What is Trade Facilitation?

The past two traumatic years of the pandemic have reminded us of just how trade-dependent our economies are for daily essentials and the luxuries that improve the quality of our lives. Closed borders to slow the spread of the COVID-19 virus created shortages still being felt today. More recently, the six-day closure of the Suez Canal by the stuck cargo ship, “Ever Given,” was estimated to impede an estimated US$9.6 billion worth of trade each day. As the world emerges from the pandemic, open borders are integral to the dispersion of life-saving vaccines and the slow return to normalcy.

Keeping these incidents in mind helps to explain why “Trading Across Borders” is one of the twelve indicators that the World Bank has used to rank 191 countries according to the ease with which one can do business there. While it is difficult to anticipate a pandemic or a stuck ship, this indicator captures those factors integral to having open borders that are within the control of governments and policy makers.

• How time-consuming is it to prepare and complete customs and border clearance documentation?
• Does the trader have to physically visit several agencies numerous times at great cost and time, or can the process be completed at one physical or electronic window?
• How long does it take to complete customs and other border inspections and at what cost?
• What is the time and cost to load, unload, warehouse, handle goods at the port?
• In sum, how much does it cost, in time and money, to trade with a given country?
• How easily can small and informal traders understand and navigate the required border formalities?

These are the questions at the heart of trade facilitation.

A World Trade Organization (WTO) study estimated that each additional day of delay at the border reduces trade by 1%. Border delays mean storage costs and waits for needed goods and supplies, all of which get passed on to the consumer. Each day of delay, the WTO report estimates, also adds 1% to the landed cost of exports. The easier and cheaper it is to engage in trade, the more trade and foreign investment countries will attract. Simpler rules and cheaper procedures also allow more companies, particularly SMEs and MSMEs, to participate in trade. This is why the World Trade Organization (WTO) introduced trade rules to bring streamlined and more transparent customs and port rules and procedures for the world’s traders.

The WTO Trade Facilitation Agreement

The WTO Trade Facilitation Agreement (TFA) was adopted at the WTO’s 9th Ministerial Conference, held in Bali, December 2013. The Agreement entered into force on 22nd February 2017 with its ratification by two-thirds of WTO’s members. Twelve articles in Section I contain the members’ commitments on expediting the movement, release, and clearance of goods.

Provisions to Increase Transparency for Traders

• Make publicly available such information as: i) import/export procedures; ii) duty rates and taxes; iii) customs fees and charges; and iv) penalties and appeal procedures;

• Establish inquiry points to address questions by governments and traders;
• Provide an opportunity to review and comment before rules enter into force; and
• Provide advance rulings (the opportunity for traders to get binding information in advance) on issues raised by traders.

 

Provisions to Streamline Procedures and Reduce Times & Costs for Release & Clearance of Goods

• Provide pre-arrival processing and post-clearance audits (allowing goods release before final payment of duties and fees owed);
• Establish and publish average release times for cargo;
• Conduct risk management and special measures for verified traders to reduce physical inspection of entering cargo;
• Provide for expedited release of air shipments and perishable goods;
• Remove unnecessary transit requirements and costs; and
• Provide for e-payments of fees.

 

Provisions to Simplify Border Formalities and Documentation Requirements

• Implement only those documentation requirements or formalities that are necessary; eliminate or modify those that are no longer necessary;
• Refrain from adopting measures if a less trade-restrictive solution is available;
• Make documentation requirements or formalities as fast and efficient as possible, including accepting paper or electronic copies; and
• Conduct periodic reviews with a view towards simplifying or reducing them.

 

Provisions to Improve Border Inter-Agency Cooperation

• Facilitate Customs-to-Customs exchange of information for purposes of verifying goods declarations;
• Provide for cooperation of national border authorities/agencies and coordination of border controls and procedures to facilitate trade; and
• Facilitate cross-border trade among countries with common land borders by coordinating procedures.

 

 

Special & Differential Treatment Provisions for Developing Countries

 

These trade facilitation rules introduce practices that traders in advanced economies can already take for granted. However, the majority of them require that most developing countries introduce significant reforms to their trading regimes. This is why Section II of the TFA contains special and differential treatment (SDT) provisions that give developing and least-developed country (LDC) members additional time and promises of support to implement their commitments.

While all Members are required to notify the WTO of their implementation status of TFA provisions, developing and LDC members are also permitted to:

1. Determine when they will implement individual provisions of the Agreement; and 
2. Identify those provisions that they will be able to implement only with financial and/or technical assistance and support for capacity building.

 

Consequently, developing country and LDC member notifications place their TFA commitments into the following three categories:

Category A: provisions that they are able to implement upon entry into force or in the case of LDCs within one year of TFA entry into force;

Category B: provisions to be implemented at a later specified date; and

Category C: provisions to be implemented at a later specified date that require financial and/or technical assistance and support for capacity building.

The countries are permitted to transition commitments between Category B and C. LDCs are only required to undertake commitments that are consistent with their individual development and trade needs and within their financial or administrative and institutional capabilities. They can also notify of difficulties in meeting the time commitments and make limited requests of time extensions for implementation. So, what does implementation of the WTO/TFA look like as we approach its 5th anniversary?

 

TFA at Five Years Old

Having committed to implement the TFA provisions upon its entry into force, developed country members have provided notification of 100% implementation of their commitments. Counted in these commitments are the promised funding and support for the delivery of technical assistance and capacity building to developing and LDC members.

A much more complex implementation picture exists among developing and LDC members, which we will explore in future posts. Even with the reduced levels of commitment, overall implementation rates for developing and LDC members stand at 64.5%. Countries are also seeking assistance across a broad spectrum. So, while there is much to celebrate as the TFA nears its 5th anniversary, there is still work to be done so that traders in developing and least-developed countries can enjoy the benefits of improved trade facilitation.