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SMEs will be the primary beneficiaries of WTO’s International Trade Facilitation Agreement

New WTO Accord Aims to Facilitate International TradeARTICLE

By Karen Lynch

Some say it is the biggest multilateral trade deal ever. Others call it a more “aspirational” accord, suggesting that lags and wrinkles ahead could hinder full implementation. Still, the general sentiment in the global business and policy world is that the World Trade Organization’s (WTO’s) Trade Facilitation Agreement (TFA), which entered force on February 22, 2017, is a very positive development in the otherwise uncertain arena of international trade.

The 2013 agreement aims to expedite the movement, release and clearance of goods across borders, including the digital transformation of border procedures. It has been ratified by 110 of the WTO’s 164 member nations, which is the threshold for it to go into effect.1 Its intended impact is to unleash international trade potential for small and mid-sized enterprises (SMEs) and developing countries, as well as to ease transactions among the world’s biggest companies and economies engaged in import-export trade.

“This would boost global trade by up to 1 trillion dollars each year,” said WTO Director-General Roberto Azevêdo. “The impact will be bigger than the elimination of all existing tariffs around the world.”2

“The TFA will provide a shot in the arm to U.S. exports and to the multilateral trading system,” says Peter M. Robinson, President of the United States Council for International Business.3 In fact, the U.S., U.K. and governments of several developed economies were instrumental in negotiating other countries’ embrace of the international trade accord, and major business support came from the World Economic Forum (WEF), International Chamber of Commerce (ICC) and Center for International Private Enterprise.

In the developing world, “It would help countries like India which are trying to push exports," notes Biswajit Dhar, professor at the Jawaharlal Nehru University.4 The United Nations Economic Commission for Africa projected that “Trade facilitation could boost exports not only by directly cutting transaction costs, but also indirectly through providing cheaper access to production inputs to be transformed domestically and then possibly re-exported.”5

Boosting Import-Export Trade

In the current international trade environment of cross-border bureaucracy, slow global economic growth and rising national protectionism, world trade rose only 0.5 percent month-on-month in December 2016, according to the CPB Netherlands Bureau for Economic Policy Analysis.6 That said, CPB’s report of a 1.1 percent quarter-to-quarter increase at the end of 2016 represented a significant increase, analyzed by some as a sign of reviving import-export trade.7

Going forward, expectations are for the TFA to add 2.7 percentage points per year to world trade growth by 2030, the WTO said, as it reduces trade costs globally by an average of 14.3 percent.8

The TFA would do this by simplifying and harmonizing international trade procedures, while improving transparency about rules affecting international trade, as explained by Australia’s Department of Foreign Affairs and Trade (DFAT).9 For example, exporters will be able to submit import documentation prior to the actual arrival of goods at foreign borders, in order to obtain precise and binding information on the tariff classification in advance.

“Technical stuff, but a valuable lubricant for the wheels of trade, which have been grinding of late due to the global recession and the years of impasse in the Doha Round of global trade talks,” notes Alejandro Reyes, Visiting Associate Professor at the University of Hong Kong.10

In fact, the agreement was born of the Doha Development Agenda, which was launched by the WTO in 2001 but has yet to achieve its promise to effect a major reform of the international trading system by lowering barriers and revising trade rules. The TFA was prioritized as a stand-alone deal in 2013, “recognizing the substantial potential benefits of this agreement for all,” according to the European Commission.11

As the TFA enters into effect, confidence in the WTO could also increase. “Experts believe the bigger victory is the signal it sends that the WTO can reach consensus after years of failure,” reported Law360, a legal trade publication.12

However, some observers see the potential for implementation to lag. “Many of its provisions are aspirational rather than strictly legally binding,” according to Daniel Kalderimis and Tracey Epps, two New Zealand trade lawyers. “This does not mean that these provisions are completely void of meaning, but the impact is obviously less than with a strict legal obligation.”13

The path from ratification to implementation will be far shorter in some countries than others. “A key wrinkle in the TFA’s implementation protocol is that it allows nations to implement the deal at their own pace, in accordance with what their own government’s infrastructure and funding allows,” reported Law360.14

In this regard, the TFA’s ratification was eased by its unique structure. “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,” according to the International Centre for Trade and Sustainable Development.15Developed countries are providing funds for such assistance.

Boosting SME’s International Trade

The businesses that will benefit most from the TFA are SMEs, because they disproportionately suffer from cumbersome border procedures, according to the ICC. “Easier, quicker and less expensive processes will allow many companies to trade internationally for the first time, integrating global value chains,” the ICC said.16 WEF research suggests that the TFA’s implementation could trigger a 60 percent to 80 percent increase in cross-border SME sales in some economies. 17

For SMEs, the TFA promises cheaper and simpler access to international customers “by reducing red tape at borders around the world, reducing required paperwork, and allowing for digital rather than physical documentation, among other measures to collectively streamline international trade procedures,” per the Australian Export Council.18

The envisioned global trading system would be upgraded for a global digital economy. “If the TFA, by relying on IT-empowered automation and transparent regulation, reduces transaction costs that currently still take a sizable cut out of the pockets of entrepreneurs, especially those running micro, small and medium-sized enterprises, then everyone should be eager to achieve that,” wrote Frank Appel, chief executive officer of Deutsche Post DHL Group. 19

Appel described the perspective of “one of these many millions of merchants: On the one hand, the world of e-commerce and the power of the Internet promises them direct access to the global market – and hence a vastly larger number of potential customers than they can find in their home market. On the other hand, they continue to confront a veritable ‘wall’ of obstacles that stands in their way. Removing that wall is the principal goal of the TFA.”

