancing corridor economics, land-locked country developing countries' industrial and logistics, and facilitation have been con- trading practices to become more respon- ducted, and facilitation components in- sive to volatile market demand is a means cluded in projects. to fostering export-led growth and thus to A first effort to assess the effects of reducing poverty levels. service industry and related infrastructure The reduction of poverty is the World management practices in a developing Bank's most important mission. In this country was carried out in India in 1989. connection, the chief aim of Bank assistance The insights gained from these studies and has been to improve competitiveness by operations have revealed that industries introducing more market-responsiveness and traders can be severely undermined by and service sector services, thereby improv- supply-oriented objectives and policies. ing prospects for industrial growth and The Bank's approach to trade facilitation trade expansion. has been shaped by having to adjust to how the international service industries react to DIVERSITY OF ENTRY POINTS changing global practices in manufacturing and trading. Its approach has also had to The portfolio of Bank projects and surveys internalize the consequences of technologi- is diverse in nature, and includes: cal progress and respond to increasingly volatile market behavior. Typically, coun- * sectoral projects, focusing, for instance, tries must initiate reforms that are cross- on transport logistics, or on specific sectoral in nature, involving multiple network bottlenecks; government agencies. These reforms also * macroeconomic approaches in structural require high-level decision making in adjustment loans that can raise issues of government, as well as a great deal of export-import finance, market and price institutional capacity building, liberalization, specific tax and tariff reengineering of procedures, and systems reforms, and the overall regulatory and communications reforms. framework that governs the conduct of There were three phases of World Bank transport, telecommunications, and other involvement. First, during the 1980s, most services; Bank activities concerning trade facilitation * studies dealing with issues such as trade had transport facilitation as their goal. facilitation and transport logistics; and Second, over the past decade isolated trade * competitiveness projects that explicitly facilitation components, particularly 32 Information Technology and National Trade Facilitation: Making the Most of Global Trade focusing on governance reform, have been means exhaustive, but it illustrates some of included more and more in structural the points made above, in particular the adjustment loans. Third, since 1990, Bank limited incidence, up to now, of communi- initiatives have explored ways of address- cations or electronic trading components in ing the wide range of policy and adminis- these projects, especially advanced applica- trative issues involved in trade enhance- tions such as EDI. ment, leading to new types of projects and technical assistance. THE 1987 REVIEW: These projects display four new quali- LESSONS FROM THE BANK'S ties. First, they have more technical assis- EXPERIENCE IN TRANSPORT tance than lending activity. Second, they are FACILITATION dependent upon clear government commit- ment, since government willingness to Bank projects and surveys that arise from a promote international competitiveness is a sectoral approach, and concern transport prerequisite. Third, they reflect broad-based facilitation and logistics, have been imple- participation, including that of the local mented in close connection with investment business community. Fourth, they are loans in the transport sector. These are the innovative in their efforts to combine oldest line of significant Bank action and different components and to focus increas- the only one in which there is sufficient ingly on the services sector. The 1992 experience to make evaluations worth- Product Market Development Project in while. Yet in 1987, transport facilitation Hungary (discussed in Volume II), and two alone had not attracted many World Bank more recent projects-one in Jordan and resources, amounting only to 2 percent of another in Mauritius-illustrate this new the lending for noninfrastructure transport comprehensive approach. operations. The introduction of electronic trading is In 1987, the Bank's Transportation already bringing business benefits to many Department prepared a general review of sectors (industry, commerce, banking, and all such operations and presented a mixed so on), although the potential is still largely opinion. On one hand, the importance of untapped in developing countries. The next the topic is clearly emphasized; on the stage in the evolution