CHALLENGES FOR IMPLEMENTING THE TRADE FACILITATION AGREEMENT

The adoption of the WTO Agreement on Trade Facilitation in December 2013 was a historic moment for the WTO, being the first multilateral agreement adopted since the conclusion of the Uruguay Round. Nevertheless, its ratification process by national parliaments of WTO Member States is proving challenging, despite evidence proving the link between the adoption of trade facilitation measures and the reduction of trade costs. The main challenges faced by WTO Member States are linked to cumbersome constitutional requirements of treaty ratification, the need to make changes in domestic legislation, the challenges of providing detailed costing of TFA implementation to the government, the lack of political interest, the lack of private sector involvement in the preparation for ratification, and high costs of implementation may be deterring factors for governments willing to engage in the TFA’s ratification process. After two decades on the multilateral trade agenda and almost a decade of negotiations, the Agreement on Trade Facilitation (TFA) was finally concluded by Trade Ministers of World Trade Organisation (WTO) Member States in December 2013. In November 2014, a Protocol of Amendment was adopted to integrate the new agreement into Annex 1A of the WTO Agreement. In spite of the unequivocal evidence that the main beneficiaries of the TFA will be those countries which undertake full compliance with all of its provisions, a significant number of developing countries are still stalling in ratifying the agreement. They are struggling with the domestic challenges of the ratification process, due to inadequate policy coordination or simply because the issue is not high on the agenda of their governments. Nevertheless, and despite the lack of deadline to accept the aforementioned Protocol of Amendment, all WTO members are bound to complete their domestic ratification processes and deposit their instruments of acceptance with the Secretariat. In this short article, we provide an overview of the WTO TFA, whilst highlighting the main implementation challenges facing developing countries. DEFINING TRADE FACILITATION AND GLOBAL BENEFITS OF TRADE FACILITATION REFORMS There is no universally agreed definition of the term “trade facilitation” (TF). Various definitions have been used by different international organisations and in different trade agreements. 1 Andras Lakatos is a Senior Economic Advisor at International Economics Ltd. 2 See WTO – Trade Facilitation. Available at: https://www.wto. org/english/tratop_e/tradfa_e/tradfa_e. htm 3 According to UNECA (2013), “A broad definition of trade facilitation encompasses policies to reduce trade transaction costs, including “behind-the-border” policy reforms and the reduction of transaction costs resulting from cumbersome administrative customs, documentary requirements and border procedures that affect cross-border movement of goods and services. The term also covers simplification of the logistics, documentation and customs procedures involved in transiting goods through ports and land borders. It refers, too, to “domestic” policies and institutional structures that create Challenges for implementing the Trade Facilitation Agreement A. Lakatos 3 According to Neufeld (2015), “[the] subject is typically framed by the scope of measures covered in the respective agreement. What some treaties label as “TF” can have little to do with how the matter is approached in others. ” In the WTO Doha negotiations, it was agreed that for the purposes of the Agreement on Trade Facilitation, the scope of TF would be limited to issues related to three Articles of the General Agreement on Tariffs and Trade (GATT 1994): Articles V, VIII, and X, dealing, respectively with freedom of transit, fees and formalities connected with importation and exportation, and publication and administration of trade regulations. According to the European Commission, “the cost of trade procedures may represent even as much as 4-5% of the overall costs of trade transactions. This is about the same cost as the current tariff average on trade in industrial goods of industrialised countries, which is 3.8%. Halving the costs would mean saving 325 billion USD [. ] a year – money currently being wasted – largely on the shoulders of SMEs and developing country traders. ” This also seems to indicate that the benefits from larger TF reforms would result in better market access to developed countries, than a substantive multilateral agreement on non-agricultural tariff reductions. The OECD Trade Facilitation Indicators estimate that comprehensive implementation of all measures covered by the WTO TFA would reduce total trade costs by 10% in advanced economics, and by 13–15.5% in developing countries. With respect to commitments made by WTO Members under the TFA, the WTO Secretariat has found that full implementation would reduce global trade costs by an average of 14.3%, and that African countries and