Rationale for the Agreement
Improving speed, costs and predictability of cross-border trade
Trade facilitation gained importance in the 1990s against a background of changing trade patterns and a deepening of the multilateral trading system.
The implementation of the TFA is expected to bring net welfare gains to the international economy by reducing costs and time of cross-border trade. In the 1990s, global trade flows expanded while tariffs were lowered and quotas abolished. This raised the awareness of non-tariff measures and their impact on trade, including the red tape caused border controls, administrative procedures and documentary requirements. These can cause significant delays and costs that negatively affect businesses’ competitiveness.
Measuring Trade Facilitation Impact
Since the adoption of the Agreement, several attempts have been made to measure its potential impact. The WTO World Trade Report 2015 estimates that “full implementation of the TFA could reduce trade costs by an average of 14.3% and boost global trade by up to $1 trillion per year, with the biggest gains in the poorest countries.” The OECD, which regularly measures countries implementation performance using a set of TF indicators, estimated in 2015 that the worldwide implementation of the TFA could reduce trade costs by between 12.5% and 17.5%.
Both reports stress the fact that least developed countries (LDC) and countries with a low trade facilitation performance stand to gain most from a full implementation of the Agreement. Trade costs are highest in developing countries. Using the so-called ad valorem tariff equivalent data of trade costs from 2008, the WTO 2015 report showed that LDC face double the burden when trading.
Ad valorem tariff equivalents of trade costs by level of development:
The 2017 UN Global Survey on Trade Facilitation and Paperless Trade Implementation also found that “LDCs, LLDCs(*2), and SIDSs(*3) achieve average implementation rates between 40% and 50%, significantly below the global average implementation rate, indicating that these countries may need further technical assistance and capacity building support to help them bridge the existing implementation gap” .
Of the 46 LDC listed in the WB Doing Business Trading Across Border ranking, 22 are in the lowest performing quarter, and only 2 in the highest quarter (Bhutan and Lesotho). Border clearance times continue to be significantly higher in sub-Saharan countries compared to the OECD high-income countries, and Europe and Central Asia. Border clearance times in sub-Saharan countries reach 100 hours on average for imports and 137 hours for exports, compared to 12.7 hours for import and 8.7 hours for exports in OECD high-income countries.
The OECD stresses the fact that “the opportunities for the biggest reductions in trade costs are greatest for low and lower middle income countries,” and that countries would gain the most from full implementation of the agreement and not just best endeavor implementation.
The TFA has the potential to benefit all economies, because it is a global agreement covering most international trade and a wide range of countries from industrialized to least developed, and it consists of legally binding provisions. All countries are committed to abide by the rules within the flexibilities granted by the Special and Differential treatment. Other trade facilitation instruments lack the binding character, such as the WCO Revised Kyoto Convention, or have de facto a geographically restricted membership, as the International Convention on the Harmonization of Frontier Controls.
(*1) Note that the definition of trade costs includes logistics and connectivity costs.
(*2) Landlocked developing countries.
(*3) Small island developing states