of the Bank's ap- other, the actual impact of past facilitation proach could be to make information and programs are not perceived as encouraging, communications systems more efficient for leading to the following lessons: trading, and add this dimension to the Bank's and borrower's strategy in advanc- * The Bank has a specific role to play in ing the trade facilitation agenda. For facilitating transportation at various instance, an ongoing transport logistics levels, by: (a) promoting intermodal study in China, conducted in close collabo- coordination; (b) promoting the role of ration with Chinese counterparts, is exam- the private sector and encouraging some ining the status of logistic systems in the amount of deregulation in highly regu- country, diagnosing the need for adminis- lated areas; (c) creating the enabling trative, commercial, and customs clearance environment for the growth of interme- procedure reforms, and making recommen- diaries such as freight forwarders; (d) dations about a framework to develop EDI increasing operational efficiency; (e) to expedite trade. acting as a catalyst for country participa- tion in international agreements; and (f) THE NEXT FRONTIER: promoting more fluent trade between INTEGRATING AND STANDARDIZING neighboring countries. THE APPROACH? * Facilitation involves many of the coun- tries' government institutions in decision Table 1 lists a number of project compo- making (typically the Ministry of Fi- nents for trade facilitation in developing nance, Customs and Excise, the Central countries, and shows how some of them are Bank, the Ministry of Transport, and so actually implemented in a selection of on). Thus any Bank initiative in this area ongoing Bank projects. This sample is by no can be complex both in administration The World Bank Experience 33 Table 1: Examples of Diverse Components Found in Some Recent World Bank Projects Cote Kingdom Hungary Republic India Jordan Mauritius d'lvoire of Morocco of Cape Verde _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ___ __ 1991 1992 1992 1993 1994 1994 1994 Competi- Second Product Transport Container Export Technical tiveness Structural i Market and Transport Develop- Assistance and Regula- Adjustment Develop- Infrastruc- Logistics ment to tory Reform ment I ture and Finance Enhance Adjustment I Competi- tiveness PROGRAM LOAN PROJECT PROJECT PROJECT PROJECT PROJECT The transport dimension: Post modernization Highway sector improve- ments Railways modernization Intermodal coordination Reform of shipping industry Facilitation for container companies Development of freight forwarding The governance dimension: Metrology Standards Calibration Quality Deregulation of prices Liberalization of trade Rationalization of taxes and tariffs Rationalization of public expenditure Improving commercial legal framework Reforming customs procedures The financial dimension: Sublending to private entities involved in marketing, trade and distribution Improving export incentives Reforming access to foreign currency The management dimension: Technical assistance in inventory management Technical assistance in cost accounting Technical assistance in business logistics practices Container company creation l The communications dimension: Implementation of new customs systems Framework for development of teleports EDI applications ___________ 34 Information Technology and National Trade Facilitation. Making the Most of Global Trade and policy. The Bank should make particular on the requirements of land- greater efforts to provide long-term locked countries. The study reviewed Bank support and clear emphasis on imple- assistance between 1960 and 1990, and mentation and supervision to transport suggested, among others, the following facilitation initiatives through successive recommendations: projects. The Bank must also set realistic objectives, taking into account the * Donor assistance for transit facilitation is implementation difficulties. This is delivered more efficiently when planned certainly true for the regional programs as an integrated package and not as an that appear to be most needed. isolated component in a transport project, * A high level of government commitment because investment loans are not necessar- and participation is a prerequisite to ily a good way to carry on a policy dia- adequate communication and decision logue or initiate policy reforms. making across the agencies involved. * Relaxation of institutional barriers, along * Whenever transport facilitation initia- with technical assistance, and privati- tives is part of a structural adjustment zation of some of the functions currently loan, these additional factors arise: (a) performed by parastatal agencies should programs are not always realistic in their be priority areas of Bank intervention. objectives; (b) they have