least-developed countries (LDCs) could expect to see the biggest average reduction in their trade costs. The WTO also predicts, on the basis of computable general equilibrium (CGE) simulations, that export gains from full implementation of the TFA would be between USD 750 billion and well over USD 1 trillion dollars per annum, depending on the implementation time-frame and coverage, with developing countries capturing more than half of the available gains. However, on the basis of gravity model estimates, the gains would be even larger: between USD 1.1 trillion and USD 3.6 trillion. The benefits of TF reforms do not only positively impact on trade flows (both exports and imports), but also on governments’ higher revenue collection (due to the increase in trade volume, and higher detection rates of fraud) and attractiveness to foreign direct investment (FDI). With respect to the ACP countries, TF was highlighted as an issue in all of the sector studies of the Sustainability Impact Assessment (SIA) of the EU-ACP EPAs, conducted by PricewaterhouseCoopers because the “losses that businesses suffer through delays at borders, complicated and unnecessary documentation requirements, and lack of automation of governmentmandated trade procedures, can exceed the costs of tariffs. ” Besides the classical fields of TF measures, such as improving facilities at ports, airports and other border crossings, they also involve establishing efficient and modern customs regimes, and transparent and consistent an enabling environment for trade. Finally, it can take in harmonisation of national and regional standards with international standards. ” 4 Neufeld, Nora (2014): Trade Facilitation Provisions in Regional Trade Agreements: Traits and Trends, Journal of International Commerce, Economics and Policy Vol. 5, No. 2, p. 4. 5 European Commission: “Trade facilitation: interest for developing countries”, p. 1. Available at: http://ec.europa. eu/taxation_customs/resources/documents/trade_facilitation-interest_for_developing_countries. pdf 6 WTO (2015): World Trade Report, Geneva 7 The wide gaps between the high and low estimates result from the possible different implementation time-frames and also reflect the fact that the TFA contains many “soft law” provisions that developing countries may or may not implement. 8 ECA (2013) 9 See PricewaterhouseCoopers, “Sustainability Impact Assessment of the EU-ACP Economic Partnership Agreements key findings, recommendations and lessons learned”, Paris, PricewaterhouseCoopers, May 2007, 96 pages at page 75. International Trade and Economics Series 4 regulations among trading partners. The SIA also emphasised that “in the ACP context, it [TF] also implies the fight against informal taxation on the main trade roads in Africa,” something which is definitely not dealt with under the TFA. HOW DOES THE TFA OPERATE? The TFA provisions aim at expediting the movement, release and clearance of goods, including goods in transit. However, the TFA does not deal with the whole spectrum of what is generally considered “trade facilitation,” as infrastructural and transport issues are left outside of the agreement. Actually, the scope of the TFA is limited to clarification and extension of trade facilitation-related disciplines already provided for by one or more specific GATT articles, namely GATT Article V (Freedom of Transit), Article VIII (Fees and Formalities connected with Importation and Exportation), and Article X (Publication and Administration of Trade Regulations). In addition, it also provides for effective cooperation between customs and other relevant authorities on trade facilitation and customs compliance issues. Section I of the TFA contains the substantive disciplines of the agreement, while Section II lays out the special and differential treatment (SDT) provisions for implementation by developing countries and LDCs. Section III of the TFA deals with institutional arrangements, including the obligation of WTO Members to establish national trade facilitation bodies. The substantive provisions of the TFA are organised in twelve articles containing approximately 40 “technical measures,” which are partly binding (“hard law”) obligations and partly best-endeavour type commitments that set out good regulatory practices. According to Hamanaka (2014), the majority of obligations set by the TFA are best-endeavour commitments, thus the scope of binding obligations is very limited. In general the binding provisions are those which are directly linked to the already existing TF-related GATT Articles mentioned above. Contrary to the “hard law” provisions of the TFA, the “soft law” provisions are hardly enforceable. For developing countries and LDCs, the most important part of the TFA is Section II, which contains SDT provisions that condition the implementation of the agreement on their capacity to do so. In short, developing countries are allowed to decide when their obligations will be implemented, and make the implementation condition