WTO passes historic trillion-dollar trade facilitation pact
22. February 2017 | Global Trade Review
The WTO’s Trade Facilitation Agreement (TFA) has entered into force, with supporters hailing it as the greatest single achievement in the organisation’s history.
The ratification is a timely boost for free trade advocates, at a time when the populist protectionist rhetoric of US President Donald Trump has been dominating the debate. The TFA has been under discussion since 1996 and has been awaiting ratification since 2013. The process was slow, but at last, the WTO has a ratified agreement.
The TFA standardises customs procedures among WTO member states, cutting costs and reducing the time it takes to export and import goods. The WTO forecasts that it will slash trade costs for members by 14.3% on average, boosting global trade by up to US$1tn per year.
A 2015 study by the WTO estimates that the TFA would reduce time to market for imports by a day and a half, and two days for exports. This is a reduction of 47% and 91% for imports and exports, respectively. The study says that TFA will add 2.7% a year to world export growth up to 2030. This would equate to 0.5% of global GDP – a huge boost at a time when global trade growth is stagnating and the benefits of globalisation are under scrutiny.
The TFA passed the required threshold of 110 members when Chad, Jordan, Oman and Rwanda submitted their instruments of acceptance, and the general consensus is that by streamlining trade facilitation, the developing world will be the biggest winner.
“This would boost global trade by up to US$1tn each year, with the biggest gains being felt in the poorest countries. The impact will be bigger than the elimination of all existing tariffs around the world,” says WTO director-general Roberto Azevêdo, who hailed it as the WTO’s greatest achievement.
In Rwanda, a study by NGO Trademark East Africa estimated that after changing to an automated “single window” customs system, waiting times for trucks at customs points fell from 11 days in 2010 to 34 hours in 2014. This boosted imports into Rwanda, saving importers and consumers US$6mn in that year alone.
The United Nations Conference on Trade and Development (UNCTAD) says that the cost of trade for developing countries is 1.8 times higher than for developed countries. Adopting TFA will, the agency says, streamline customs processes further and lead to bigger savings and more trade.
“We welcome the entry into force of the TFA as a huge step forward in making trade around the world cheaper, easier and faster,” says UNCTAD deputy secretary general, Joakim Reiter.
Unsurprisingly, business leaders have been praising the breakthrough. Natalie Blyth, global head of trade and receivables finance at HSBC, says that it will lead to simpler, safer and cheaper international trade.
She adds: “By cutting red tape and making global supply chains more secure, the TFA will undoubtedly increase flows of cross-border business; enabling more small and mid-sized businesses to reap the benefits of trade, helping to boost economic prosperity. It is also an important step towards the convergence of international standards and helps sustain the momentum of efforts to create new, mutually beneficial multilateral trade agreements.”
The Chairman of the International Chamber of Commerce (ICC), Sunil Bharti Mittal, describes it as “a watershed moment for global trade”.
“The reality today is that many small businesses find themselves unable to trade internationally due to complex customs requirements. By cutting unnecessary red tape at borders, the TFA will have a transformational effect on the ability of entrepreneurs in developing countries to access global markets,” he says.
The ratification will be a source of pride for the WTO, which has faded into semi-relevance in recent years. Failure to progress a global agreement on trade barrier removal past the Doha Round of negotiations of 2001 led the WTO to abandon talks in 2015.
The humiliation was compounded by the feeling among the trade policy community that the agreement had been put out of its misery. Many proclaimed it the death of multilateralism, with regional and plurilateral agreements such as the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP) and the Regional Comprehensive Economic Partnership (RCEP) hailed as the future of global trade.
Fast-forward two years, and the TPP has been abandoned by the US, with the TTIP likely to follow suit. Only the China-backed RCEP looks set to progress to an acceptable conclusion, and so the ratification of the TFA is undoubtedly cause for celebration for globalists.
“Entry into force of the TFA sends a strong signal that countries remain committed to making trade work for all. The agreement represents an enormous opportunity for countries to boost trade-led growth and development and the alliance looks forward to working with the public and private sectors to ensure it is ambitiously implemented – maximising its potential benefit to local economies,” says Philippe Isler, director of the Global Alliance for Trade Facilitation, a coalition of pro-trade lobby groups.
Meanwhile, the TFA has been welcomed by the Fair Economy Alliance, a group of organisations representing SMEs across Europe, which has been opposed to the “bilateral trade agenda” taken by the EU. The alliance opposes TTIP and the Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU. Neither of these represent the voices of SMEs, it claims.
“This has been built up for almost two decades. It has been slow. But at the same time we have something that is substantial, that tackles the things that need to be tackled. Instead of something like CETA, which is very flimsy and not SME-friendly. It doesn’t solve any of the issues and deals with things that are very controversial,” Miguel Galdiz, research and advocacy officer for the Fair Economy Alliance, tells GTR.
He adds: “[For SMEs], the bilateral agenda is not the way forward. They want access to information, they want border procedures to be streamlined. They want all the things the TFA is meant to do. You want to be able to avoid this funnel vision of bilateral agreements, diverting trade towards specific partners. You want to open the multilateral doors.”