had to be * In terms of operational policy, the Bank flexible to adapt to changes in country should put less emphasis on regulation circumstances; and (c) the willingness and more on staff training and career and capacity of the borrower to imple- development. ment the program may be insufficient. * The main problem areas found by the TRADE AND TRANSPORT review raised certain concerns about the FACILITATION GUIDELINES role of the Bank, such as: (a) the Bank's role has been insufficiently defined, in A recent Bank report describes valuable spite of a clear understanding of the Bank and UNCTAD experiences in improv- economic stakes (particularly in terms of ing efficiency of land and maritime trans- trade balance) involved in transport port services of Sub-Saharan economies, facilitation procedures; and (b) the Bank but these experiences may be generalized to has been more responsive to the need for other regions. The document suggests tangible investment in the transport strongly that any future facilitation pro- sector than it has been to resolving the gram must be based on a regional ap- intricate efficiency bottlenecks of the proach. To create the right environment for transport system. the development of national or subregional trade and multimodal transport systems, a In conclusion, the 1987 review restates project will also have to adopt a multi- the importance of the transport facilitation disciplinary approach. Such an approach agenda, both for the Bank and for other should include: multilateral agencies, and also recognizes the complexity of the issue and the great * regulatory measures to harmonize challenge of implementation that is usually transport liability regimes and insurance involved. Recommendations for designing practices, and to provide an appropriate a facilitation program emphasize the need legal framework for the establishment for realistic objectives, risk assessment in and development of multimodal trans- project development and fall-back strate- port operators; gies, as well as the need to recognize the * trade and transport facilitation measures scarcity of technical expertise in this field. (customs regulations, trade and transport documentation, information network), THE 1992 REVIEW AND LESSONS and their acceptance by the trading community, transport operators, govern- A second, more specialized review was ment agencies, banks, and insurance conducted in 1992, focusing on transit companies; traffic facilitation in Sub-Saharan Africa, in * development policy measures for smooth The World Bank Experience 35 development of transport services, as * access to imports at international prices by well as to address misallocation of reforming customs administration, devel- resources, particularly in the improve- opment of a trade facilitation system, and ment of physical infrastructure and reform of the free zone regime; transport equipment; and * implementation of preshipment export * ways of fostering, on a subregional level, finance and assistance to the Loan harmonization and integration among Guarantee Corporation; the different national actors and actions. * strengthening the metrology, standards, testing, and quality (MSTQ) infrastruc- CONCLUSIONS ture, supporting exporters for technical and marketing know-how, and building So far the Bank has tried to facilitate the the capability of the Jordan Investment participation of developing countries and Agency. their domestic enterprises in international trade, by dismantling market access restric- OBSERVATIONS ABOUT THE JORDAN PROJECT tions and liberalizing services. Achieving the full benefits of trade and transport The range of counterpart agencies involved facilitation requires close cooperation of at the implementation level is unusually various parts of the Bank, spread over the large and includes both the public sector diverse stages of the project cycle. It also and private sector: the Ministry of Finance demands close consultation, and follow-up (customs department and income tax with regulatory bodies, service and infra- department); the Ministry of Industry and structure providers, and system users to Trade; the new Institution for Standards ensure the creation of services and infra- and Metrology; the Jordan Loan Investment structure that are responsive to demand. Promotion Agency; the Free Zone Corpora- Accessible information and communica- tion; the Jordan Loan Guarantee Corpora- tions technology can significantly improve tion; the Jordan Export Development trade performance, and is an area that can Corporation; and other entities from the yield positive results in operations man- private sector. aged by the Bank. This technology must be Government participation and commit- accompanied by simplification of documen- ment to the project are demonstrated by the tation, reengineering