New WTO deal to have larger impact than eliminating all existing tariffs globally

The World Trade Organization’s first multilateral deal in its 21-year history has now come into force after a ratification threshold of 110 members (two thirds) was met.

The Trade Facilitation Agreement (TFA) seeks to expedite the movement, release and clearance of goods across borders. A ‘full implementation’ of the TFA is forecast to cut members’ trade costs by an average of 14.3%, according to WTO economists.

WTO Director-General Roberto Azevêdo asserted that the agreement would “boost global trade by up to 1 trillion dollars each year, with the biggest gains being felt in the poorest countries.

“The impact will be bigger than the elimination of all existing tariffs around the world”, he added.

To put 1 trillion dollars into further context, the WTO’s World Trade Report 2015 suggests that over a 2015-2030 horizon, full implementation of the TFA will generate an increase of up to 2.7% a year to world export growth and over 0.5% to world GDP growth.

Economic forecasts using so-called gravity models suggest trade could be increased by even more, up to $1.8 trillion to $3.6 trillion per year.

In terms of time gains, the TFA will supposedly reduce the time needed to import goods by over a day and a half and to export goods by almost two days, representing reductions of 47% and 91% respectively over current averages.

According to the WTO, the deal should also encourage new firms to export for the first time. Upon full implementation, developing countries are predicted to increase the number of new products they export by as much as 20%, with least developed countries (LDCs) likely to see an increase of up to 35%.

Developed countries have committed to immediately implement the TFA, while developing countries and LDCs are permitted to set their own timetables for implementing the agreement depending on their capacities to do so.

The WTO states that: “the TFA prescribes many measures to improve transparency and predictability of trading across borders and to create a less discriminatory business environment. The TFA’s provisions include improvements to the availability and publication of information about cross-border procedures and practices, improved appeal rights for traders, reduced fees and formalities connected with the import/export of goods, faster clearance procedures and enhanced conditions for freedom of transit for goods.

In a nutshell, this means reduced red tape, transactions costs and corruption throughout supply chains.

The important caveat to bear in mind here is that all the aforementioned figures are predicated on full implementation of the TFA. As clearly summarised by the Peterson Institute: “For developing countries, the obligations are broken down between those implemented upon entry into force, those subject to a transition period, and those to follow with additional technical assistance. This built-in flexibility is important, but also serves as a reminder that the gains will take time to materialize. Making reforms will entail costs, and measures like investment in information technology and transport infrastructure, while not prerequisites, are important complements to trade facilitation reforms. Once the agreement is ratified, the challenge for the WTO will be monitoring progress towards implementation and ensuring political commitment to deliver the reforms.”

Source: Transport Intelligence, February 23, 2017

Author: David Buckby