Trade Facilitation Agreement and its Implications

Trade Facilitation Agreement and its Implications 

The views expressed in this commentary are those of the author and do not necessarily reflect the views of the CMM, Jean Monnet Network, European Union or the EU Centre in Singapore.

A printable version of the commentary is available HERE.


2016 was full of setbacks and frustrations for multilateralists with Britons going to the polls to “extricate” themselves from the European Union (EU) and Americans voting in Donald Trump whose rhetoric and policies reflect deep-seated suspicion, if not outright hostility, towards globalisation and free trade. Yet, 2017 could mark a turning point for the beleaguered multilateralism, starting with the entry into force of the Trade Facilitation Agreement (TFA) championed by the World Trade Organisation (WTO). As the first successful pluri/multilateral agreement in the history of the WTO, the TFA is a remarkable achievement from all perspectives – not least because it offers handsome economic benefits while charting a course forward for conducting multilateralism in the 21st century.

What is the TFA?
Approved in 2013 at the WTO’s ninth Ministerial Conference in Bali, Indonesia, the TFA aims at simplifying, digitalising and harmonising customs procedures, speeding up global value chains, and promoting administrative transparency at the border. Notwithstanding a short-lived interlude concerning India’s threatened veto on account of food security, the deal was taken over the line after Rwanda, Oman, Chad and Jordan ratified it on 22 February, fulfilling the requirement that two-thirds of the 164 WTO members have to formally accept the TFA before it takes effect.

International trade bodies had for long focused on reducing tariffs, quotas and subsidies alike. But as traditional trade barriers go down almost universally, regulatory burdens, corruption, and unintended border inefficiencies such as outdated customs inspection technologies emerge as the greatest impediment to freer flow of goods, services and investment.

The TFA, if conscientiously implemented, therefore could have even bigger impacts than eliminating all remaining tariffs. Indeed, the WTO reckons that with the TFA global economic output and annual exports could grow by 0.9 per cent and 3.5 per cent, respectively. The gains from the TFA could be disproportionally higher for developing and least developed countries (LDCs), which are often held back in international transactions by hidden expenses related to customs formalities and border delays.

That being said, compelling economic logic alone does not necessarily lead to satisfactory outcomes of trade talks nor does it guarantee the sustainability of the negotiated results. (The Trans-Pacific Partnership drama is just a case in point.) The TFA’s eventual passage was driven as much by the timing of the deal and the way in which negotiations were handled as its sound economic calculus.

More multilateralism
Trade facilitation first appeared on the WTO agenda in 1996. But the issue did not gain much traction primarily because many developing countries and LDCs, led by an alliance called the “Core Group”, harboured reservations about embarking on a new global rule-making exercise just when they were struggling to implement what they had agreed to during the previous Uruguay Round. And given the economic preponderance of wealthy Western economies in those days, poorer countries worried that advances on individual policy areas such as trade facilitation would only erode their leverage over issues of interest to them, resulting in more extraction of concessions to their disadvantage.

The situation could not be more different nowadays. It has been more than two decades since the world saw a successfully brokered global trade deal, and the composition of global economy (and the ensuing geopolitical order) has gone through a tectonic shift with developing and emerging-market economies now making up more than 40 per cent of global trade and three-fifths of world GDP. Emboldened rising economic powers appear to be more confident than ever to participate in multilateral matters and perform global agenda-setting functions.

Just as importantly, countries mindful of rampaging nationalism and Mr Trump’s running assault on international institutions and international cooperation, realised that their national priorities and shared interests can be best served by collectively preserving the rules-based, market-oriented international order through buttressing statutory multilateral institutions such as the WTO; harvesting “low-hanging fruit” like trade facilitation was deemed the first step in the right direction.

Inclusive multilateralism
Yet, it would be remiss to assume that countries are craving for all sorts of multilateral initiatives and structures. The relatively smooth commencement of the TFA underscores the importance of inclusive multilateralism, which entails stronger democratic foundation and a real sense of ownership, as opposed to exclusive multilateralism or minilateralism. Instead of negotiating among a by-invitation-only “club-in-club” whose preferences and practices would override those of others, the WTO membership in its entirety was represented throughout the preparatory and negotiation phases of the TFA formation, upholding the fundamental principle of inclusiveness and non-discrimination.

The inclusive nature of the TFA talks stands in stark contrast with the modus operandi of some prominent institutions like the International Energy Agency and the Group of 20 (G20). It is telling that following the global financial crisis, the G20, the pro-claimed “premier forum” for international economic affairs, agreed amongst themselves on initiatives in relation to reforming financial industry regulation and the International Monetary Fund (IMF) voting rights before dictating their resolutions to the rest of the world. Some 160 countries were called on to stand by their decisions without being consulted, leading to half-hearted implementation and even United Nations orchestrated political backlashes against the so-called “elite multilateralism”.

Tailored multilateralism
While the TFA process clearly boasts input legitimacy, the agreement in itself can be seen as an illustration of output legitimacy from which many international institutions suffer. In Asia, memories about how the IMF failed members like Thailand, Indonesia and South Korea through a cocktail of instructive approaches, conflicting policy responses, and harsh structural conditionalities attached to the bail-out programmes that worsened the Asian Financial Crisis of 1997-98 remain alive and well. The Fund also constituted a source of political instability and economic turmoil in Argentina, Brazil, Ecuador, Greece and Peru, to name a few, where people frequently took to the street to agitate for the termination of the IMF-prescribed austerity measures and reforms since late 1990s. The IMF’s legitimacy conundrum is evident in other important multilateral fora as well, including notably the World Bank. Both have been criticised for the lack of reforms in reflecting the changing power structure and becoming more open and transparent in its leadership selection.

The opposite is what the WTO attempts to experiment with via the TFA. It is the first time that implementation of a trade accord is linked to a country’s capacity to meet the requirements. In the agreement, there are three types of provisions. Countries will be at liberty to notify the WTO which provisions can be implemented since day one (Cat. A), which provisions require a transitional period (Cat. B), and which provisions will enter into force only upon the receipt of help from donor members (Cat. C), such as the European Union which through the Trade Facilitation Agreement Facility pledged more than €480 million in assistance. Though this new approach is being criticised as “step[ping] back a bit” by allowing for flexibility, it is arguably better than an agreement with a blanket formula that is difficult to forge and leaves countries neither time nor external resources to adjust.

Compared to the original ambition of the WTO’s Doha Development Agenda, the entry into effect of the TFA would have been a rather mundane event. But more than the provisions of the agreement itself, what the TFA has come to symbolise – inclusive and tailored multilateralism whereby countries undertake commitment commensurate to their capacity and national circumstances, and that global trade deals remain on the table – is the real reason that the TFA is ought to be celebrated and followed through with enthusiasm.

Ji Xianbai is a PhD Candidate at the S. Rajaratnam School of International Studies, Nanyang Technological University, Singapore. He is Associate Fellow of the EU Centre in Singapore and Europa Visiting Fellow at The Australian National University. The author thanks Dr Yeo Lay Hwee and Dr Matjaž Koman for their comments on the piece.​​