of procedures, appro- scope of legal change accompanying the priate training and availability of local project. Jordan is drafting a new customs expertise, and a reliable and cost-effective law, discussing a draft Law of Standards communications infrastructure. However, and Metrology that is pending in Parlia- too few Bank projects have created an ment, and is reviewing a draft income tax environment in which government and law in connection with International intergovernment activity on legislative, Monetary Fund (IMF) intervention. regulatory, or institutional fronts takes into Private sector financial contributions in account the opinions and desires of users, project funding, and participation and manufacturers, and service providers, even interest in project outcome, are signifi- though these are essential in developing cant-reaching US$19 million, compared to sophisticated electronic networks. the government's own US$8.5 million and What follow are two examples of new the Bank's US$10 million contribution. World Bank projects in global trade en- The informatics component of the hancement, one in Jordan and the other in project is large: computer systems will be Mauritius. installed or upgraded in most of the agen- cies touched by the project. Jordan is JORDAN considering creation of a system that would serve as a central reference source on all The Jordan project is for export develop- trade-related information. UNCTAD's ment and finance. The main objectives of ASYCUDA trade facilitation software will the project are improvements in the follow- introduce full computerization of the ing areas: customs procedures. The new Institution of Standards and Metrology should be a 36 Information Technology and National Trade Facilitation: Making the Most of Global Trade central provider of access to MSTQ-related advice on overall economic management, information database and access systems as productivity increase, and diversification of well as provide a link with a quality man- production and exports. agement system registration service. This project is thus one component of a The project directly addresses the need comprehensive assistance strategy that for close coordination with other multilat- includes, among other initiatives: a Port eral agencies' programs or requirements in Project (fiscal 1995) to finance the expan- matters of trade by several means: coordi- sion of port capacity; a Services Sector nation with IMF recommendations for tax Modernization Project (fiscal 1997) to structure, a legal framework for customs selectively target competitiveness bottle- administration, and other administrative necks identified in previous work; a Higher and enforcement procedures. There is also Education Project (fiscal 1996) to follow up coordination with the General Agreement on a previous Education Sector Project on Tariffs and Trade-World Trade Organiza- (fiscal 1993); and a Health Sector Project tion (GATT-WTO) requirements on MSTQ (fiscal 1997) focusing on quality and effi- strategy. Finally, the project addresses ciency of public health services delivery. implementation of UNCTAD's Automated There are many counterpart agencies in System for Customs Data (ASYCUDA) the government, including the Ministry of software, which will involve technical Finance, the Ministry of Industry and assistance by UNCTAD. Industrial Technology, as well as the Mauritius Standards Bureau; private sector MAURITIUS entrepreneurs are also involved in the project, which puts strong emphasis on the In Mauritius, the Bank has financed a private sector's contribution to efficient project for technical assistance to enhance delivery of public services, particularly competitiveness. The main objectives of the information services. project are: Although the project will not finance computer systems, it will provide technical * promoting good technology practices assistance to the government (which has no through a Technology Diffusion Scheme expertise in EDI) to monitor a new elec- designed to be demand-responsive, to tronic trade facilitation system, to be encourage private sector delivery of supplied by the private sector. Technical these services; assistance will also be provided to stream- * strengthening the MSTQ infrastructure to line procedures in customs and excise, and improve export quality; design and implement an EDI training * facilitating trade through procedure program. The EDI training and awareness streamlining, documentation rationaliz- program will involve representatives from ing, and promotion of an environment the customs and excise department, Minis- conducive to the adoption of EDI; try of Trade and Shipping, commercial * implementing economic and regulatory banks, Mauritius Marine Authority, Air reform where specific needs have been Mauritius, customs brokerage firms, and