Implementation of Trade Facilitation Deal Could Yield Major Benefits, WTO Report Says

29 October 2015

Bringing the WTO’s Trade Facilitation Agreement (TFA) into force could boost global merchandise exports by US$1 trillion per year, according to a new report issued by the global trade body earlier this week.

The findings, discussed in the latest edition of the flagship World Trade Report, come as WTO members continue to work toward bringing the trade deal into force, nearly two years after negotiations for the pact were concluded during the organisation’s Ninth Ministerial Conference in Bali, Indonesia. (See Bridges Daily Update #5, 7 December 2013)

To date, 51 WTO members have ratified the TFA, with Pakistan the latest to submit its instrument of ratification. Entry into force will require two-thirds of the WTO’s 161 members. Though the organisation is set to hold its biennial ministerial conference in less than two months’ time, sources and trade watchers alike suggest that TFA entry into force is unlikely to occur before then, despite the recent spike in ratifications.

Concurrently, WTO members continue to submit “Category A” notifications for the trade pact – in other words, those commitments under the TFA that will be implemented immediately upon the agreement’s entry into force. To date, over 70 members have submitted such notifications.

Trade costs

In its analysis, the report places a high focus on the impact trade costs can have on trade flows, particularly for developing and least developed countries.

“Trade costs in developing countries are equivalent to applying a 219 percent ad valorem tariff on international trade. Even in high-income countries, the same product would face an ad valorem equivalent of 134 percent in trade cost,” the report stated.

Meanwhile, the WTO report notes, full implementation of the TFA could slash members’ trade costs by an average of 14.3 percent, with African countries and least developed countries (LDCs) predicted to experience even higher cost reductions at over 16 percent.

“All too often, outdated and uncoordinated customs processes slow down the movement of merchandise and raise trade costs to prohibitive levels — especially in developing and least developed countries.,” said WTO Director-General Roberto Azevêdo at the report’s launch.

“You could say that [TFA] is global trade's equivalent of the shift from dial-up internet access to broadband,” the global trade chief continued.

Trade growth context

The potential gains from TFA could be a boon to the global economy, the report notes, particularly given the WTO’s downward revision this month of global trade growth estimates. (See Bridges Weekly, 15 October 2015)

According to WTO economists, trade growth this year is now expected to reach only 2.8 percent this year, compared to earlier estimates of 3.3 percent. Next year’s growth is now set to hit 3.9 percent this year, rather than the 4.0 percent predicted previously.

“Over the 2015-30 horizon, implementation of the TFA can add up to 2.7 percent a year to world export growth and more than half a percent a year to world GDP growth,” the annual report estimated. Specifically, the WTO report predicts that the TFA will lead to export gains ranging between US$750 billion and US$1 trillion annually.

Breaking it down into developed and developing country-specific figures, the report says that TFA implementation could boost developing country exports between US$170 billion and US$730 billion per year. Developed economies, for their part, could see export gains at the level of US$310 billion to US$580 billion annually.

The WTO further predicts that effective implementation of the trade facilitation pact can contribute to the developing economies’ annual growth by 0.9 percent annually over the period of 2015-30, while export growth rates could be as high as 3.5 percent.

Approximately 65 percent of developing economies and 77 percent of landlocked developing countries placed trade facilitation in their top three aid priorities, according to an Aid for Trade survey conducted by the WTO.

The report marks the first such study of the TFA text in its final form. However, the economic implications of the TFA will continue to draw attention in the coming years, with the report noting the importance of monitoring to ensure that problems arising under implementation are swiftly addressed. Under the terms of the TFA agreed in Bali two years ago, the WTO is set to establish a Committee on Trade Facilitation to review the trade pact’s implementation and operation four years from when the deal takes effect, and periodically afterward.

ICTSD reporting.

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