An SME training manual has been published by the International Trade Centre to run through the myriad TFA improvements, such as better handling of perishable goods, electronic payment options, and publication of average release times. 20 Businesses can also find countries’ trade facilitation track record ranked in WEF’s Global Enabling Trade Index.21

The Takeaway

International trade is expected to get a needed boost from the Trade Facilitation Agreement, a WTO accord that has now gone into effect. SMEs are expected to be among the primary beneficiaries, as the agreement expedites the movement, release and clearance of goods across borders – including the digital transformation of border procedures.

Karen Lynch - The Author

The Author

Karen Lynch

Karen Lynch is a journalist who has covered global business, technology and policy in New York, Paris and Washington, DC, for more than 30 years. Karen also is a principal at Content Marketing Partners.

Sources

1. “WTO’s Trade Facilitation Agreement Enters into Force,” World Trade Organization ;https://www.wto.org/english/news_e/news17_e/fac_31jan17_e.htm
2. Ibid.
3. USCIB Welcomes Entry Into Force of WTO Trade Facilitation Agreement,”U.S. Council for International Business;https://www.uscib.org/uscib-welcomes-entry-into-force-of-wto-trade-facilitation-agreement/
4. "WTO’s Trade Facilitation Agreement Comes into Effect,"Times of India;http://timesofindia.indiatimes.com/business/india-business/wtos-trade-facilitation-agreement-comes-into-effect/articleshow/57297241.cms
5. Trade Facilitation from an African Perspective,United Nations Economic Commission for Africa; http://www.uneca.org/sites/default/files/PublicationFiles/trade_facilitation_eng.pdf
6. "CPB World Trade Monitor: December 2016",CPB Netherlands Bureau for Economic Policy Analysis; https://www.cpb.nl/en/figure/cpb-world-trade-monitor-december-20
7. "World Trade Flows Grew at Slowest Pace since Financial Crisis",The Wall Street Journal; https://www.wsj.com/articles/world-trade-flows-grew-at-slowest-pace-since-financial-crisis-in-2016-1487946162
8. "WTO Press Conference – Entry into Force of Trade Facilitation Agreement",World Trade Organisation; https://www.wto.org/english/news_e/spra_e/spra157_e.htm
9. "Trade Facilitation and the WTO Trade Facilitation Agreement",Australian Department of Foreign Affairs and Trade; http://dfat.gov.au/international-relations/international-organisations/wto/Pages/wto-agreement-on-trade-facilitation.aspx
10. "Don’t Tell Trump, but a Major Global Trade Deal Just Came into Force – and the U.S. Is a Part of It",Time; http://time.com/4683483/trump-trade-facilitation-agreement/
11. "EU welcomes entry into force of the WTO Trade Facilitation Agreement", European Commission;http://europa.eu/rapid/press-release_IP-17-188_en.htm
12. "WTO Delivers Historic Shot in Arm to Global Trade Talks", Law360; https://www.law360.com/articles/494295/wto-delivers-historic-shot-in-arm-to-global-trade-talks
13. “New Zealand: New WTO Agreement on Trade Facilitation,” Mondaqhttp://www.mondaq.com/NewZealand/x/573212/international+trade+investment/New+WTO+agreement+on+trade+facilitation
14. "WTO Enacts Sweeping Trade Facilitation Pact",Law360; https://www.law360.com/articles/894509/wto-enacts-sweeping-trade-facilitation-pact
15. "WTO’s Trade Facilitation Agreement Takes Effect,"International Centre for Trade and Sustainable Development; http://www.ictsd.org/bridges-news/bridges/news/wtos-trade-facilitation-agreement-takes-effect
16. "ICC Hails Entry into Force of WTO Trade Facilitation Agreement",International Chamber of Commerce; https://iccwbo.org/media-wall/news-speeches/icc-hails-entry-force-wto-trade-facilitation-agreement-watershed-moment-world-trade/
17. Customs & Trade Facilitation, International Chamber of Commerce;https://iccwbo.org/global-issues-trends/trade-investment/trade-facilitation/
18. "A Well Needed Win for Global Trade", Export Council of Australia; https://exportcouncil.kontribune.com/articles/8108
19. Africa: Trade Facilitation Agreement Will Promote Global Inclusion,allAfrica;http://allafrica.com/stories/201702180008.html
20. SMEs and the WTO Trade Facilitation Agreement: A Training Manual, International Trade Centre; http://www.tfafacility.org/sites/default/files/case-studies/cs_g_itc_smes_and_the_wto_tfa_a_training_manual_december_2015_e.pdf
21. Global Enabling Trade Report 2016,World Economic Forum;http://reports.weforum.org/global-enabling-trade-report-2016/

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