identified. clearing and forwarding agents. After the implementation of the trade OBSERVATIONS ABOUT THE MAURITIUS facilitation system according to measurable PROJECT performance indicators, the government will use Bank assistance to further explore The country environment of this project is EDI within the public sector in such areas unusually favorable. The Bank's assistance as pensions and welfare, and company strategy with the Republic of Mauritius is taxes. to concentrate on export competitiveness, This project exemplifies a new, compre- in consonance with the government's long- hensive approach to trade enhancement in term vision of development. Technical developing countries, in which informatics assistance and selective lending have been is a central component to efficiency im- improving the economic environment for provement, but not an isolated one. private sector entrepreneurs, through The World Bank Experience 37 THE WAY AHEAD funding, and the use of the service; * ultimate ownership of the technology Before plotting an accurate course for a vendor; destination, the navigator needs to estab- * commitment to international standards, lish a datum, a fixed point identifying the the standards setting process, and present location from which a course may technology transfer; be plotted. It is the same for reengineered * liaison with the private sector, the trade processes and EDI practices, as well education sector, industry bodies, and as for the willing army of helpers: vendors, international agencies; industry bodies, and international agencies * diligent and timely attention to legal alike. Unfocused assistance applied to an issues and new legislation; inadequately prepared initiative is likely to * national marketing and exploitation of do more harm than good. The following is a the new electronic commerce facilities; summary of the next steps for all parties. * inducement and infrastructure schemes for early users and small and medium POTENTIAL NATIONAL INITIATIVES enterprises. The case for trade facilitation using EDI is PRIVATE SECTOR INITIATIVES quite clear, as are the ultimate objectives for the technologies and processes. The ques- In some ways this is easier, since a business tion is how to participate, and define the plan and adequate funding are all that is current local status of development. The required. Thereafter, to encourage partici- first step is an audit of current trade pro- pation, the operator has to persuade the cessing procedures, and an evaluation of government to follow most of the activities the role that IT presently plays. This may be listed in the previous section. It is more an internal or external study. The objective difficult to make a private sector initiative is to establish the datum, or starting point. work successfully without the whole- Other studies may follow along the lines hearted support of the government. described in the section on best practice. The choice of external advisers is ex- INTERNATIONAL AGENCIES tremely important. It may be necessary to have full terms of reference drafted by There is no dearth of desire to help, nor proven experts from one of the interna- lack of advice from any number of agencies, tional agencies before entering into a major some of them with funds. But the scenario consultancy study. External moderators is confusing for countries and organizations should also be considered to ensure the wishing to use such help. This is because reliability of results. There are several much of the advice offered is aligned with examples of consultancy reports making the mandate of the agency, and not neces- unrealistic proposals for local implementa- sarily in the best interests of the client. tion. Hence, in addition to technical knowl- It is now time to bring the objectives, edge and specialist experience, the adviser work plans, and resources into line, to should be able to demonstrate sensitivity to agree on priorities, and then to implement a local conditions. Whatever the recommen- joint plan between all international agen- dations, the public sector must very care- cies concerned. This can lead to optimum fully consider its role in relation to: use of skills and resources, minimum overlap, demonstration projects, and * funding for an awareness campaign; effective international liaison on projects, * departmental participation; technology, best practice, standards, mes- * departmental coordination and agreed sage, and implementation guidelines. objectives; Global activity illustrates the need for * leadership, or coleadership with the further and faster progress. Perhaps an private sector; international vision is needed in addition to * choosing and funding the technology national shared visions to override the vendor; inhibitors to progress so amply illustrated * ongoing participation in management, in the case studies in this volume. 