TWN Info Service on WTO and Trade Issues (Mar17/05)
3 March 2017
Third World Network

WTO Trade Facilitation Agreement enters into force
Published in SUNS #8409 dated 24 February 2017

Geneva, 23 Feb (Kanaga Raja) -- The WTO's Trade Facilitation Agreement (TFA) has come into force, after it received four more ratifications on Wednesday, thus bringing it over the required threshold of 110 members for it to enter into force.

The TFA needed ratification by at least two-thirds of the WTO's 164 members accepting the Protocol of Amendment before it can be inserted as among the agreements in Annex 1A of the Marrakesh Treaty to make it binding on those ratifying it.

The Protocol of Amendment inserting the TFA into Annex 1A of the WTO Agreement was adopted by members at a General Council meeting on 27 November 2014 (see SUNS #7927 dated 1 December 2014).

According to a WTO press release, Rwanda, Oman, Chad and Jordan submitted their ratifications on Wednesday, bringing the total number of ratifications over the required threshold of 110 members for the TFA to enter into force.

The WTO Secretariat, citing a 2015 study carried out by WTO economists, said that full implementation of the TFA can reduce trade costs by an average of 14.3%.

It also said that by 2030, implementation of the TFA could add up to 2.7% a year in global export growth, and more than 0.5% to world GDP growth.

[In an article titled ‘Trade facilitation may result in trade hallucination' published in SUNS #7837 dated 4 July 2014, Jeronim Capaldo, a senior researcher in the Globalisation programme at the Global Development And Environment Institute (GDAE), a research institute at Tufts University, had argued that official estimates (by the International Chamber of Commerce, OECD et al) of benefits of Trade Facilitation from trade expansion, job gains and income tend to overstate the benefits and ignore its costs. "When all underlying assumptions are brought to light, expecting large gains appears unreasonable. And estimated employment benefits may easily turn into net losses," he pointed out.]

The WTO press release cited Director-General Roberto Azevedo as saying: "This is fantastic news for at least two reasons. First, it shows members' commitment to the multilateral trading system and that they are following through on the promises made in Bali. Second, it means we can now start implementing the Agreement, helping to cut trade costs around the world. It also means we can kick start technical assistance work to help poorer countries with implementation."

"This 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.

At a media briefing on Wednesday, Director-General Azevedo said that in 2013, slightly over three years ago, "we did something that the WTO had never done before. We delivered a new multilateral trade deal - the Trade Facilitation Agreement."

"It was a major breakthrough and it took a lot of hard work, it took a lot of flexibility, creativity and political will," he added.

The DG said that the agreement was open for ratifications in November 2014 and that on Wednesday morning he received ratifications from Rwanda, Oman, Chad and Jordan, which brings the total number of ratifications to 112, crossing the required legal threshold of two-thirds of the WTO membership (for it to enter into force).

"Therefore, I am very happy to announce that the WTO Trade Facilitation Agreement has now entered into force, and this is fantastic news," said the DG.

By ratifying the agreement, he said the WTO members have shown their commitment to the multilateral trading system. They have followed through on the promises made when this deal was struck in Bali about three years ago.

"By bringing the deal into force, we can now begin the work of turning the benefits of the agreement into reality."

According to the DG, estimates show that the full implementation of the agreement could reduce the trade costs globally by an average of 14.3%.

Developing and least developed countries in particular would stand to gain the most from full implementation of the agreement as they tend to have a higher level of trade costs. It will help these countries to diversify their trade, he maintained.

Developing countries could increase the number of products they export by 20% while the Least Developed Countries (LDCs) could see an increase of up to 35%. In addition, developing countries could enter a third more foreign markets than they do today on average while LDCs could access 60% more markets making these countries less vulnerable to external economic shocks.

The cumulative impact of all this is quite striking. By 2030, the agreement could add 2.7 percentage points per year to world trade growth, and more than half a percentage point per year to global growth of GDP, Azevedo maintained.

