Trade Facilitation Agreement – harbinger of Customs globalization?

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Written by:  Philip Sutter, GTM Governance, Global

The World Trade Organization (WTO) Trade Facilitation Agreement (TFA)[1] has entered into force after more than a decade of negotiation. The two-thirds of the membership needed to ratify was achieved on February 22, 2017. This is significant because the WTO hasn’t had a great track record with multilateral agreements. In fact, the TFA is the first since the WTO was established in 1995.

Will this agreement be the harbinger of further customs globalization, or will concerns about national identity deter its future?

The TFA sets into motion sweeping modernization and facilitation commitments from its membership to continue, promote, build, and adopt customs best practices. In short, its intent is to eliminate trade barriers.  Importantly, the pledge to do this extends to not only the developed counties but also to developing and least-developed countries (LDCs). As international traders know, the import and export process isn’t consistent from country to country and presents costly complexities and time consuming challenges. These traders and their testimonials may have a critical role in a successful TFA.

WTO Director General, Roberto Azevedo is very optimistic on the projected benefits of the TFA.  He projects double-digit trade cost reductions for the developing world as they adopt TFA methodologies. In addition, the WTO projects the TFA will increase global exports by $1 trillion.  Overall, trade will increase by 2.7% every year through 2030, and increase gross domestic product by a half of a percentage point.[1]

Makeup of the Agreement

The TFA has three sections:

  • Section I describes specific trade facilitation commitments.
  • Section II identifies special treatment allowed for the developing and LDC members.
  • Section III lists institutional arrangements for administering the TFA.

Section I of the TFA lays out 13 articles that comprise the member commitments to trade facilitation.

ARTICLE SUMMARY OF COMMITMENTS
1: Publication and Availability of Information ·         Publish customs procedures, rates of duties, taxes, and fees, classification and valuation rules, penalties and appeals, quotas, etc.

·         Establish an enquiry point and to also make the information available on the internet.

2: Opportunity to Comment, Information Before Entry Into Force and Consultation ·         Allow comment and consultation on proposed regulations.
3:  Advance Rulings ·         Institute an advance ruling process.
4: Appeal or Review Procedures

 

·         Permit administrative and judicial appeal of decisions.
5: Other Measures to Enhance Impartiality, Non-Discrimination and Transparency ·         Use a system of issuing notifications or guidance for controls or inspections and do so preferably based on risk.
6: Disciplines on Fees and Charges Imposed on or in Connection With Importation and Exportation ·         Introduce disciplines for the imposition of fees, taxes, and penalties consistent with GATT.
7: Release and Clearance of Goods ·         Launch procedures for pre-arrival processing, electronic payment, risk management, post clearance audits, privileges for authorized operators, and expedited and perishable goods.
8: Border Agency Cooperation ·         Ensure that its various authorities and agencies cooperate with one another.
9: Movement of Goods Under Customs Control Intended for Import ·         Let imported goods transit the country to a release or clearance point.
10: Formalities Connected With Importation and Exportation and Transit ·         Minimize the incidence and complexity of import, export, and transit formalities including accepting copies, using international standards, customs brokers, and maintain a single-window.
11: Freedom of Transit ·         Ease regulations and formalities for goods in transit.
12: Customs Cooperation ·         Cooperate with one another on promoting compliance, exchanging information, maintaining confidentiality, easing administrative burden, etc.

 

What’s not shown in the above summary is the language that on many of the commitments is neither binding nor enforceable. Of the 12 articles and the respective sub-clauses, about one-third use softer language such as “within available resources”, “whenever practicable”, “are encouraged”, “to the extent possible”, etc. rather than “shall”. So, to some extent, a successful TFA will rely on the good faith of the members to carry out its intent. The WTO will publish metrics to monitor and publicize implementation progress to give visibility and political “encouragement”.

Section II of the TFA importantly lays out the special and differential treatment applicable to the developing countries and the LDCs. Based on this section and the wording contained in Section I, don’t expect the TFA to be an immediate launch for these members.

Interestingly, through their ratification, the developed countries have signed off that the provisions of the TFA are in place for their own country. Is the developed world really able to say they have implemented these things? If not, these countries should be taking actions necessary to comply. It’ll be interesting to watch if any disputes are lodged for non-compliance of these commitments.

Meanwhile, there’s built-in leeway for the developing and LDC countries. This is a unique feature of the TFA, where a Party to the agreement pledges their participation based on their unique technical and financial capacity.

The countries designated each element of the TFA as category (A, B, or C) to denote their plan and ability to implement.

Category A:  Implement upon entry into force, or within one year for the LDCs.

Category B:  Implement after a transitional period.

