Case Study: Why FedEx Needs Deeper Asia-Pacific Economic Cooperation

Today the US$29-billion network of companies offers services in more than 30 countries in the Asia-Pacific region. It services 200 cities in China alone and employs more than 8,800 people across the Asia-Pacific landscape.

But even with its expertise and successful track record in customs clearance, freight forwarding, and supply chain capabilities, FedEx can only move its clients' goods as quickly as the regulatory regimes in the Asia-Pacific region allow it to. Issues such as customs and trade facilitation are critical to companies like FedEx that provide global connectivity on an hourly basis.

"The reason why customs facilitation is so important to us is that it may take us six hours to get goods from Point A to Point B but we don't want them to sit on the dock for six days while they are waiting for customs officials to clear them," explains David Spence, a managing director of regulatory affairs at FedEx. "Trade facilitation is our bread and butter."

That's one reason why FedEx accepted US President George Bush's invitation to join the APEC Business Advisory Council (ABAC) two years ago and has made important contributions to the group since then. ABAC comprises prominent business people from the 21 Member Economies of APEC, who provide direct recommendations to APEC Leaders through an annual face-to-face meeting and a report recommending action in priority areas for Leaders to consider.

Notes Spence: "We have to deal with customs agencies in 220 markets so APEC working together to ease customs barriers within a region greatly helps us move our customers' goods within that region." The United Nations Conference on Trade and Development estimates that the average customs transaction involves 20-30 different parties, 40 documents, 200 data elements (30 of which are repeated at least 30 times) and the re-keying of 60-70% of all data at least once.

The cost of complying with customs formalities has been reported to exceed in many instances the cost of duties to be paid. And estimates of the Organization for Economic Co-operation and Development (OECD) suggest that customs procedures may cost business 2.5% - 15% of the import value.

But it's more than just customs and trade facilitation issues that brought FedEx into ABAC. The company hopes that its work within ABAC will eventually lead to improved and cost-effective security measures, lower business transaction costs, and enhance opportunities for more efficient e-commerce.

Within the APEC forum, government officials have extensively discussed issues relating to E-commerce, telecoms, IT and web access and this meshes with FedEx's own goals to process much of its customs work electronically. An example of the power of electronic customs processing is Philippine Customs. By introducing an Electronic Data Exchange (EDI) system, it reduced the time for cargo held in Customs custody from 6-8 days to 4-6 hours for "green channel" goods.1

FedEx's participation in ABAC also gives the company a chance to air its views among its peers and key leaders in the region. "We got involved because our business in the APEC region is thriving and we thought ABAC would be an excellent vehicle because it's made up of 63 members of business from the APEC region and it gives business a voice in the process. It gives us a voice to push issues that are very important to us. It makes APEC Leaders aware of those issues."

Spence says FedEx's involvement in ABAC has given the company's key decision makers an opportunity to deal directly with Leaders at every APEC Economic Leaders' Meeting and to express their views. ABAC members have a private meeting with the Leaders of the 21 Member Economies of APEC to personally bring up issues with Leaders of some of the most prominent economies in the world. In addition, the prestigious annual APEC CEO Summit provides opportunities for business leaders to hear presentations from APEC Economic Leaders, economists, policy makers and other business leaders about relevant economic and trade issues.

"Involvement in ABAC has allowed us to push issues that are important to us," Spence explains. "Sometimes it's better to go through an association of varied interests rather than just by ourselves. APEC Leaders will listen to associations that are made up of important sectors to the region as opposed to one company from one sector."

ABAC's priorities this year will be to explore the theme "Networking Asia-Pacific: A Pathway to Common Prosperity." ABAC will continue to champion the APEC agenda on trade and investment liberalization and facilitation, capacity building, and strengthening financial systems. A major project this year will be to offer thoughtful business input as APEC conducts its mid-term stock-take of progress towards the Bogor Goals, and also to monitor the process and hold economies to their commitments to ensure a meaningful review that produces credible conclusions.

Spence notes that ABAC is putting together a mission of its members to visit the World Trade Organization (WTO) in Geneva in June and speak with members of the APEC Geneva Caucus, its 21 ambassadors and their staff. The goal: To urge the APEC Geneva Caucus to continue to take a leadership role in the negotiations and to urge them to participate in developing a comprehensive trade facilitation agreement. "It always helps to have business show their support for what WTO members are trying to accomplish," Spence explains. "WTO is a really big focus for us and we are working on trade facilitation within APEC in support of the WTO."

After their first set of meetings in Mexico City earlier this year, ABAC also sent a letter to Senior Officials and Chairs of APEC Working Groups urging that non-agricultural market access and services negotiations to be kept at the same level of intensity as other sectors in WTO negotiations. ABAC is calling on all APEC members to make substantive offers by the May deadline.

Indeed, last year ABAC emphasized that the successful conclusion of WTO negotiations is the number one priority for business. It called on APEC Leaders to take the bold measures necessary to achieve the Bogor Goals of free and open trade and investment by the 2010/2020 deadline. It also offered recommendations to stimulate APEC's trade and investment agenda, including a set of best practices covering regional trading arrangements/free trade agreements to ensure that they are "building blocks" towards the achievement of the Bogor Goals.

ABAC also challenged APEC Leaders to start considering new ideas such as a Trans-Pacific Business Agenda for greater integration of regional markets and a Free Trade Area of the Asia Pacific to bring together the growing number of bilateral free trade agreements.

As an active member of ABAC, FedEx has been instrumental in setting up the Trade Facilitation Alliance-an association of private sector companies and associations from around the world that are like-minded in wanting a comprehensive trade facilitation agreement. ABAC has become a member of that alliance and is conducting business outreach. ABAC plans to put together a business outreach workshop with the Trade Facilitation Alliance in the group's meetin in Kuala Lumpur in August, at which trade facilitation issues, technical assistance and capacity building programs will be discussed.

Mike Ducker, executive vice-president international of Fedex and one of the three US members of ABAC is also chairing ABAC's Trade and Investment Liberalization and Facilitation Working Group. Currently the group is working on a customs handbook that will list customs requirements in each country.

FedEx was also instrumental in developing the APEC Tariff Database, an online information source that provides information on tariff schedules, concessions, and prohibitions in the APEC region. The database (www.apectariff.org) contains applied tariff rates for thousands of products for most of APEC's 21 Member Economies, and provides an ideal starting point for research into the pricing and environmental analysis components of a company's marketing strategy.

On other fronts, ABAC is working on trade and security issues. ABAC's members have called on APEC Leaders to increase anti-corruption measures as well as to consider the costs imposed on business by compliance with new security measures. This year ABAC has proposed to work with the World Customs Organization to provide business input for their security framework.

"Security is very important to us and all APEC members and we have no problem adhering to security standards as long as they make sense and they don't impede the facilitation of trade," says Spence. "We're working with the World Customs Organization. One of the things we'd like to do is to have a valid, threat-based risk assessment mechanism that would not require 100% screening of each item."

FedEx's continued support and active participation in the APEC process through ABAC helps to ensure that business views are heard and understood by governments as they pave the way to free and open trade in the Asia-Pacific region.

1 Maniego, Buenaventura, 1999. "The Role of Information Technology in Customs Modernisation."