WTO's Trade Facilitation Agreement Takes Effect
The World Trade Organization announced on Wednesday 22 February that the Trade Facilitation Agreement (TFA) has now entered into force, having surpassed the minimum requirement of 110 ratifications from members.
“The Trade Facilitation Agreement is the biggest reform of global trade this century,” said WTO Director-General Roberto Azevêdo on Wednesday in confirming the news.
“It sends a message about the power of trade to support jobs and growth around the world – in developed and developing countries alike,” he continued.
The landmark agreement aims to cut customs-related red tape, easing the flow of trade between countries by simplifying customs procedures, speeding up the clearance of goods, supporting cooperation among customs officials, and otherwise making it quicker and more efficient for goods to cross borders.
The four ratifications announced on Wednesday included Chad, Jordan, Oman, and Rwanda, according to the Geneva-based trade body. Together with the previous 108 ratifications received, there are now 112 WTO members which have approved the deal in their domestic legislatures and submitted their “instruments of acceptance” to the organisation.
Under WTO rules, any new or revised trade agreements require approval by two-thirds of the organisation’s membership, which now numbers 164 members.
An innovative deal
The TFA’s entry into force has already drawn a public welcome by numerous WTO members in the hours since the news first broke, with officials citing the deal’s potential to slash trade costs, facilitate the involvement of smaller companies on the international trading scene, and support the increased participation of poorer countries in global value chains.
While estimates vary, some agencies such as the Organisation for Co-operation and Development (OECD) have placed the potential reduction in trade costs at approximately 11-15 percent for low-income and upper middle income countries, though this level would depend on the country involved and the agreement’s actual implementation in practice.
WTO data further suggests that African and least developed economies are the ones which stand to see the greatest savings as a result of the deal.
Notably, the TFA is the first WTO agreement that is structured in a way that allows developing country members to determine which commitments they are able to implement straight away, versus those which will require a transition period and potentially technical assistance and/or capacity-building.
“TFA is an innovative, modern agreement. We now need to implement it [and] deliver on its benefits,” said Harald Neple, the Norwegian Ambassador to the WTO who currently chairs the organisation’s General Council, according to a post on social media site Twitter.
“Better border procedures and faster, smoother trade flows will revitalise global trade to the benefit of citizens in all parts of the world. Small companies, that have a hard time navigating daily bureaucracy and complicated rules, will be major winners,” said EU Trade Commissioner Cecilia Malmström.
Other officials in the trade and development community have also suggested that this reduction in trade costs could yield benefits on other fronts as well, specifically by freeing up or creating resources to fulfil other essential needs.
“New technologies and institutional reforms can improve governance, reduce entry barriers, and pull the informal sector into the formal sector. And with less paperwork to dodge, and fewer palms to grease, public revenues go up. This generates new resources for spending on essential services,” said Joakim Reiter, the Deputy Secretary General of the UN Conference on Trade and Development (UNCTAD), in a press release.
Azevêdo similarly noted that the potential gains from the TFA could be manifold, especially for developing and least developed countries (LDCs).
“Developing countries could increase the number of products they export by 20 percent, while LDCs could see an increase of up to 35 percent,” said the WTO chief, suggesting that these countries could also have an easier time accessing other overseas markets and thus insulate themselves from “external economic shocks.”
Many in the business sector have also responded favourably to the news, with the International Chamber of Commerce ‘s (ICC) Chairman Sunil Bharti Mittal terming it a “watershed moment for global trade.”
“The entry into force of the agreement could not come at a more important moment given the imperative to make global growth more inclusive," Mittal added, noting that the TFA’s work to address onerous customs systems could be a boon to smaller companies, including in developing economies.
Over 12 years in the making
Negotiations for the TFA were concluded in December 2013 at the WTO’s Ninth Ministerial Conference in Bali, Indonesia, following round-the-clock negotiations among trade ministers to finalise the first new multilateral deal since the WTO opened its doors in the mid-1990s. The trade deal has been open for ratification since November 2014. (See Bridges Daily Update, 7 December 2013 and 27 November 2014)
The process to negotiate such a trade facilitation deal kicked off in 2004, following previous working-group level discussions on which of the so-called “Singapore issues” should be added to the WTO’s Doha Round of trade talks. (See Bridges Weekly, 28 November 2013)
While the future of the Doha agenda topics remains in flux, the TFA was able to move forward as part of an “early harvest” of issues that seemed the readiest for an agreed outcome.
Though the ratification process has now taken a few years, that time has allowed for other preparatory efforts to get underway, including the announcement of funding commitments from various countries and other financial streams to help provide the technical support and capacity building that some developing countries will need to implement certain provisions.
Within the WTO, a preparatory committee has also been at work over that timeframe to undertake steps such as collecting the relevant notifications from members of which TFA provisions they will implement immediately – the “Category A” commitments – and which ones may require additional time or support.
There have also been various training courses in place to help prepare WTO members in implementing the TFA in practice, including advanced courses hosted at the global trade body for the chairs of national trade facilitation committees.
A Trade Facilitation Agreement Facility (TFAF) has also been in place since late 2014 to help WTO members determine their support needs and who they could partner with to address them, among other functions.