What Trade Facilitation Is and Why It Matters

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It was big news, at least in international trade circles. The World Trade Organization (“WTO”) finalized a Trade Facilitation Agreement (the “Agreement”) at the 9th Ministerial Conference in Bali, Indonesia, on December 7, 2013. The Agreement was the first WTO trade agreement concluded since 1998 and the first fully multilateral trade agreement negotiated under the auspices of the WTO. Importantly, finalization of the Agreement showed that the WTO Doha Development Round launched in 2001 could actually produce results.
           
The World Bank in its report “Connecting to Compete 2014:  Trade Logistics in the Global Economy” presented at the Heritage Foundation on June 5, 2014 sets forth the World Bank’s biennial Logistics Performance Index (“LPI”) and describes the Agreement as building on the General Agreement on Tariffs and Trade with measures to “provide faster and more efficient customs and border management procedures.” The World Bank acknowledges in its Foreword that “[t]he imperative of facilitating trade through more transparent and consistent border clearance is now universally recognized – and set in stone in December 2013’s World Trade Organization Agreement on Trade Facilitation in Bali, Indonesia.” See http://bit.ly/1h3hDnr (last visited June 9, 2014).

So what is “trade facilitation”?  The WTO itself defines it as “the simplification and harmonization of international trade procedures” covering the “activities, practices and formalities involved in collecting, presenting, communicating and processing data required for the movement of goods in international trade.”  The World Bank states that [b]roadly defined, these measures include anything from institutional and regulatory reform to customs and port efficiency.”  http://go.worldbank.org/QWGE7JNJG0 (last visited June 9, 2014). The United Nations Centre for Trade Facilitation and Electronic Business (“UN/CEFACT”) defines “trade facilitation” as “the simplification, standardization and harmonization of procedures and associated information flows required to move goods from seller to buyer and to make payment.” See http://tfig.unece.org/details.html (last visited June 9, 2014). Simply put, trade facilitation would cut the red tape, reduce bottlenecks and create transparency to reduce corruption, thereby moving goods through Customs and across borders more efficiently.

And why is it so important to global economic health?  According to one frequently repeated assessment, implementation could boost global trade by as much as $1 trillion and global GDP by nearly 5 percent. It would save global traders and transportation and logistics companies significant sums of money. In February 2014, the Organization of Economic Cooperation and Development (the “OECD”) reported ranges of potential impact of the Agreement depending upon full versus limited implementation scenarios. For the three income groups evaluated by the OECD, both scenarios resulted in significant trade cost reductions. For Low Income Countries (“LICs”) these reductions ranged from 11.7% for limited implementation to 14.1% for full implementation; for Lower-middle Income Countries (“LMICs”) reductions ranged from 12.6% for limited implementation to 15.1% for full implementation; and for Upper-middle Income Countries (UMICs) reductions ranged from 12.1% for limited implementation to 12.9% for full implementation. See http://www.oecd.org/tad/tradedev/OECD_TAD_WTO_trade_facilitation_agreement_potential_impact_trade_costs_february_2014.pdf (last visited June 9, 2014).

The true test of the Agreement lies in its implementation. U.S. Trade Representative Ambassador Michael Froman at the APEC opening plenary session on May 17, 2014 acknowledged that implementation will test credibility both for individual Members and of the WTO as an institution.

There is a three-tiered approach to commitments of developing and Least Developed Countries (“LDCs”), those concerning: (1) immediate implementation or “Category A”; (2) extra time for implementation or “Category B”; and (3) technical assistance and capacity building funded by donor organizations  or “Category C.”  Developing countries must identify the three lists upon entry into force of the Agreement, and LDCs have an additional year to do so.

As to the assistance for developing countries contemplated by the Agreement, Ambassador Froman said he met with several donors during the IMF/World Bank spring meetings in Washington to discuss how best to coordinate assistance efforts. He noted that many developing countries were already working successfully to line up funding for Category C projects, i.e., those projects which a country would need assistance to implement.

Now implementation is being threatened, and the WTO is already being tested. The African Group and the LDCs Group are contending that the Agreement cannot enter into force until conclusion of the Doha Round. The African Group reportedly laid out its position in a one-sentence room document that Lesotho tabled during a meeting of the Preparatory Committee on Trade Facilitation May 26-28, 2014. These countries want to make implementation of the Trade Facilitation Agreement provisional so that the WTO will not marginalize development issues. Many members of the two groups are African nations.

This occurrence is unfortunate, as the Agreement benefits these countries the most. By backpedaling on the Agreement that these countries signed in December they also threaten the already weakened WTO. Hopefully, reasonable and persuasive advocates will make the case to these countries that the Agreement is not a concession but rather an important and funded way to improve their trade and investment environment. As acknowledged by the World Bank in its June 2014 Report, emerging economies stand to gain the most by eliminating the red  tape, bottlenecks and corruption at their borders. According to the World Bank, “[t]rade facilitation fosters logistics performance, and better logistics spurs growth, competitiveness, and investment. Customs and border management or the improvement of transit regimes are a few areas where trade facilitation can improve logistics.” 

As Ambassador Froman pointed out to the donors at the IMF/ World Bank spring meetings, “the early movers will gain the earliest benefits of implementation.”  With luck, these countries will see the light.

 

Topics:  Economic Development, GDP, LDCs, OECD, Trade Facilitation Agreement, United Nations, World Bank, WTO

Published In: General Business Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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