This impact would be greater than the elimination of all tariffs existing around the world today, he further claimed.

He went on to thank all the WTO members that have ratified the deal so far "for helping us reach this historic moment, this historic milestone for the organisation."

"The Trade Facilitation Agreement is the biggest reform of global trade this century. So it sends a message about the power of trade to support jobs and growth around the world in developed and developing countries alike."

Also speaking at the media briefing, the Chair of the WTO General Council, Ambassador Harald Neple of Norway, said that this is indeed a defining achievement for the WTO.

"This is really a historic milestone for the multilateral trading system, the TFA being the first multilateral agreement since the WTO's inception."

The Chair of the WTO Preparatory Committee on Trade Facilitation, Ambassador Mariam MD Salleh of Malaysia, joined the DG and General Council Chair in welcoming the occasion of the entry into force of the Trade Facilitation Agreement.

"This groundbreaking treaty will usher in a new era for trade facilitation reforms all over the world," she said.

Asked when going forward, if there are any other issues where multilateral agreements like the TFA could be reached in the near or medium term or whether plurilateral agreements are the best way forward, Azevedo said that what determines the approach of any negotiation are the members themselves.

They are the ones who try to get critical mass behind an initiative and those initiatives are sometimes advanced faster and others less fast.

Looking at it from the perspective of the Director-General of the organisation and also from a global economy perspective, he said, the multilateral agreements tend to have a bigger impact.

They tend to benefit more, they tend to have a much bigger multiplier effect, "so to the extent that we can we should always try and strive to get agreements of a multilateral shape where everybody is on board."

If that is not possible, there are (other) avenues available to members and they have been explored before, he said, pointing to the recent expansion of the Information Technology Agreement (ITA), which was a plurilateral engagement, and negotiations on the Environmental Goods Agreement (EGA), another plurilateral undertaking.

"What I also emphasise is that I urge members who decide to go on a non-multilateral avenue to keep the doors open for all members who want to participate to be in a position to do so," so that it is an open-ended exercise where everybody who wants to sit at the table will have a chance to do that.

Asked if there is a ‘stick' associated with the TFA (as opposed to the ‘carrot' of reducing trade costs etc) and whether disputes will arise if one country accuses another of not conforming to the standards of the agreement, Azevedo said that the Trade Facilitation Agreement is a covered agreement, and therefore like every other agreement of the WTO, is also subject to dispute settlement procedures.

"But to be frank with you, I don't think we need a ‘stick' here. I think the ‘carrot' is big enough. It's a win-win for everyone."

The fact that "we managed to get 112 countries to sign up ... it's a sign that this is perceived as a win by the vast majority of the WTO, if not all WTO members," he maintained.

But clearly it is the advantages of cutting costs, of being more efficient in connecting with the world which is the incentive for people to participate, he added.

Asked what message this agreement sends to the Trump administration, the DG said that he did not hear anybody say that they were for higher trade costs.

"No one anywhere in the world, and this is what this agreement is about. This agreement is about lowering trade costs."

He said as far as he knew, all WTO members are in favour of that, regardless of what their domestic situation is at any point in time.

"I might remind you that the United States was one of the first Members to ratify this agreement," the DG said, adding that the United States was also very much engaged in pushing for the conclusion of this agreement, and "I don't see why that would change at this point in time."

Asked to comment on the fact that for many years developing countries have been saying that the TFA has to be balanced with a broader agreement including reduction in agricultural subsidies, Azevedo said: "I don't think that we need any kind of trade-off or any kind of linkage to anything else" to realise that issues like agricultural subsidies must be at the centre of the agenda, and have to be at the centre of the agenda.

"They are at this point in time at the centre of the agenda. What is difficult at this point in time is finding a way forward, finding a solution or a path that would allow us to converge in any kind of direction that leads to the reduction of those distortions and those subsidies."

