We have just passed the one-year anniversary of the WTO’s ninth Ministerial Conference in Bali, where members decided to adopt the agreement on trade facilitation. After overcoming some mid-year theatrics in Geneva, the WTO’s General Council closed 2014 by adopting the Trade Facilitation Agreement (TFA) protocol and opening it for acceptance by members. This marks the first fully multilateral agreement adopted by the WTO since its creation 20 years ago.
The TFA is a cost-cutting deal that would streamline the passage of goods across borders by cutting red tape. It would simplify both the documentation required to clear goods at the border and the procedures used by border agencies. For traders, the TFA holds the promise of faster, simpler and more predictable border transit — which translates to lower trade costs. For governments, TFA improvements allow agents to focus on the biggest risks, while speeding transit and improving revenue collection.
This “win-win” characteristic of the TFA incentivized members to conclude the agreement despite the fact that the remainder of the multilateral negotiating agenda remains bogged down. The final TFA was less ambitious than once hoped — members set aside some provisions from their original agenda and made others subject to a “best endeavors” basis. Yet the OECD still expects the TFA to reduce trade costs overall by 12 percent to 15 percent, with the greatest benefits to developing countries.
How will developing countries deal with the challenge of implementation? The TFA adopts a three-tiered approach: members will divide commitments into those to be implemented immediately, those requiring extra time and those needing technical assistance. A number of measures are straightforward and inexpensive to implement, thanks to extensive work by multilateral organizations. Still, we probably will not have a precise picture of the implementation schedule for a year or two. Many national and multilateral institutions stand ready to help with the transition, but the core challenge is that the TFA will not implement itself automatically.
The negotiations are complete. Now it’s time for governments to “channel Dr. Phil” and recognize that the TFA is a “self-help” program, not merely another set of trade obligations. The key reason for this is the rise of global value chains (GVCs), and the way GVCs influence commercial decision-making. GVCs are a result of technological progress: innovations in information/communication and transport technologies have led to greater cross-border coordination and greater specialization in tasks along the production process. According to UNCTAD, 80 percent of trade flows are now “firm-directed,” which means the most important trade policy elements are the ones that support greater coordination among related entities, not the regulation of arm’s length transactions. Border measures have a major impact on the competitiveness of local value chain participants, considering the value added by services and the increasing import content of finished exports.
In a GVC environment, economies improve export performance by being a better importer. Adopting measures that make border transit faster, cheaper and more predictable can boost export competitiveness as well as attract investment — which benefits local traders. Further, most of the measures that improve trade facilitation have positive spillover effects — for instance, reducing the number of documents required to trade can reduce processing time and limit the opportunity for corruption and discriminatory measures. As GVCs become more prominent in an economy, improvements at the border make a greater contribution to broader development priorities.
The World Economic Forum’s annual Enabling Trade report illustrates both the gains available from improved border measures as well as the massive gap between best and worst performers. The WEF’s country-level assessment considers market access and infrastructure as well as border administration, but it sets clear benchmarks for improving performance. Likewise, the Global Express Association publishes data on customs capability in 139 countries, providing detailed insight into operational elements. These are just two of the resources available for governments who want to boost performance and wish to understand their current performance as well as best practices.
Adopting new measures is never easy — for instance, the United States first contemplated “single window” customs operations during the Clinton Administration and hopes to have it implemented by December 2016. Yet evidence indicates that the improvements boost growth, making them well worth the effort. The TFA is an important achievement for the trading system, and its conclusion has helped restore the reputation of the WTO. Governments know where they stand, and what they have agreed to implement. Now, let’s get going. To quote Dr. Phil, “awareness without action is worthless.”
Scott Miller is Senior Adviser and William M. Scholl Chair in International Business at the Center for Strategic and International Studies, Washington, D.C.