The first multilateral deal that is expected to simplify and standardise customs procedures at borders to facilitate easier flow of goods around the world has come into force with two thirds (110) of the World Trade Organisation (WTO) member countries having ratified the Trade Facilitation Agreement (TFA) on Wednesday. TFA is key to creating a level playing field for small and medium-sized businesses operating in developing nations.
Calling it the biggest agreement ever reached, WTO Director-General Roberto Azevedo in a statement said, “It means we can now start implementing the Agreement, helping to cut trade costs around the world. It also means we can kick start technical assistance work to help poorer countries with implementation.”
The trade pact is forecast to slash members' trade costs by an average of 14.3 per cent, with developing countries having the most to gain.
“This would boost global trade by up to 1 trillion dollars each year, with the biggest gains being felt in the poorest countries. The impact will be bigger than the elimination of all existing tariffs around the world,” said Azevedo.
Once fully implemented, the TFA is expected to help to help expand global trade by around 2.7 percentage points every year until 2030, and add half a percentage point of GDP growth around the world. It is also expected to speed up delivery of products. For instance, a product which earlier may previously have taken 6-7 weeks to arrive, the waiting time should be cut to a few days.
"Things are going to cross the border much more easily, much more transparently and at lower costs," Azevedo said.
"If it’s truly implemented and done well, there will be almost no contact between the client and the (customs) authority," Azevedo said. "When that happens, the room for corruption basically disappears. And we know that at the border, corruption is a problem for many countries."
In a nutshell, the TFA aims at promoting global inclusion. It does so by tackling a lot of the inefficiency as well as rent-seeking behaviour at the border in a sizable number of countries.
Even in today’s global economy, many entrepreneurs in developing countries cannot fully tap their cross-border potential owing to red tape and complex procedures at the border.
For India, which is seeking to expand its share in global trade, the agreement comes at a opportune time. The fact that goods and services trade has assumed great significance in Indian economy means anything that eases trade assumes great significance. The TFA will seek to remove a number of bottlenecks related to multiple levels of paperwork in many countries through digitization and thereby cut down on delays in movement of goods, thereby resulting in time and cost savings.
“Though the agreement still does not handle non-tariff barriers, it will however greatly facilitate flow of goods across borders by standardizing procedures for clearance of consignments thereby making trading activity more simpler,” says Ram Upendra Das, Professor at the Research and Information System for Developing Countries (RIS).
For small entrepreneurs competing with ecommerce firms promising delivery within days or even same day delivery, the coming in force of TFA could help remove some of the hurdles in taking on competition. Das stresses that TFA “will also try to bring greater transparency in the fees structure, administrative clearances and dispute redressal mechanism.”
India is currently in the process of submitting a proposal to the WTO for starting discussion on trade facilitation in services given the persisting hurdles it is facing in promotion of services exports due to restrictions on movement on people from many countries besides the high visa and other costs. Services sector currently has over 50 per cent share in India’s GDP.