38 Iniformation Technology and National Trade Facilitation: Makitng the Most of Global Trade Appendix 1 The Dangers of Technological Disenfranchisement In October 1994, UN Secretary General GOVERNMENT CONTROLS Boutros Boutros-Ghali opened a UN sym- posium on Trade Efficiency in Columbus, Some degree of government control Ohio. His speech concerned the global need and intervention in the movement of for improving trade efficiencies and the goods and financial flows is required risks for those who were unwilling or to protect the national economy, unable to participate. Some of his remarks health, and security. This, however, can are consolidated in this section, in order to easily become excessive or inefficient. emphasize the crucial role of IT-empowered Billions of dollars are lost every year in trade facilitation. hold-ups and delays-often because of needless bureaucracy. Government The Uruguay Round has signalled a intervention should be transparent and liberalization of world trade. It is clear. It should be concerned not only estimated that global income will with short-term government revenue, increase by at least US$500 billion over but also with the implications for long- the coming decade. This will add term trade efficiency. US$50 billion each year to interna- Customs efficiency is crucial. Gains tional trade flows. The volume of trade from modern transport techniques and of developed countries will be 7 to 8 new information technologies can be percent higher than it would have been lost if inspection procedures are slow, without GATT. But developing country or if heavy paper or forms require- trade is likely to increase by at least 14 ments cause delay. The modernization percent over the same period. of customs is essential to an efficient trading system. Even so, not every developing country will be able to participate effectively, BUSINESS INFORMATION because of lack of expertise and infrastruc- ture; hence, many may miss out. The trade In developed country markets, win- efficiency initiative is designed to prevent dows of opportunity must be located, that from happening. and production geared towards them. Fast and accurate information is vital if It aims to facilitate the participation of business opportunities are to be developing countries, and their domes- grasped. Knowing what the customers tic enterprises, in international trade. It want, and planning to meet their seeks to reduce trade transaction costs. requirements, call for a sophisticated A country may possess excellent information system, and the capacity natural resources, a highly motivated to manage the enterprise to meet those work force, good technical skills, and requirements. gifted entrepreneurs, and yet-because of trade inefficiencies-not be able to TELECOMMUNICATIONS take advantage of market opportuni- ties. Global information highways tend to bypass the developing world. Yet The areas of difficulty for developing information is the key to trade. Tele- countries include the following. communications are the vital carriers of that information. A good example is Appendix 2 39 efficient long distance telephone This means that attention must be paid communications. Substantial invest- to unit costs, to transportation, and to local ment in physical and human capital is business practices. required if modern networks are to be installed in every country. Uniform commercial codes can be of But the trade efficiency initiative immense importance. can accomplish much with relatively So modern business practices and limited resources. Accessible informa- methods must be made more generally tion and communications technology, available. Training and business accompanied by appropriate training education must be expanded. Business and a minimum of infrastructure, can schools can be helped to extend their significantly improve trade perfor- activities to countries where business mance. has not extensively been taught before. The Trade Point concept can con- BUSINESS PRACTICES centrate efforts and resources. It can spearhead efforts to improve trade Global traders need to adopt global efficiency. The Trade Point (see page 9, standards and practices. The world UNCTAD's Trade Point Initiative) market will leave behind those who do brings together all providers of ser- not adapt to what their customers vices required to make a commercial require. transaction: customs, foreign trade institutes, freight forwarders, transport companies, banks and insurance firms. 