Briefing note: Trade facilitation — Cutting “red tape” at the border

The TFA contains provisions for expediting the movement, release and clearance of goods, including goods in transit. It also sets out measures for effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues. It further contains provisions for technical assistance and capacity building in this area.  The Agreement will help improve transparency, increase possibilities to participate in global value chains, and reduce the scope for corruption.

The TFA was the first agreement concluded at the WTO by all of its members.

According to a recent study by the WTO, implementation of the TFA has the potential to increase global merchandise exports by up to $1 trillion per year.  The study also found that developing countries will benefit significantly from the TFA, capturing more than half of the available trade gains.

 

WTO provisions

The WTO has always dealt with issues related to the facilitation of trade, and WTO rules include a variety of provisions that aim to enhance transparency and set minimum procedural standards. Among them are Articles V, VIII and X of the General Agreement on Tariffs and Trade (GATT) which deal with freedom of transit for goods, fees and formalities connected with importing and exporting, and the publication and administration of trade regulations.

However, the WTO legal framework lacked specific provisions in some areas, particularly on customs procedures and documentation, and on transparency. The spectacular increase in the amount of goods traded worldwide in the last few years, the advances in technology and the computerization of business transactions have added a sense of urgency to the need to make the rules more uniform, user-friendly and efficient.

 

The mandate and the negotiations

At the Singapore Ministerial Conference in December 1996, ministers directed the Goods Council “to undertake exploratory and analytical work … on the simplification of trade procedures in order to assess the scope for WTO rules in this area”.

At the Fourth Ministerial Conference in Doha, in November 2001, ministers agreed that negotiations on trade facilitation would take place after the Fifth Ministerial Conference in Cancún in September 2003. This mandate was renewed on 1 August 2004 when the General Council decided by explicit consensus to commence negotiations on the basis of modalities agreed by WTO members. These modalities established the basis for the work plan adopted at the first meeting of the Negotiating Group on 15 November 2004. Detailed negotiations took place regularly after this and the negotiating text was streamlined, clarified and improved until the final text was agreed by consensus at the 9th Ministerial Conference in Bali, Indonesia.

 

The Agreement

The TFA broke new ground for developing and least-developed countries in the way it will be implemented. For the first time in WTO history, the requirement to implement the Agreement was directly linked to the capacity of the country to do so. In addition, the Agreement states that assistance and support should be provided to help them achieve that capacity.

The TFA has three sections:

• Section I contains provisions for expediting the movement, release and clearance of goods, including goods in transit. It clarifies and improves the relevant articles (V, VIII and X) of the General Agreement on Tariffs and Trade (GATT) 1994. It also sets out provisions for customs cooperation.

• Section II contains special and differential treatment (SDT) provisions that allow developing and least-developed countries (LDCs) to determine when they will implement individual provisions of the Agreement and to identify provisions that they will only be able to implement upon the receipt of technical assistance and support for capacity building.

• To benefit from SDT, a member must categorize each provision of the Agreement, as defined below, and notify other WTO members of these categorizations in accordance with specific timelines outlined in the Agreement (see below):
• Category A: provisions that the member will implement by the time the Agreement enters into force (or in the case of a least-developed country member within one year after entry into force)
• Category B: provisions that the member will implement after a transitional period following the entry into force of the Agreement
• Category C: provisions that the member will implement on a date after a transitional period following the entry into force of the Agreement and requiring the acquisition of assistance and support for capacity building.

• Section III contains provisions that establish a permanent committee on trade facilitation at the WTO and require members to have a national committee to facilitate domestic coordination and implementation of the provisions of the Agreement. It also sets out a few final provisions.

 

Protocol of Amendment and entry into force

WTO members adopted on 27 November 2014 a Protocol of Amendment to insert the new Agreement into Annex 1A of the WTO Agreement. The TFA will enter into force once two-thirds of the WTO membership have completed their domestic ratification process. To date, more than 50 WTO members have ratified the TFA. The list of members that have accepted the TFA is available here.

 

Technical assistance and capacity building

Technical assistance for trade facilitation is provided by the WTO, WTO members and other intergovernmental organizations, including the World Bank, the World Customs Organization and the United Nations Conference on Trade and Development (UNCTAD). In July 2014, the WTO announced the launch of the Trade Facilitation Agreement Facility (TFAF), which will assist developing and least-developed countries in implementing the TFA.  The Facility became operational with the adoption of the Protocol of Amendment.

The TFAF complements existing efforts by regional and multilateral agencies, bilateral donors, and other stakeholders to provide trade facilitation-related technical assistance and capacity-building support. It will act as a focal point for implementation efforts. The functions of the TFAF include:

• supporting LDCs and developing countries to assess their specific needs and identify possible development partners to help them meet those needs
• ensuring the best possible conditions for the flow of information between donors and recipients through the creation of an information sharing platform for demand and supply of trade facilitation-related technical assistance
• disseminating best practice in implementation of trade facilitation measures
• providing support to find sources of implementation assistance, including formally requesting the Director-General to act as a facilitator in securing funds for specific project implementation
• providing grants for the preparation of projects in circumstances where a member has identified a potential donor but has been unable to develop a project for that donor’s consideration, and is unable to find funding from other sources to support the preparation of a project proposal
• providing project implementation grants related to the implementation of TFA provisions in circumstances where attempts to attract funding from other sources have failed. These grants will be limited to “soft infrastructure” projects, such as modernization of customs laws through consulting services, in-country workshops, or training of officials.

 

The benefits of the TFA

On 26 October the WTO issued its flagship World Trade Report.  The 2015 report provided the first detailed study of the potential impacts of the TFA based on a full analysis of the final agreement text.

The report’s findings support those of previous studies on the scale of the potential headline benefits while also giving significant further detail and outlining a range of other benefits of the Agreement, particularly for developing and least-developed countries. For example, the TFA could help developing countries diversify their exports, increase their involvement in global value chains, expand the participation of small and medium-sized enterprises in international trade, help to attract more foreign direct investment, increase government revenues and reduce corruption.

The key findings on the impact of the TFA include the following:

• Global merchandise exports estimated to increase by between $750 billion and $1 trillion per annum.

• Developing countries’ exports estimated to increase by between $170 billion and $730 billion per annum.

• Developed economies’ exports estimated to increase by between $310 billion and $580 billion per annum.

• Fuller, faster implementation of the TFA will increase the likelihood of impacts reaching the higher ends of these ranges.

• Overall boost to world export growth per annum estimated at up to 2.7 per cent.

• Overall boost to global GDP growth per annum estimated at 0.5 per cent.

Empirical evidence highlighted in the report shows that the availability and sustainability of financial resources will be crucial. However, it also shows that other factors are necessary and critical for successful implementation of trade facilitation reforms. Strong political will at the highest levels is identified as a key factor. Other important elements identified include: cooperation and coordination between ministries and border management agencies; and private sector stakeholders’ participation.