Transit and the Special Case of Landlocked Countries

Author:Jean Francois Arvis

    Based on material prepared by ECORYS N.V. and supported by a grant from the government of the Netherlands.

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Customs transit refers to customs procedures under which goods are transported through countries from one customs office to the other without paying import duties, domestic consumption taxes, or other charges normally due on imports. These procedures are intended to protect the revenues of

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Transit most frequently refers to road transportation to and from landlocked countries. However, it is useful to make a distinction between national transit and international transit. International transit refers to crossing national borders. National transit occurs when goods are transferred within national borders, from the first point of entry in the country to a location where customs procedures are undertaken (for example, dry ports or inland container depots). The two types of transit can be combined; in fact, this is a standard situation in many landlocked developing countries. Imported goods arriving at national borders from transit countries are most often shipped under national transit to the main economic centers. The basic customs mechanisms are similar in both cases; however, implementation is easier for the national transit link.

Most transit takes place between landlocked countries and countries with access to the sea. In some instances, transit is simply from one country to the destination country, and borders are crossed only once. In other instances the transit shipment crosses several borders, as is the case when a shipment goes from the Netherlands to Russia, and crosses Germany and Poland. In other cases the cargo originates and ends up in the same territory, but transits through a second country. For example, commodities destined for the northeastern part of India that originate from other parts of India transit Bangladesh, as all alternative Indian routes are much longer.1 When available, transit by rail offers a number of advantages, including simpler customs transit mechanisms. Rail transit is widely used in central Asia and is being rejuvenated in West Africa.

This chapter focuses on international transit. The first section reviews the general principles of transit while the second section details a typical transit operation. The third section reviews existing major transit arrangements based on the Transport International Routier (TIR). The fourth section presents various institutions set up to facilitate transit, such as bilateral and regional agreements. The final section provides some operational conclusions.

The Case of Landlocked Developing Countries

Customs transit is only one part of a wider transaction range that includes many other participants and procedures-cross-border vehicle regulations, visas for truck drivers, insurance, police controls, infrastructure quality, quality of available transport services, and the organization of the private trucking sector. Even if transit procedures are made effective and efficient, full trade facilitation will require that these issues be dealt with, too.

The interdependence of these issues is well illustrated by the Action Plan issued by the International Ministerial Conference of Landlocked and Transit Developing Countries (August 2003) that notes, "An integrated approach to trade and transport sector development is needed that takes into account social and economic aspects, as well as fiscal policy, as well as regulatory, procedural and institutional considerations" (UN 2003 p. 4). These concerns will be returned to in the Implementation Issues section of this chapter. However, the customs component is the principal bottleneck of transit and is a source of major inefficiencies that affect many activities.

Costs of Transit Operations

The high logistics costs and the many developmental problems faced by the landlocked countries of the world can be attributed to their geographical fate. The importance of the transit facilitation agenda to these countries and to the countries of transit stem from these circumstances.2 Indeed, out of 31 landlocked developing countries, 16 are classified as highly indebted poor countries (HIPC), while 20 out of the 50 least developed countries worldwide are landlocked.3 Research conducted by the World Bank and other organizations4 concludes that in typical landlocked countries, transport costs are 50 percent higher than in a typical coastal country, while the volume of trade is 60 percent lower. Furthermore, a substantial part of the cost may be attributed to border crossing. It is

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TABLE 11.1 Transportation Costs from Main World Markets for Coastal and

Landlocked Countries in Africa

(in US$ by TEU)

Destination Country Northern Europe Japan North America
Senegal $1,610 $4,100 n.a.
Mali via Senegal $2,380 +48% $4,870 + 19% n.a.
Ghana $1,815 $3,025 $2,460
Burkina Faso via Ghana $2,615 + 44% $3,835+27% $3,260+32%
Cameroon $1,520 n.a n.a
Central African Republic via
$2,560+68% n.a n.a
Tanzania $1,380 $1,350 $2,000
Rwanda via Tanzania $3,880+181% $3,850+185% $4,500+125%
Burundi via Tanzania $4,530+228% $4,500+233% $5,150+157%
Zambia via Tanzania $3,250+135% $3,220 +138% $3,870+93%

Source: UNCTAD 2003.

that, the trip from the sea gateway takes as long as a month, due in large part to procedural delays.5 These induced costs include the financial charges related to the guarantees, the cost of transport equipment held up by these transit procedures, as well as the requirement to maintain high inventories. Poorly functioning transit operations also increase the vulnerability of transported goods to theft.6

Transit procedures in landlocked countries affect exports and imports differently.7 The transit costs are somewhat less for exports than for imports. Exports frequently leave the country without paying any duties, so countries are less worried about estimated that the total cost of crossing a border in Africa is the same as the cost of inland transportation of over 1,000 miles (1,600 km) or the cost of 7,000 miles of sea transport (11,000 km). This places landlocked countries at a great disadvantage. In comparison, the cost of crossing a border in Western Europe is equivalent to only 100 miles of inland transportation.

Table 11.1 compares the costs of importing a container into a few landlocked developing countries with the costs of importing the same container into the neighboring transit country. In many cases the costs for landlocked developing countries are significantly higher.

The differences in absolute transportation costs between countries, as well as the increase in transportation costs induced by borders, reflect direct transportation and legitimate fees. However, these costs are increased substantially by cumbersome customs transit procedures-excessive deposits, mandatory convoys, and gratuities to customs staff and police-without which these transit operations cannot be undertaken.

Transit operations often involve long delays that substantially add to the transportation cost. For instance, a recent trade audit for Chad estimated Page 246 revenue loss, thus making complex controls unnecessary. Also, exporters are fewer than importers and are better equipped to deal with transit logistics. Therefore, for the most part, customs transit is an import concern.

The Principles of Customs Transit Regimes

Transit regulation aims to facilitate the transport of goods through a customs territory without payment of duty and taxes in the countries of departure and transit. This is in accordance with the destination principle of taxation, which states that indirect taxes should only be levied in the country of consumption. Transit legislation should be provided in the Customs Code. In the absence of such codification, transit can be regulated by a binding agreement between customs and the different parties affected by the transit operation. The core provisions for customs transit have been around for centuries (box 11.1). They include the following:

* sealing of the shipment at the point where the transit operation is initiated

* providing financial security to customs in the country of transit, which will guarantee the payment of duties if the goods do not leave the country of transit

* using an efficient information system that allows certification that the transit goods have effectively left the country of departure so that the security can be released.

Over the years, transit provisions have been codified by a number of international conventions, the most important being the General Agreement on Tariffs and Trade (GATT) agreements on transit, the World Customs Organization (WCO) Revised Kyoto...

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