"I think members are quite clear and they are very vocal on all sides that agricultural issues and the core Doha issues need to advance and need to make progress. That was actually part of the ministerial declaration in Nairobi where they say these issues are not over. We need to continue negotiating and talking about them, and that is what we are doing. But it's tough," said the DG.

Asked to comment on the fact that on 7 June 2012, he had said amongst others that for Brazil and many others, trade facilitation is not a self-balancing issue and that stand-alone outcomes for trade facilitation are simply not realistic, Azevedo said, "I also told my mother once that I would never date girls. I suppose I am entitled to evolve."

He maintained that it was not ‘Mr Azevedo' who said those things but ‘the Brazilian ambassador' (Azevedo was the Brazilian ambassador at that time).

Between that time and the conclusion of the Trade Facilitation Agreement, there were intense negotiations which tried precisely to balance and to find the kind of equilibrium that maybe the Brazilian ambassador said was missing at the beginning of that process, he added.

He said Brazil concluded the (TFA) agreement - it was not ‘Mr Azevedo' any longer, it was the Brazilian government - and ratified the agreement, in record time by the way, given the Brazilian methodology or process for ratification.

"So I don't think there is any inconsistency whatsoever in any of the things I said before and where we are today," Azevedo maintained.

On the issue of the figures cited on trade facilitation, the DG said that "the numbers were not created by us."

They were the result of two different models that were developed and those numbers in fact are modest. They are conservative and are in the middle of the range, which is consistent with the numbers of independent studies that we have seen out there.

"Some are even greater than ours, " he said. "When I asked my economists to work on that, I specifically told them that I wanted numbers that were sensible and that they could defend to any economist who would criticise, that we could put the studies and show how those numbers were reached, and we are very, very comfortable with the numbers that we have on the table now."

Asked about the fact that the Trump administration is now re-evaluating its participation in multilateral agreements and whether it would be a bad idea for the US to leave the WTO, Azevedo said: "I don't want to comment on any particular country's views or comments because in particular as far as trade is concerned, I am yet to have any kind of conversation with the new administration."

"I think the trade team is still being put in place. We still don't have a USTR, for example. So I think we are ready to have a conversation any time they want. We will be available for that. I am quite confident that the WTO offers tools to address many of the concerns that have been expressed recently. I am absolutely confident that other WTO members would like to engage in a constructive way, trying to find a path forward like we always have."

The WTO is about convergence, it is about understanding different views and trying to find common ground. "I don't think that we are facing anything that is unmanageable because different views and different opinions have been a part of our work on a daily basis."

In response to another question about Trump's policies, Azevedo said: "I honestly don't know what kind of trade policy will come. I honestly don't. I have heard as far as the US is concerned, I have heard concerns about unfair trade. I don't know any WTO member who is for unfair trade."

"I have heard complaints, for example, about the balance of agreements that were struck in the past. This is not the first time I hear that either. I have been doing trade for a long time, much longer than I expected at first. And I have seen situations like this arise over and over again where unpredictability or uncertainty prevail, especially in transition when you have one administration giving space to another administration that has different views about how to conduct economic and trade policy."

"And over time we always managed to find a way of moving forward bearing in mind that positions evolve over time ... I don't think we are seeing anything now that would preclude us from making that kind of progress again," said the DG.

Meanwhile, other organisations such as the UN Conference on Trade and Development (UNCTAD) and the International Trade Centre, as well as bodies such as the International Chamber of Commerce and the Global Alliance for Trade Facilitation welcomed the entry into force of the TFA.

In a press release, Joakim Reiter, Deputy Secretary-General of UNCTAD, said: "We welcome the entry into force of the Trade Facilitation Agreement as a huge step forward in making trade around the world cheaper, easier and faster."

"New technologies and institutional reforms can improve governance, reduce entry barriers and pull the informal sector into the formal sector. And with less paperwork to dodge, and fewer palms to grease, public revenues go up. This generates new resources for spending on essential services," he added. +