IN order to deepen and strengthen relations and establish links and areas of cooperation in various fields in today's world, countries in many regions are integrating into one single geographical and economic entity. Countries within these regions have now turned into countries without frontiers. The objective behind the integration is to formulate uniform regulations in various fields such as economic and financial affairs, commerce and communication, education and culture, social and health affairs, information and tourism and legislative and administrative affairs. The step towards such economic and geographical merger can be achieved through integration of the customs systems of the countries within the region. However, there are several procedures for the integration of the customs systems. Two common and popular ones are customs union and free trade areas.
Simply put, a customs union is an association of two or more countries to encourage trade. The countries making such an arrangement agree to eliminate tariffs and other restrictive regulations on trade among them. In other words, a customs union is established between two or among more countries when all barriers such as tariffs or restrictions on exchange of each other's goods and service are removed. It is, however, a discriminating trade arrangement as the liberalisation only includes the countries that are members of the customs union and they formulate and administer a common trade policy in regard to tariffs and other trade restrictions against third countries. In short, all members charge the same set of customs duty rates on imports from non-members, i.e., they create a common external tariff against non-members.
A customs union is an essential element in the formulation of a single market for the member states. The four basic freedoms for economic development can only operate in a customs union. These are the free circulation of goods, persons, services and capital. A customs union, is also an essential element in making a common commercial policy of the member states union. In addition, it has an important role to play with regard to the simplification of the import of goods. In a customs union customs can be used as a multifunctional tool and contribute to the economic strength of the member states of the union.
The most important role of a customs union is the economic integration of the member states. There are absolutely no internal border restrictions, but with regard to internal revenue collection of each of the member countries, different sets of rules may apply. Since all members of a customs union apply a common tariff and commercial policy towards third country goods, no rules are needed to determine which goods inside the union can move freely, and most importantly, no rules of origin are required. As there is no internal frontier for customs or external trade, a customs union promotes fair trade. It also ensures protection for the customs union states' citizens and businesses in all areas involving imports or exports in a clear, uniform, simple way as efficiently as possible. In addition it contributes to the creation of new jobs.
The advantages of forming a customs union are greater if member countries can respond more flexibly to the prospects of integration. Some factors which affect the success of a customs union are production structure, the size of the union, the level of tariffs, transportation and transportation costs. A customs union will have positive effects if production structures are competitive within the union, tariffs for non-member countries are higher, the geographical size of the union very large and transaction costs lower.
The best known customs union has included the Zollverin, Benelux and the European Economic Community (EEC) now called the European Union (EU). The Zollverein was formed by German states in the 1830s and later these states became the great German nation (1871). Belgium, the Netherlands and Luxembourg established Benelux in the 1940's. Belgium, France, Italy, Luxembourg, the Netherlands and West Germany set up the EEC in 1957 which now has 25 European countries as members.
A free trade area is somewhat different from a customs union. A free trade area is used when countries wish to bring together their economies but not to integrate them or turn them into a single economy. In a free trade area, trade within the member group is duty free. However, each member can set its own duty rates on imports from non-members. The aim is to partly, or in the end totally, eliminate customs duties and restrictions to trade. Since a member of a free trade area keeps its own customs tariff and commercial policy in force towards outsiders, rules are needed to determine which goods inside the area can move freely from one member country to another. In a free trade area, therefore, customs procedures have to be kept for consignments crossing the internal border to see if the rules are met.
Examples of free trade areas are the European Economic Area (EEA) and the European Free Trade Association (EFTA), the North American Free Trade Agreement (NAFTA) between the USA, Canada and Mexico, the Mercosur in Latin America and Caricomin.
Although in different regions of the world, a number free trade zones as well as customs union have come into existence since long, South Asia, however, lags behind in this respect. It is true that South Asian Association for Regional Cooperation (SAARC) was created by the South Asian countries to integrate the socio-economic development of the South Asian countries through collective regional cooperation, no serious step has yet been taken to create a customs union in the region. Of course, a South Asian Free Trade Agreement (SAFTA) has been agreed upon by the SAARC signatory countries, but many of the countries are not taking the agreement seriously. Only recently India has announced that under the SAFTA agreement it will reduce customs duty by 5.0 per cent on all imports from the SAARC partners and the decision has come into effect from January, 2006. But there has not been any reciprocal response from its other South Asian partners.
It has to be understood that creation of a free trade zone and a customs union is very important for the overall development of all countries of the South Asian region. A customs integration will be the first step towards acceleration of economic growth, social progress, cultural development and strengthening of collective self-reliance among the South Asian regional countries. Therefore, without a customs union or free trade zone in the region, the SAARC cannot truly hope to achieve its goal of collective socio-economic development.
It is expected that the South Asian regional countries will aim at building socio-economic integration based on convenient theoretical and practical bases. The SAFTA should be utilised for the development of a gradual free trade zone in this area. The agreement should be used to progressively eliminate tariff and non-tariff barriers to trade in accordance with timetables to be negotiated between the partners. For example, as a starting point, traditional trade flows (as far as the various agricultural policies allow and with due respect to the results achieved within the GATT negotiations) like trade in agricultural products should be progressively liberalised through reciprocal preferential access among the SAFTA members. Likewise, trade in services including right of establishment should be progressively liberalised giving due regard to the GATT agreement.
The participants in the SAFTA agreement can facilitate the establishment of the free trade area through the adoption of suitable measures as regard rules of origin, certification, protection of intellectual and industrial property rights and competition. They should pursue the development of policies based on the principles of market economy and the integration of their economies taking into account their respective needs and levels of development. They should endeavour for the adjustment and modernisation of economic and social structures, giving priority to the promotion and development of private sector, upgrading the productive sector and establishment of an appropriate institutional and regulatory framework for a market economy. They should likewise try to mitigate the negative social consequences which may result from this adjustment, by promoting programmes for the benefit of the most needy populations. They should also foster the promotion of mechanism to transfer technology.
If the free trade agreement or SAFTA comes out successfully over the years, the countries of the region should go for the creation of a customs union. Integrating the customs systems of all countries involved should be done phase by phase. In the first phase the objective would be the unification of external customs tariff of the member states toward the external world and, for this purpose, the required studies may be made to achieve this phase. In the second phase, there should be coordination of legislations and laws relating to the customs and taxation for the member states in the union in an effort to eliminate any variations between these laws and legislations, thus cancelling any economic distortions that may occur as a result of applying them.
In the third phase, there should be unification of customs procedures and laying down of unified customs declarations to all customs systems applied by the member countries. In this respect help can be taken by using the international experience in this field especially from the World Customs Organisation and the Kyoto agreement. In the fourth phase, a unified customs body has to be established for all member-states in the region so that South Asia becomes a unified customs region. The implementation of each of these phases requires effective participation from South Asian countries and their customs experts. The countries will provide necessary finance for each phase while their experts will extend specialised opinion for formulation and implementation of rules and regulations.
There is no need to overemphasise the role of the SAARC. This regional agreement is not meant to create in South Asia a federation like the United States, nor its purpose is to serve simply as an organisation for co-operation amongst the member countries as like the United Nations. In fact, all the countries of the SAARC are very much politically sovereign and will remain so but should share their resources, institutions, manpower and finance to serve matters of joint interest for all countries of the region. Such sharing of resources to serve common interest can be done through the development of common policies in a very wide range of fields-from agriculture to culture, from consumer affairs to competition, from environment to transport and trade. The creation of a an effective free trade zone and gradual integration of the customs systems of these countries, or in other words, creation of a customs union in the region will definitely serve the purpose.
The writer is a Permanent Representative of Bangladesh to the World Customs Organization, Brussels, Belgium