WTO's Trade Facilitation Agreement comes into force: All you need to know

WTO's deal will see a simpler trade regime but its success will be dictated by trade protectionism

The World Trade Organization’s (WTO's) landmark Trade Facilitation Agreement (TFA), which came into force on Thursday, is expected to provide a much-needed boost to beleaguered global growth. However, its success will depend on the rising tide of trade protectionism across the globe and stronger voices against trade liberalisation like US President Donald Trump. 

  

Ratified by 112 nations, more than two-thirds of all member nations, the deal will ease trade processes, bring down barriers to trade and enhance the capacity of the developing world to better engage with the global trading network.

The 164 member nations of the WTO account for more than 97 per cent of global gross domestic product (GDP) and 96.8 per cent of global trade. Therefore, the TFA is expected to significantly change the global trade scenario with international customs practices becoming streamlined and easier trade movement being enforced.

Part of the Bali Package of decisions agreed upon in 2013, the deal is a watershed moment in the organisation's history. This represents the first time that a comprehensive decision has been arrived at through consensus among nations cutting across the major geographical and political blocs.

Into the details of the agreement

The agreement, in effect, is a broad series of trade facilitation reforms spread out over a gamut of trade issues across the areas of transparency and predictability of trading across borders. It aims to create a less discriminatory business environment. It also includes faster clearance procedures, enhanced conditions for freedom of transit for goods improvements, improved appeal rights for traders as well as reduced fees and formalities connected with the import and export of goods.

However, these reforms will only follow after countries independently notify various provisions which might extend beyond the next three years. The basic set of provisions will be implemented by least-developed countries (LDC) within one year from now. Also, many countries, including India, will receive more time to set in motion a further set of provisions.

Critics have argued that the deal favoured developed nations since developing and LDC nations will face tougher challenges in bringing up their regulatory and customs practises as well as modernise necessary trade infrastructure to reap the benefit of TFA. A Trade Facilitation Agreement Facility has been created to channel assistance from richer nations needed to plug these holes. 

Greater trade for India?

"The TFA rationalises prices and provides for consultations before new trade rules are notified, making trade smoother. Based on current trade figures, an additional trade of $15-20 billion can be expected," Ajay Sahai, director general of Federation of Indian Exports Organizations, said.

According to a WTO study, the full implementation of the TFA is forecast to decrease the trade costs of member nations by an average of 14.3 per cent, with developing countries having the most to gain. The TFA is also likely to reduce the time needed to import goods by over a day and a half and to export goods by almost two days, representing a reduction of 47 per cent and 91 per cent, respectively, over the current average.

Moreover, once the TFA is fully implemented, developing countries such as India are predicted to increase the number of new products exported by as much as 20 per cent, with least developed countries likely to see an increase of up to 35 per cent, according to the study.

More fight ahead

However, this should not deflect public attention away from the more crucial matter at stake in front of the multilateral platform, that of facilitating development in poorer nations. "The primary aim of the WTO while being formed was not trade liberalisation but development," Biswajit Dhar, trade expert and professor at the Jawaharlal Nehru University, said.

In this regard, the negotiations on the Doha Development Round, launched in 2001, serve as a microcosm of the WTO itself and the way it has functioned. While developmental issues, primarily regarding agriculture, have continued to be opposed by the developed nations, they have in turn kept the thrust on the introduction of newer issues like e-commerce.

This was seen as recently as earlier this month when WTO Director-General Roberto Azevedo had visited India and held discussions on the issue with leading private companies.

For India, a permanent solution to the issue of public stockholding of foodgrain and discussions on a special safeguard mechanism will remain of primary importance at the upcoming ministerial conference in Argentina, later this year.

India is also pushing for the inclusion of discussions on a TFA on services at Argentina. It aims to ease movement of skilled professionals across borders as well as reducing transaction costs. India’s services sector accounts for more than 60 per cent of its GDP and 28 per cent of employment.