Implementing the TFA: political will is all it takes

26 May 2015

While financing is a key element for the implementation of the WTO Trade Facilitation Agreement, the need for political will is even more crucial.

The Trade Facilitation Agreement (TFA) stands ready for implementation once it is ratified by two-thirds of WTO membership. A number of countries have already notified the WTO of their commitments by category. Category C commitments, specifically, are those that members self-designate to implement after a transition period, and are conditional on technical assistance.

The question of financing implementation was a major hurdle in the TFA negotiations, with some countries insisting that financing and technical assistance should be discussed prior to commitments being made. However, this article argues that financing is not the only element of implementation cost – and it may not be the most important factor either. Implementing the Agreement calls for political will before anything else.

The political economy of trade facilitation

The WTO TFA is limited by design to address ‘soft’ issues related to procedures and policies. This  view of trade facilitation (TF) contrasts with the broader definition adopted by organisations like the World Bank, according to which TF is meant to tackle a wider set of constraints to trade and trade competitiveness, including ‘hard’ infrastructure.

Why then are developing countries so focused on ‘hard’ TF measures? Lack of information about the relative benefits of ‘soft’ TF reforms could be one reason. For example, it has been estimated that a dollar of Aid for Trade (AfT) spent on ‘trade policy and regulation’ has a higher trade-creation effect than similar investments in other areas of trade support, such as ‘economic infrastructure’ and ‘trade development’ (Helble, Mann and Wilson, 2009).

Another reason is the political-economy of ‘soft’ versus ‘hard’ TF. Policy and regulatory reforms are not only generally invisible to voters compared to physical infrastructure projects; they are also difficult to implement – for a number of reasons related to the political economy of reform. First, in the face of uncertainty about the distribution of costs and benefits, citizens may vote down a reform measure that otherwise promises gains in the aggregate. More importantly, the ‘logic of collective action’ suggests that those who gain from the status quo are better armed to oppose reform than those who purport to gain from reform are prepared to support it. The former are more effectively organised, have deeper pockets and a strong ally – the current regime, which may be inclined on paying back for electoral donations and other favors from the group with political gifts.

This story, mutatis mutandis, applies generally to any TF reform that would result in simplified procedures or greater transparency. Implementation of a single window, for example, can remove discretionary power from the hands of certain senior government officials, who may lobby for the measure not to be implemented, and be prepared to ‘bribe’ politicians, if needed. Similarly, expedited or transparent customs clearance may erode the rent base of customs officials, or result in job losses, triggering (aggressive) action against such measures.

Ahead of our discussion of the policy and implementation challenges of TF, this analysis suggests that the political will to embark on otherwise-‘soft’ TF reforms will be a critical determinant of success in implementing the WTO-TFA.

Policy and implementation challenges

Policy-related challenges

The TFA will require new legislation, or the revision of existing laws in accordance with the national legislative process of each country (Moïsé, 2013). The most ambitious changes will likely relate to measures that currently do not exist in a country’s legislative framework. This applies to all of the TFA’s 12 main provisions and, in particular, to Articles I, III, IV, V, VI, VII, VIII and X.

Implementing these regulatory policy changes calls, first and foremost, for political commitment and prioritising of TF reforms. A distorted view of the TFA may lead governments to delay implementation and, even then, to implement the Agreement half-heartedly. Past this barrier, executing legislative changes requires specialised staff in government departments and the Parliament, and, by virtue of the cross-cutting nature of national laws, inter-agency cooperation to ensure consistency and coherence with domestic policies and regulations. Each of these requirements raises challenges of its own in developing countries.

Institutional challenges

Effective implementation of the TFA requires setting up new units with specialised functions (e.g. enquiry points, single windows, border agency cooperation) or new processes (e.g. advance rulings, pre-arrival processing, risk management). These measures are difficult to implement not only because they are costly but, fundamentally, because they do not fit into the existing institutional landscape of most LDCs.One may argue that, if a country could not set up the critical institutions needed to deliver relatively short-term gains such as enhanced competitiveness and growth, will it be willing to invest scarce resources into building institutions and processes that it is skeptical about? This perspective also suggests why the TF measures requiring new institutions or processes or legislation have little chance of being implemented without adequate aid and technical assistance.

