WTO Adds Efficiency, Cost Savings Through Trade Facilitation Agreement
By Ben Conner, USW Director of Policy
Members of the World Trade Organization (WTO) have taken a major step toward making trade procedures more efficient and less costly for importers and exporters. On Feb. 22, WTO announced that its new Trade Facilitation Agreement (TFA) entered into force. So far 112 of 164 member countries have ratified the agreement, which meets the two-thirds majority required for implementation.
TFA is the first multilateral agreement reached by WTO members since the organization’s founding in 1995. The World Economic Forum estimates that $1.6 trillion in additional annual global trade could result from this agreement. Overall, the WTO estimates a 14.5 percent reduction in trade costs through TFA implementation, while the average applied tariff is less than 10 percent.
The WTO traditionally dealt with tariffs and discriminatory measures at borders, but it was mostly silent on a major impediment to trade – inefficient trade procedures that can often be worse than tariffs in terms of their opacity and cost.
The purpose of TFA, as its name suggests, is to facilitate the movement, release and clearance of goods across borders. Red tape, delays and other regulatory measures can be a significant cost in today’s fast-paced supply chains. Demurrage can be very expensive and the risk of delay or rejection can inflate exporter bids in certain markets.
Some of the key TFA provisions will apply to all WTO member governments once the agreement is fully implemented and can help reduce the port costs of wheat trade. Under TFA, member governments must:
- Publish all fees, laws, and regulations in an easily accessible manner;
- Provide the right to appeal any administrative decision issued by customs;
- Allow for additional testing in the event of an adverse first test;
- Make transparent all fees and charges connected with imports and exports ;
- Allow for release of goods prior to final determination of duties, taxes, fees, or other charges;
- Coordinate border agencies to improve clearance and simplify procedures;
- Review formalities and documentation requirements to expedite clearance periodically;
- Encourage use of a single window to avoid having to interact with multiple agencies to clear imports;
- Return or allow re-consignment of goods rejected for sanitary, phytosanitary, or technical reasons.
Not everything in TFA applies to all countries at the same time. “Developing” and “Least Developed Countries” as defined by the WTO are allowed some flexibility to customize their implementation process.
Still, wheat buyers in all WTO member countries should be aware that their governments have certain obligations under the TFA. It is important to ensure that each country complies with its TFA obligations to avoid major trade issues that may escalate later on.
The WTO has had a difficult time reaching new agreements that benefit world trade. TFA is a reminder that it can still be done and provides hope that the WTO will become a more vigorous institution in the future.