TRADE FACILITATION: BACKGROUND
Trade facilitation — Cutting “red tape” at the border
Traders from both developing and developed countries have frequently highlighted the vast amount of “red tape” that exists in moving goods across borders. To address this, WTO members have forged the Trade Facilitation Agreement (TFA), which came into force on 22 February 2017 .
Trade facilitation efforts, such as simplifying required paperwork, modernizing procedures and harmonizing customs requirements, can slash the costs and time needed to export and import goods. This is critical as trade costs can be equivalent to a 134% ad valorem tariff on a product in high-income countries and a 219% tariff equivalent in developing countries according to a 2015 study by WTO economists.
Reductions in time and costs to trade can thus make the difference between a country seamlessly linking up to an integrated global production chain or being left on the margins of a big part of world trade. Moreover, amid a global slowdown in trade, easing trade processes can provide a critical boost to international trade and the global economy.
The full implementation of the TFA is estimated to reduce global trade costs by an average of 14.3%, with African countries and least-developed countries (LDCs) forecast to enjoy the biggest average reduction in trade costs. Full implementation has also been found to potentially reduce the average time needed to import by 47%. Cuts in export time will be even more dramatic: estimates predict a 91% reduction of the current average.
By easing the time and costs burdens, the TFA is expected to increase exports from existing traders while also enabling new firms to export for the first time. Furthermore, the TFA is forecast to add up to 2.7% a year to world export growth and more than 0.5% a year to world GDP growth over the 2015-30 horizon. Developing countries are expected to enjoy larger gains than the global average: the swift and full implementation of the TFA is estimated to boost their exports by 3.5% annually and augment their economic growth by 0.9% each year. Overall, two thirds of all benefits are predicted to go to the developing and least-developed world.
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. More information on the TFA provisions is available here.
The TFA broke new ground for developing countries and LDCs in the way it will be implemented. It is the first WTO agreement in which these WTO members can determine their own implementation schedules and in which progress in implementation is explicitly linked to technical and financial capacity. In addition, the Agreement states that assistance and support should be provided to help them achieve that capacity. Further information on special and differential treatment for LDCs and developing countries is provided here.
A Trade Facilitation Agreement Facility (TFAF) was created at the request of developing and least-developed countries to help ensure that they receive the assistance needed to reap the full benefits of the TFA and to support the ultimate goal of full implementation of the new agreement by all WTO members. More information on technical assistance and support for capacity building is available here.
In many ways, the WTO’s engagement in trade facilitation began at the Singapore Ministerial Conference in December 1996, when WTO members directed the Council for Trade in Goods “to undertake exploratory and analytical work . . . on the simplification of trade procedures in order to assess the scope for WTO rules in this area."
After several years of exploratory work, WTO members formally agreed to launch negotiations on trade facilitation in July 2004, on the basis of modalities contained in Annex D of the so-called “July package”. Members agreed that the negotiations “shall aim to clarify and improve relevant aspects of Articles V, VIII and X of the GATT 1994 with a view to further expediting the movement, release and clearance of goods, including goods in transit”. Negotiations were also aimed at “enhancing technical assistance and support for capacity building in this area” and at developing “provisions for effective cooperation between customs or any other appropriate authorities on trade facilitation and customs compliance issues”. Members further agreed on extensive special and differential treatment for developing and least-developed countries.
On 12 October 2004, the Trade Negotiations Committee established the Negotiating Group on Trade Facilitation. Hundreds of proposals made by WTO members, individually or through groups or alliances, were submitted for consideration by the Negotiating Group.
The proposals continued to be refined until ministers concluded the negotiations on trade facilitation at the Bali Ministerial Conference in December 2013. In line with the Agreement, a Preparatory Committee on Trade Facilitation was established under the General Council, open to all WTO members, to ensure the expeditious entry into force of the Agreement and to prepare for the efficient operation of the Agreement upon its entry into force. The Committee was also tasked to conduct a legal review of the Trade Facilitation Agreement, receive notifications from members on the commitments they can undertake immediately (Category A commitments), and draw up a Protocol of Amendment to insert the Agreement into Annex 1A of the WTO Agreement.
The legal review was completed by members in July 2014 and delegations began to submit their Category A notifications. On 27 November 2014, members adopted a Protocol of Amendment to insert the new Agreement into the existing legal WTO framework. It stipulated that the TFA would enter into force once two thirds of all WTO members completed their domestic ratification procedures and deposited a valid acceptance instrument.
This threshold was reached on 22 February 2017 when the WTO received the 110th deposit, allowing the Agreement to take effect. The list of WTO members who have ratified the TFA is available here.
Implementing the TFA
Developed countries have committed to immediately implement the Agreement upon its entry into force. Developing countries, meanwhile, will only apply those substantive provisions of the TFA which they have indicated they are in a position to do so from the date of the TFA’s entry into force. Least-developed countries were given an additional year to do so. These commitments are set out in the submitted Category A notifications.
Category B notifications from developing countries and LDCs meanwhile list the provisions the WTO member will implement after a transitional period following the entry into force of the TFA. Category C notifications contain provisions that a developing country or LDC designates for implementation on a date after a transition period and requiring the acquisition of implementation capacity through the provision and assistance of capacity building. The list of members’ notifications is available here.The TFA further provides for the establishment of a Committee on Trade Facilitation to periodically review the Agreement’s operation and implementation. More information on the current state of trade facilitation work can be found here.