40 Information Technology and National Trade Facilitation: Making the Most of Global Trade Appendix 2 Cooperating National and International Organizations Many organizations have assisted us in the preparation of this report. These include end us- ers, industry organizations, telecommunications companies, government departments, cus- toms departments, consultancies, and the media from many countries. In particular, we would like to thank the following agencies and organizations for their assistance and generosity: APEC (Asian Pacific Economic Corporation) Singapore ASEB (Asia EDIFACT Board) Japan American Trucking Association United States ANZEB (Australia New Zealand EDIFACT Board) Australia ANA (Article Numbering Association) United Kingdom BIFA (British International and Freight Association) United Kingdom British Computer Society United Kingdom BULPRO (Chamber of Commerce and Industry) Bulgaria Canada Ports Corporation Canada Cargo Clearance Automation Planning and Promotion Task Force, MOF Taiwan (China) CEEEB (Central and Eastern Europe EDIFACT Board) Bulgaria CEN (Comite Europeen de Normalisation) Belgium Centrale fur Coorganisation GmbH Germany Central Chamber of Commerce Finland Computing Services Association United Kingdom DANPRO Denmark DI (Confederation of Danish Industry) Denmark DISA (Data Interchange Standards Association) United States Distribution Code Center Japan ECLAC (UN Economic Commission for Latin American Countries) Chile EDI Forum The Netherlands EDI Malaysia Malaysia EDINet Philippines EFTA (European Free Trade Association) Switzerland EIRPRO Ireland ESCAP (UN Economic and Social Commission for the Asia Pacific) Thailand EU (European Union) Belgium European Affairs Department Ireland Financial Information Service Center Taiwan (China) Finnish Data Communication Association Finland FINPRO Finland General Directorate of Economic Research and Assessment Turkey Group of Terrestrial Freight Forwarders France HUNPRO Hungary IAPH (International Association of Ports and Harbors) Japan ICAO (International Civil Aviation Organization) Canada ICC (International Chamber of Commerce) France IFFA (International Freight Forwarders Association) United Kingdom Appendix 2 41 III (Institute for Information Industry) Taiwan (China) IMO (International Maritime Organisation) United Kingdom Information Network Association of R.O.C. Taiwan (China) IOS (International Organization for Standards) Switzerland ITC (International Trade Centre) Switzerland ITU (International Telecommunications Union) Switzerland JASTPRO Japan MAMPU (Malaysian Manpower Planning Unit) Malaysia National Customs Brokers and Freight Forwarders Association of America United States NACHA (National Automated Clearing House Association) United States NCITD (National Committee on International Trade Documentation) United States NORPRO Norway PAEB (Pan American EDIFACT Board) Brazil Reunion EDI Reunion Samart Thailand SCS (Singapore Computer Services) Singapore SIMPRO Brazil Brazil SIMPRO France France SITA (Systeme International Transport Aerienne) France SITPRO United Kingdom SITPROSA South Africa SNS (Singapore Network Services) Singapore SPRU (Science Policy Research Unit) United Kingdom SWEPRO Sweden SWIFT (Society for World Wide Interbank Financial Telecommunications) Belgium TDB (Trade Development Board) Singapore Tradegate Australia Tradelink Hong Kong Tradenet Singapore TradeVan Taiwan (China) UEOS-Komercia a.s. Slovak Republic UNCTAD (United Nations Conference on Trade and Development) Switzerland UN-ECE (UN Economic Commission for Europe) Switzerland University of East London United Kingdom University of Edinburgh United Kingdom WEEB (Western European EDIFACT Board) Belgium WCO (World Customs Organisation) Belgium WTC (World Trade Center) United States Banks in Australia, Brazil, Canada, Hong Kong, Korea, Malaysia, Singapore, Thailand, the Netherlands, New Zealand,Taiwan, United Kingdom, and the United States. EDI Associations or Councils in Australia, Canada, Denmark, Ireland, Finland, France, Hong Kong, Sweden, Norway, New Zealand, and the United Kingdom. EAN members from EAN International Belgium, Argentina, Australia, Brazil, Chile, Co- lombia, Czech and Slovak Republics, Denmark, Finland, France, Germany, Hong Kong, Hun- gary, Ireland, Japan, Malaysia, Mexico, the Netherlands, New Zealand, Norway, Singapore, Sweden, Taiwan (China), and the United Kingdom. Technology vendors in Argentina, Australia, Brazil, Canada, Chile, Colombia, Denmark, Finland, Germany, Hong Kong, India, Italy, Korea, Malaysia, Mexico, New Zealand, Singapore, South Africa, Spain, Sweden, Taiwan (China), the United Kingdom, and the United States. 42 Information Technology and National Trade Facilitation: Making the Most of Global Trade Distributors of World Bank Publications ANGIeNTINA Db79MA2K JAPAN SINGA"OE.TAXWAN COak ro1ls SIRL S.Aada.L-0.a. fiuu=Book-S-.oA Go.fi A_ P.ocd P. L0d C.k,..G.n.e 54..,,.a..AIl41l Ng.3COPC2.H_ B yk.113 G.LA.,WIH.440gmf Fo-d.1 15,41hF1-O-SI/443 DK-19P0Fd..d.b.rkC Tobo K..g.p,d4 1334..A,.Sgp13348- EGYPT AYAB REYUBUC OF 'EAYA AW.0 AIGaSHMQ.a.NH4.MNff-,SL SI.-.CTG.L14. 