What Does the WTO Trade Facilitation Agreement Really Mean for Business?

Decreased risk in emerging markets through trade facilitation agreementsOn November 27, 2014, the World Trade Organization (WTO) was finally able to overcome an impasse created by India in July which prevented implementation of the Trade Facilitation Agreement reached in Bali in December 7, 2013. As described by WTO Director General (DG) Azevedo, “the impasse related to the political link between two of the Bali decisions – the decision on Public Stockholding for Food Security Purposes, and the Trade Facilitation Agreement.” The WTO General Council was able to address India’s objections after a breakthrough made by the U.S. and India on November 13, 2014 to simultaneously adopt the protocol necessary to implement the TFA and a decision clarifying the terms of an existing food security “peace clause.”

The WTO clarified that the peace clause agreed to in Bali will remain in force until a permanent solution is found hopefully by December 31, 2015 which is in advance of the original target date. It also adopted the protocol of amendment which formally inserts the TFA into the WTO rulebook according to DG Acevedo. Importantly, this clears the way for the TFA to come into force. However, it also removes the July 31, 2015 deadline for WTO members to ratify the TFA leaving open the ratification process open indefinitely. The Agreement enters into force once two-thirds of WTO members have completed their domestic ratification process.

So what does finalization of the first WTO multilateral agreement mean to international business?  According to DG Azevedo it means that the work of the WTO is back on track. The WTO General Council decisions were lauded by IMF Managing Director Christine Lagarde, who commented that this would provide an opportunity for advancing multilateral trade negotiations in other areas which is essential for global growth.  According to U.S. Trade Representative Ambassador Michael Froman “[t]he Trade Facilitation Agreement has the potential to fundamentally reform global customs practices and substantially reduce the costs and time associated with goods crossing borders.  It’s a perfect example of how breaking down barriers to trade can unlock new opportunities for developed and developing countries alike, and it’s a particularly important win for small- and medium-sized businesses in all countries.”  That’s why TFA implementation is strongly supported by groups like the International Chamber of Commerce.

But what do the customs reforms contained in the TFA really mean to business? The Agreement mandates reforms in customs procedures, such as transparency, simplification and harmonization of procedures, risk based management by customs administrations, a “single window” for all government agencies dealing with imported merchandise, automation, electronic payment of duties and the separation of the payment of duties from the release of cargo, among other things.

These improvements are intended to facilitate trade across borders, which can enhance much needed regional integration in parts of the world such as Africa, Latin America, and elsewhere for these regions to find their places in global value chains. The Agreement also offers donor assistance and capacity building to developing and least developing countries so that they can enjoy the well-documented benefits of implementation. Hypothetically, the improved trading environment will attract more trade and investment to countries that implement good governance in the form the improved customs procedures. The improvements, which have the effect of increasing transparency and reducing discretion of customs officials, should also address corruption at the border at least to some extent. (Read more about the possible impact of the agreement on corruption here.)

So what does this mean to business engaged in global trade and investment? Hopefully, it takes some of the risk out of doing business in emerging markets, some of which present the greatest opportunity. Perhaps even small- and medium-sized businesses will venture out into these markets stimulating the global economy and presenting a win-win for the developed and developing worlds.

Stay tuned. Much work lies ahead by those countries who choose to be pro-active and avail themselves of the assistance offered by donor organizations like the World Bank, World Customs Organization and the WTO, whose Trade Facilitation Agreement Facility is now operational with the finalization of the Agreement. Business can also get involved by making their concerns known to the governments and donor organizations alike about their priorities on what needs to be addressed in particular countries. It may even present an opportunity for collective action groups involved in trade and logistics to address corruption at customs, which is a significant risk point.

This article appeared on Corporate Compliance Trends on December 10, 2014.