Trade Facilitation and the Response to COVID-19: An Update on the WTO Trade Facilitation Agreement

Trade Facilitation and the Response to COVID-19: An Update on the WTO Trade Facilitation Agreement

Reforms at the heart of the WTO’s Trade Facilitation Agreement are playing an important role in the response to the pandemic, including facilitating the import and export of critical medical products, addressing supply chain disruptions, and preparing economies for business resumption and resilience planning.

By Leslie Griffin, Principal, Allinea LLC and former Senior Vice President, International Public Policy, UPS

With growing dialogue on the future of the World Trade Organization (WTO) and a global focus on the movement of vital supplies across borders in response to COVID-19, it is an opportune time to review progress with the only multilateral pact agreed to by the WTO since its founding, the Trade Facilitation Agreement (TFA). The TFA continues on its implementation journey, somewhat under the radar screen, though appreciation of the agreement’s measures may be at an all-time high. The current health crisis has brought into sharp relief the challenge of border agencies that must speed transit of goods while coping with the spike in restrictive trade measures around the world. Those countries embracing trade facilitation reforms are better positioned to navigate these challenging times and will have a better foundation for economic recovery moving forward.

The TFA entered into force on February 22, 2017 when two-thirds of the 164 WTO members ratified it. The agreement aims to take time, cost, and complexity out of trade, expediting the movement, release and clearance of goods. Governments were to notify their commitments in categories that gave developing country members and least-developed country members more time and assistance to implement the agreement. Projections were that full implementation would produce gains of up to $1 trillion annually, cutting trade costs by more than 14% for low-income countries and more than 13% for upper-middle-income countries.

TFA Reforms Tackle New and Emerging Needs

Today, reforms at the heart of the TFA, of which many but not all are binding and enforceable, are playing an important role in the response to the pandemic, including facilitating the import and export of critical medical products, addressing supply chain disruptions, and preparing economies for business resumption and resilience planning. Such reforms include measures intended to promote the swift release and clearance of goods, such as pre-arrival processing, where importers begin the process of clearing their goods through customs even before the products arrive at the point of entry. Other TFA provisions, such as those requiring WTO members to provide enhanced trade facilitation benefits to Authorized Economic Operators (trusted traders), are of stepped-up value today as they may include a low rate of physical inspection, low documentary requirements, and deferred payment of duties, taxes, fees and charges.

Article 23 of the TFA requires each WTO member to establish a National Trade Facilitation Committee (NTFC) or maintain an existing mechanism for coordination on trade facilitation reforms. In its 2020 study “National Trade Facilitation Committees as Coordinators of Trade Facilitation Reforms,” UNCTAD, a longstanding implementing partner to many countries on trade facilitation efforts, examined the key role these committees are playing, both within and beyond the TFA framework. During the current health emergency, some committees are enhancing transparency around trade processes. Rwanda’s NFTC, for example, coordinated the dissemination of information on procedures for importing and exporting pandemic-related goods. Others are working with local authorities to support needed clearance process simplifications and other flexibilities, including acceptance of copies of documents versus originals and payment delays.

To help authorities capture learnings from the present crisis, the WTO’s Trade Facilitation Agreement Facility is conducting a survey, due to conclude at the end of May, which asks countries which trade-related processes have become more or less cumbersome, and which reforms would have the most positive impact if implemented in the current context. The data to date tell us that TFA Articles 7 (Release and Clearance of Goods), 8 (Border Agency Cooperation, and 10 (Formalities Connected with Importation, Exportation and Transit) are significant areas to address true operational needs.

TFA Implementation Snapshot

With the heightened appreciation of simplification, harmonization, and transparency of trade procedures, where do we stand today with TFA implementation? To date, 151 WTO Members have notified the WTO of domestic ratification. In fact, there have been welcome bright spots in just the past two months, with two WTO members announcing their ratification of the TFA: Vanuatu (May 6) and Tanzania (April 8).

According to the WTO, as of February 2020, the three-year anniversary of the TFA’s entry into force, and based on members’ notification of commitments, 65% of its provisions are being implemented today compared to a 59% implementation rate reported at the TFA’s first anniversary. Over 90% of developing countries and least developed countries have notified the provisions they will be able to implement after a transition period, and the ones for which they will need additional capacity-building support. The implementation rate for least developed countries is assessed at 31% today versus 2% the year after entry into force. Specific implementation rates for WTO members can be found here.

Of course, to assess progress one must look not only at commitments taken or self-declarations of commitment fulfillment, but also at on-the-ground data, including measures like trends in global hold rates for international, non-document shipments. For example, business groups in private Geneva briefings reported a deteriorating picture of packages stuck at borders in 2018. We have seen some WTO members report implementation dates that are already behind us, while others have submitted indicative implementation dates nearly a decade into the future. The picture of implementation is mixed.

Global Alliance Makes Progress in Challenging Times

The Global Alliance for Trade Facilitation, a public-private collaborative body with a steering group of donor governments and business partners, helps developing and least developed countries with TFA implementation efforts. The Alliance delivers in-country projects tied to specific TFA provisions, with clear success measures and timelines. Alliance Director Philippe Isler, in the organization’s recently released 2019 Annual Report, observed: “Three years after the TFA came into force, many challenges remain to be overcome before hailing this agreement a success. Let’s make no mistake, the low-hanging fruit have been picked.”

Though the pandemic has slowed implementation work, the Alliance is pressing ahead with its important efforts. They report close coordination with their project teams and partners, reviewing project plans and timelines, and determining which activities can be carried out safely and in line with current restrictions. In mid-April, the Alliance announced the expansion of an ambitious project in Morocco tied to TFA provisions on perishable goods trade and formalities and documentation requirements, which will yield economic benefits well beyond the current crisis.

Toward Business Resumption and Economic Growth

As UNCTAD underscored in its recent report on “How Countries Can Leverage Trade Facilitation to Defeat the COVID-19 Pandemic,” reforms that optimize processes, reduce costs, take full advantage of technology, and promote transparency and cooperation have an important role to play in streamlining trade during these exceptional times. They also provide a good foundation for economic recovery.

Affirming this view, two global organizations have pointed to the broad benefits of such reforms, particularly when based on international standards like those in the WTO TFA. In an April 27 statement, World Customs Organization Secretary General Kunio Mikuriya and International Chamber of Commerce Secretary General John Denton said, “Effective trade facilitation – based on international standards – will play a central role in supporting businesses, including micro, small, and medium-sized enterprises, towards enabling business resumption and renewed economic growth in the months and years to come.”

When it’s easier to trade, more trade happens. The pandemic has made even more clear that the TFA is an effective platform to help ease the flow of critical goods and services today, while embedding best practices in trade facilitation that will support recovery and future economic growth.

Originally published on the Trade Experettes blog: https://www.tradeexperettes.org

Image courtesy of Shutterstock

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