Last week, on February 22, the WTO Trade Facilitation Agreement entered into force. Originally signed in 2013 in Bali, and ratified by 113 countries so far, this was the greatest stride to establish common ground in trade since the creation of the WTO in 1994.
The Trade Facilitation Agreement (TFA) is a substantial boost to global trade. The aim of the agreement is to simplify and diminish “red tape” regulatory burdens by proposing innovative cooperative efforts among its members. These include but are not limited to simplifying paperwork, harmonizing customs requirements, and modernizing procedures. The WTO estimates these implementation measures can save an average of up to 14.3% of costs, potentially reducing the time needed to import by 47% and to export by 91%! These cost reductions are expected to help small and medium sized enterprises seeking to branch into global trade (particularly developing countries) but cannot absorb unpredictable costs at the border.
We would like to celebrate the entry into force by examining common themes of the agreement and how exporters benefit from its entry into force.
Single Window, Electronic Automation, and E-Services
Under the TFA, members are required to develop and maintain a single window system for import, export, and transit documents. A single window allows traders to submit required documentation from a variety of government agencies into one electronic outlet instead of through multiple and varying channels. As a result, exporters and importers will spend less time and money identifying and consulting the various agencies for appropriate documentation,
In addition to the single window, countries are required to accept e-payments and electronic versions of documents where appropriate and possible. This brings the customs processing, inspection, and release process into the 21st century, urging members that have not yet digitized to join the global market in a harmonized way accessible to all traders.
Transparent Information on Rules and Procedures
The TFA requires that WTO members publish information online on import and export procedures and establish clear contact points to respond to inquiries. Based on these provisions, traders should have a clear idea of a country’s risk management system for inspections at customs, average release times, procedures for expedited shipments, required import documents, test procedures, amongst others.
As mentioned in our previous blog, it is very common for regulations and procedures to not be available online or in an accessible manner to trade professionals outside the country. If a business is unfamiliar with a country’s policies and does not have a presence in-country, it can be extremely difficult to know where to obtain the right information. The TFA introduces the first multilateral measures in a trade agreement to harmonize which regulations and procedures should be publicly and easily accessible.
Limitations on Fees and Penalties at the Border
In addition to mandating the publication of all fees, penalties, and procedure of payment, the TFA mandates that fees and charges for customs processing on imports and exports shall be limited to the approximate cost of services rendered. All fees must have a solid rationale for being in place. Further, any penalties imposed must also be accompanied by an explanation of which part of the applicable law has been breached.
As any trader knows, fees and penalties can increase landed costs and cut into profit margins. These procedures are intended to reduce chances of fees and penalties being applied due to conflicts of interest, corruption, or misunderstanding of procedure.
Trade Capacity Building
Trade capacity building is the key enforcement tool to ensure that least developed countries are able to meet the TFA provisions above which benefit all WTO members and their importers and exporters. Trade capacity building consists of countries providing technical assistance in understanding rules, disciplines, procedures, and best practices to other trade regimes. It can also consist of infrastructure assistance such as making ports more efficient and automated.
Included in the provisions of the TFA is a pledge of international organizations and “donor members”, including the United States, to assist with trade capacity building of least developed countries. Under the agreement, the United States and other donors can work bilaterally, multilaterally, and/or with international organizations to implement trade capacity building programs that support the provisions of the TFA.
In addition to promoting the economic development of least developed countries, it assists in improving the regulatory procedures of countries where domestic constraints in capital and expertise limit their ability to meet the provisions of the TFA and thus encourage a more open trade market. By using capacity building aid and expertise from more developed nations such as the United States, other countries can better facilitate imports and exports and participate in the global market.
We are very excited that after years of work the Trade Facilitation Agreement has entered into force. Congratulations to all the negotiators for all their efforts and we look forward to streamlined procedures around the world to help exporters of all sizes. For more detailed information on the TFA please visit the WTO’s Trade Facilitation Agreement Facility website.
Have questions or comments on the Trade Facilitation Agreement and how it can help your business? Send us your thoughts:
Check out TradeMoves’ website and read our blog at www.trademoves.net.
Find us on LinkedIn.
Follow us on Twitter @TradeMoves