A look into the WTO Trade Facilitation Agreement implementation status
How far have we come since the conclusion of the Trade Facilitation Agreement and what are the next steps towards its implementation?
After nearly 10 years of negotiations, WTO members finally concluded talks on the Trade Facilitation Agreement (TFA) at the ninth WTO ministerial conference in Bali in December 2013. The Protocol of Amendment to insert the TFA into the WTO Agreement was adopted in November 2014. The Agreement aims to cut the red tape at the border and reduce trade costs and the time required for cross-border flow of goods. This in turn would boost trade, increasing income and employment worldwide.
The adoption of the Protocol by WTO members has cleared the way for standardising, simplifying and harmonising border procedures and has created opportunities to benefit from the widespread introduction of trade facilitation measures. How much individual members would profit from this will depend on how quickly they implement the Agreement and how committed they are to the process. What tasks lie ahead in preparation for the TFA implementation and what can African countries and low income countries in general do to ensure they reap their share of economic gains?
Maximising the potential of the TFA
For low-income countries, which are facing greater obstacles to international trade, increased competitiveness through savings in time and money would mean increased opportunities for their integration into global value chains and would provide an incentive for foreign investment. Any delay in the implementation of trade facilitation measures would only widen the gap in trade efficiency and competitiveness with the North.
A recent OECD analysis (June 2015) shows that implementation of the TFA could reduce worldwide trade costs by between 12.5 percent and 17.5 percent. The potential cost reduction as a result of full implementation of the TFA (i.e implementation of both the mandatory and the best-endeavour provisions of the agreement) is estimated at 16.5 percent for low-income countries (LICs), 17.4 percent for lower-middle-income countries (LMICs), 14.6 percent for upper-middle-income countries (UMICs) and 11.8 percent for OECD countries. If countries choose to implement only the mandatory provisions of the agreement, the potential cost reduction is estimated at 12.6 percent for LICs, 13.7 percent for LMICs, 12.8 percent for UMICs and 10.4 percent for OECD countries.
This demonstrates that there are greater opportunities for reducing trade costs in low-income and lower-middle-income countries. It also shows that such cost reductions would be more substantial if the countries are committed to the process and implement the TFA beyond just the minimal, binding requirements. In fact, implementing only the minimum standards may not be enough in a world where countries are already going far beyond by establishing new practices and ways to facilitate the cross-border trade. The case of Rwanda illustrates this point. In 2012, Rwanda introduced the electronic customs Single Window (a best endeavour provision under the TFA), enabling traders to submit customs documents online. This allowed cutting by half the time required to clear goods and helps businesses save around US$10 million per year. In addition to this national initiative, the East-African region has benefited from a vibrant leadership on trade facilitation at the top level, which has addressed non-tariff barriers across the Northern Corridor with the result that the time it takes to move a container from the Mombasa port to Kigali has decreased from 21 to only 6 days. Regional infrastructure plans indicate that the situation will improve even more in the next few years.
The above examples prove that the political will to introduce trade facilitation reforms through full implementation of the provisions of the TFA (both the binding and best endeavour provisions) cannot fail to be beneficial.
With the TFA, African countries will have the necessary framework in place and assistance at their disposal, enabling them to catch up and undertake the reforms that need to be made.
First steps: ratification of the Agreement and notification of category A provisions
The TFA will enter into force once two-thirds of the WTO members have ratified it and deposited their instruments of acceptance. The Protocol has been open for acceptance since November 2014. To date, 51 members have completed their national procedures and notified the WTO of their ratification. This number is still far from the 108, required for the TFA to enter into force. Although many would welcome the entry into force of the agreement by the Nairobi ministerial conference in December 2015, this target seems to be difficult to meet. Among the countries that have ratified the agreement, there are four African countries — Mauritius, Botswana, Niger and Togo — while three LDCs have ratified it so far (Niger, Togo and Lao PDR).
The dynamics of ratifications are being closely observed. When a country ratifies the TFA, this sends a positive signal to businesses and investors alike: it demonstrates a country’s commitment towards creating a business-friendly environment, conducive to trade. African WTO members may want to set an example by speeding-up their ratification process so as to indicate to the private sector and potential investors their readiness to improve business conditions and their contribution to the speedy entry into force of the TFA.
In conjunction with their ratification of the agreement, WTO members should focus on assessing their capacity for implementing the agreement. Specifically, the agreement envisages flexibility for WTO developing members to delay application of certain provisions. To take advantage of this flexibility, the WTO developing members have to classify the TFA provisions into categories A, B or C, depending on the assessment of their national capacity to implement these provisions. Therefore, category A provisions would be those that the member will implement immediately upon entry into force of the TFA (up to one year delay permitted for LDCs); category B provisions are those that would be implemented after a certain transitional period; and category C would include those provisions that would be implemented after a transitional period subject to receiving the necessary technical and financial assistance for building the required capacity.
So far, 74 WTO members have notified their category A commitments. Sixteen Members from Africa, including 5 LDCs, have notified their category A commitments.This represents good progress which should be kept up. Incoming notifications indicate that many countries are doing their homework assessing their needs and capacities and are willing to work on building these further. Internally, the process helps countries clearly understand what their capacities, bottlenecks and constraints are; where they need to focus and improve, and how they should prioritise the introduction of trade facilitation measures in order for them to be most effective. Good preparation in this respect would lay a solid foundation for implementation, including for ensuring the necessary funding for the projects.
National considerations notwithstanding, the TFA may also be used to speed up the African integration process at both the regional and continental levels. Indeed, the TFA, by harmonising procedures and establishing common minimal standards, would increase the benefits of national efforts. Improving trade procedures in one country is of limited benefit if its neighbours fail to take any measures. Giving priority to measures that contribute to regional integration would allow minimising costs and defining coherent programs for financing by donors and other stakeholders.
In that regard, trade facilitation — including both soft and hard infrastructure — is already an integral part of the implementation plans envisaged for the continental free trade area, with the goal of expediting cross-border trade among African countries, thereby boosting intra-African trade. From this perspective, the TFA can be considered a key component of regional integration in Africa, as long as it is effectively implemented.
Assistance for TFA implementation
In addition to the TFAF, assistance is available to members through various programmes on trade facilitation provided by bilateral donors, as well as international and regional organisations.
According to OECD data, since 2005, approximately US$1.9 billion has been disbursed in aid for trade facilitation. Moreover, funding commitments for trade facilitation have been progressively increasing from an average of US$80 million in the period 2002-2005 to over US$381 million in 2011 and reaching US$668 million in 2013. This increasingly strong support for trade facilitation is expected to continue.
Although trade facilitation-related initiatives and programmes have been widely implemented in the recent years, low-income countries should further utilise the new momentum created through adoption of the TFA to advance their trade facilitation agenda and achieve tangible benefits for their economies. A lot of work as well as resources are needed to put in place and maintain comprehensive trade facilitation frameworks and measures. However, this is a small sacrifice in comparison with the benefits that will come about with the implementation of such measures not only for businesses and consumers, but also for state budgets.
Authors: Edouard Bizumuremyi, Commercial attaché at the Permanent Mission of Rwanda in Geneva, Switzerland. Iva Drobnjak, Policy Advisor, IDEAS Centre.