1OBIBw..nwA,n. Co. PO Bo4 15'45 up U AUSTALIA. PAPUA NEW GUINEA. TIh.Mad L.E.tOb..,55 I99B_4L...S Fl., SOLOMON ISLANDS- 41.S...lS,0 CO AEYPUDLIC OF ANUATU, AND Co DL.oL.S AFdj,CA, s WSSTRN SAMOA PO Bw34 O.fIYU--tyP_ D.W. -,afl." Sa-,. Ff29UWD 5..d. 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ST 125 RECENT WORLD BANK TECHNICAL PAPERS (continued) No. 275 Heggie, Management and Financing of Roads: An Agendafor Reform No. 276 Johnson, Quality Review Schemes for Auditors: Their Potential for Sub-Saharan Africa No. 277 Convery, Applying Environmental Economics in Africa No. 278 Wijetilleke and Karunaratne, Air Quality Management: Considerationsfor Developing Countries No. 279 Anderson and Ahmed, The Casefor Solar Energy Investments No. 280 Rowat, Malik, and Dakolias, Judicial Reform in Latin America and the Caribbean: Proceedings of a World Bank Conference No. 281 Shen and Contreras-Hermosilla, Environmental and Economic Issues in Forestry: Selected Case Studies in India No. 282 Kim and Benton, Cost-Benefit Analysis of the Onchocerciasis Control Program (OCP) No. 283 Jacobsen, Scobie and Duncan, Statutory Intervention in Agricultural Marketing: A New Zealand Perspective No. 284 Valdes and Schaeffer in collaboration with Roldos and Chiara, Surveillance of Agricultural Price and Trade Policies: A Handbookfor Uruguay No. 285 Brehm and Castro, The Marketfor Water Rights in Chile: Major Issues No. 286 Tavoulareas and Charpentier, Clean Coal Technologies for Developing Countries No. 287 Gillham, Bell, Arin, Matthews, Rumeur, and Heam, Cotton Production Prospectsfor the Next Decade No. 288 Biggs, Shaw, and Srivastiva, Technological Capabilities and Learning in African Enterprises No. 289 Dinar, Seidl, Olem, Jorden, Duda, and Johnson, Restoring and Protecting the World's Lakes and Reservoirs No. 290 Weijenberg, Dagg, Kampen Kalunda, Mailu, Ketema, Navarro, and Abdi Noor, Strengthening National Agricultual Research Systems in Eastern and Central Africa: A Frameworkfor Action No. 291 Valdes and Schaeffer in collaboration with Errazuriz and Francisco, Surveillance of Agricultural Price and Trade Policies: A Handbook for Chile No. 292 Gorriz, Subramanian, and Simas, Irrigation Management Transfer in Mexico: Process and Progress No. 293 Preker and Feachem, Market Mechanisms and the Health Sector in Central and Eastern Europe No. 294 Valdes and Schaeffer in collaboration with Sturzenegger and Bebczuk, Surveillance of Agricultural Price and Trade Policies: A Handbookfor Argentina No. 295 Pohl, Jedrzejczak, and Anderson, Creating Capital Markets in Central and Eastern Europe No. 296 Stassen, Small-Scale Biomass Gasifiersfor Heat and Power: A Global Review No. 297 Bulatao, Key Indicatorsfor Family Planning Projects No. 298 Odaga and Heneveld, Girls and Schools in Sub-Saharan Africa: From Analysis to Action No. 299 Tamale, Jones, and Pswarayi-Riddihough, Technologies Related to Participatory Forestry in Tropical and Subtropical Countries No. 300 Oram and de Haan, Technologiesfor Rainfed Agriculture in Mediterranean Climates: A Review of World Bank Experiences No. 301 Edited by Mohan, Bibliography of Publications: Technical Department, Africa Region, July 1987 to April 1995 No. 302 Baldry, Calamari, and Yameogo, Environmental Impact Assessment of Settlement and Development in the Upper Leraba Basin No. 303 Heneveld and Craig, Schools Count: World Bank Project Designs and the Quality of Primary Education in Sub-Saharan Africa No. 304 Foley, Photovoltaic Applications in Rural Areas of the Developing World No. 306 Muir and Saba, Improving State Enterprise Performance: The Role of Internal and External Incentives No. 309 The World Bank/FOA/UNIDO/Industry Fertilizer Working Group, World and Regional Supply and Demand Balances for Nitrogen, Phosphate, and Potash, 1993/94-1999/2000 No. 310 Edited by Elder and Cooley, Sustainable Settlement and Development of the Onchocerciasis Control Programme Area: Proceedings of a Ministerial Meeting No. 313 Kapur, Airport Infrastructure:The Emerging Role of the Private Sector THE WORLD BANK a Zl: s A partner in strengthening economies and expanding markets to improve the quality.nf life for people everywhere, especially the poorest U, Headquarters European Office Tokyo Office 5 1818 H Street, N.W. 66, avenue d'I6na Kokusai Building D Washington, D.C. 20433, U.S.A. 75116 Paris, France 1-1, Marunouchi 3-chome Chiyoda-ku, Tokyo 100, Japan Telephone: (202) 477-1234 Telephone: (1) 40.69.30.00 Facsimile: (202) 477-6391 Facsimile: (1) 40.69.30.66 Telephone: (3) 3214-5001 _ Telex: Mci 64145 WORLDBANK Telex: 640651 Facsimile: (3) 3214-3657 Mci 248423 WORLDBANK Telex: 26838 0 Cable Address: wTBAFRADn WASHINGTONDC aQ z 01 ~~~~~~~~~~~~~~~~~~~~~~~~~~j ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~C Cover design by Beni Chibber-Rao ISBN 0-8213 3533-2 ,'