Implementation challenges

Technical assistance and capacity building

Section II of the TFA links implementation of the Agreement to the capacity of a country to do so. The Agreement further calls for support to be provided to developing countries and LDCs to help them build the needed capacity. Following up on this provision, the WTO launched in July 2014 a TFA Facility (TFAF) designed to complement efforts by other agencies and donors in providing TF-related technical assistance and capacity-building support to countries in need. The Facility will help countries find donor support but will only provide such support itself when attempts to secure funding from other sources have proved unsuccessful. In such cases, the grants will be limited to soft infrastructure and to a maximum amount of US$200,000. Critics have noted however that “…when other sources fail to materialize, limited investments in soft infrastructure, largely in the form of international consultancies, would hardly lead to a gainful implementation of the Agreement” (Capaldo, 2014).

Infrastructure

Infrastructure, it is argued, is desirable but not critical to the implementation of the TFA. Thus, more powerful computers and scanners, better telephone lines and faster Internet connection make customs operations and control more effective and efficient. The fact that such infrastructure also supports trade facilitation is incidental, but welcome (Moisé, 2013).  Consequently, the costs of providing hard infrastructure cannot be counted as direct costs of TF.

Evidence on TF-related challenges

Evidence on TF-related challenges can be drawn from two sources: national implementation plans for TF measures developed by UNCTAD and self-assessments of TF needs prepared by the WTO. A potentially third source – TF programs in regional trade arrangements (RTAs) – is not covered in this article.

Both assessments suggest that a wide range of measures are already being implemented, whether fully or partially. In the UNCTAD assessments, for example, the best performer implemented 29 of the 39 measures that were assessed. On the other hand, non-compliance rates were rather low, with the worst performer failing to implement a mere 10 of the measures. The fact remains that most of the poorest performers are LDCs.

Of the ten most frequent measures that member-countries reported as not compliant with, 5 are common to both the UNCTAD and the WTO assessments: Internet publication, single window, publication of average release times, enquiry points, and advance rulings. Other notable measures include disciplines on fees and charges, authorised operators, border agency cooperation, risk management and expedited shipments.

UNCTAD (2014) identifies six broad reasons for partial- or non-implementation of TF measures (see Table 1). The lack of an existing legal framework is identified as the main reason for less-than-full implementation of 29 measures – or 75 percent of the measures assessed. Lack of resources – where “resources” are defined to include technological and institutional capacity in addition to financial and human resources – is a key constraint in the case of 24 measures, followed closely by the lack of organisational framework (18 measures).

Table 1 – Main reasons for non-implementation of TF measures

Reason

Number of measures identifying this reason

Existing legal framework

29

Lack of resources

24

Lack of organizational framework

18

Lack of understanding/knowledge of measure

12

Lack of inter-agency cooperation

10

ICT/infrastructure issues

9

Other

5

Source: Author’s calculations based on UNCTAD (2014)

The rather broad definition of “resources” precludes an appreciation of the distinct role of funding as a constraint. However, in separate analysis based on 10 countries that provided meaningful data, UNCTAD (2014) provides some insight into the cost of implementing a TF reform package, including the cost of specific measures. It turns out that the estimated cost of achieving full implementation is not so high after all, averaging US$7.6 million. But this number masks wide variation across countries. The average for the 5 lowest-cost countries is US$2 million, whereas the average for the upper-half is US$13.1 million. The top two most costly measures are single window and test procedures, with average costs of US$3.1 million and US$2.4 million, respectively.

In the WTO assessments, few countries – mainly LDCs – single out financial resources as a major constraint to TF implementation. On the other hand, a number of them suggest that infrastructure was a barrier to implementing TF measures such as single window and measures that required, or pertained to, enhanced customs performance and control.

Conclusion

Implementation of the TFA is already happening, and it started independently of a binding agreement. This article argues that the major difficulties that developing countries, and especially LDCs face in implementing TF measures arise not on the ground, but well before implementation. They relate to a lack of political will to implement reforms in addition to – or in view of – the countries’ lack of legislative and institutional capacities.

The financial constraint itself may not be as challenging as commonly thought. This, in addition to the fact that the funding available for TF is limited, suggests that member-countries should plough their own resources into the process as a self-interested act. If TF measures are properly sequenced, they could be self-financing.

Author: Vinaye Ancharaz is Senior Development Economist at the ICTSD

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