Category C:  Implement after a transitional period and needs assistance and support for capacity building.

For a developing country, the commitment requires the identification of an implementation date within two and a half years for category C. Meanwhile an LDC has up to five and a half years to designate an implementation date for category C.

The developed countries’ “donor members” will bear some of the burden to make the TFA effective for the countries requiring assistance. They pledge to provide assistance and support to developing and LDC countries so they may acquire the necessary capacity to implement the TFA. This support, given through the Trade Facilitation Agreement Facility (TFAF)[2], provides monetary grants and WTO technical assistance programs. Technical assistance includes assessments, identification of donors, case studies, training, and project preparation grants.  Other organizations will be involved in assistance as well, such as the World Customs Organization (WCO), United Nations, and the World Bank.

Section III of the TFA provides for institutional arrangements such as the establishment of a committee on trade facilitation to give consultation with members, share information and best practices, and coordinate with other international organizations. It also obliges members to set up national committees to ensure domestic coordination and implementation of the TFA.

The World Customs Organization, and its involvement

The TFA is a major piece of the ultimate vision of the WTO – a complete multilateral trading system[3]. It’s consistent with World Customs Organization (WCO) Revised Kyoto Convention[4]. It’s the WCO Council’s blueprint for modern and efficient customs procedures.

With the negotiation and ratification complete, the WCO will step in to provide assistance and coordination measures to ensure uniform application of the TFA through its Mercator Programme “Navigational Map on Trade Facilitation”.[5][6]

The WCO has developed tools for the implementation of the various articles of the TFA using existing WCO procedures and best practices of the developed countries. It organizes regional workshops for customs officials, trade ministers, private sector, and international organizations.

The WCO’s marquee tool for trade facilitation and modernization is the WCO Data Model[7]. The myriad data requirements of the local customs authorities and government agencies that monitor cross-border transactions is a deterrent to the TFA’s goals. At the outset of the WTO, non-standard data was recognized as a major non-tariff trade barrier. The Data Model addresses this problem by enabling harmonization that will directly contribute to the achievement of the TFA commitments.

Likewise, the European Union’s Customs 2020 Program within the Union Customs Code (UCC) is a major step forward to demonstrate that synchronized systems and practices are achievable across multiple countries. This implementation experience can be transferable to the modernization aspiring developing countries and LDCs.

The impact of current trade environments

However, amid the recent and somewhat sudden U.S. and UK moves away from multilateralism, the TFA could now be seen as an anomaly merely carried across the ratification finish line by the momentum it achieved since negotiations began in 2004. The emerging present state of affairs is that many world governments seem be in a struggle, not to necessarily reject the free trade concept, but to definitely question whether mega free trade agreements like the Trans-Pacific Partnership harms domestic labor and manufacturing bases or that a political construct such as the European Union siphons away sovereignty.

Will these trends negatively alter the enthusiasm for the TFA whose goal is common methods and practices? Can national interests flourish in this envisaged environment? In a just released joint report[8], the WTO and International Monetary Fund acknowledge that “the role of trade in the global economy is at a critical juncture”. The report calls on countries to adopt adjustment policies to help individuals and communities harmed by the influx of foreign competition.

For the TFA to reach its potential, it may be up to the international trade community to promote and differentiate the benefits by lobbying the developed countries to follow through on their pledges and by encouraging the developing countries to install modern methods. It needs to be shown that the elimination of bureaucratic non-tariff trade barriers is the right thing to do and a positive contributor to worldwide economic growth. The TFA is about free flowing, uniform, secure, and transparent transactions that allows all nations to compete on a level playing field efficiently, effectively, and compliantly.

[1] https://www.wto.org/english/tratop_e/tradfa_e/tradfa_e.htm

[1] http://www.reuters.com/article/us-wto-azevedo-idUSKBN15A2II

[2]http://www.tfafacility.org/tfaf-assistance

[3] http://muntr.org/guides/tr15/WTO-MUNTR2015.pdf

[4] http://www.wcoomd.org/en/topics/facilitation/instrument-and-tools/conventions/pf_revised_kyoto_conv.aspx

[5] http://www.wcoomd.org/en/topics/wco-implementing-the-wto-atf/mercator-programme.aspx

[6] http://www.wcoomd.org/~/media/wco/public/global/pdf/topics/wto-atf/mercator-programme/wco_mercator_uk.pdf?la=en

[7] http://www.wcoomd.org/~/media/wco/public/global/pdf/topics/facilitation/instruments-and-tools/tools/data-model/dm_technicalbrochure_en.pdf

[8] https://www.wto.org/english/news_e/news17_e/wto_imf_report_07042017.pdf

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