THE TFA SUCCESS STORY

"The Trade Facilitation Agreement has now entered into force. ... The impact [of full implementation] would be bigger than the elimination of all existing tariffs around the world."

Roberto Azevêdo

 For this particularly entry, we have decided to use a slightly different format. Except for the featured quote, we are regarding everything here as comment but comment with two elements: background and expectations.

There has been a lot of celebrating at the WTO these last couple of weeks and understandably so. A major negotiating achievement is now a legal reality. As the WTO's Direct-General Roberto Azevêdo explained on February 22: 

"This morning, I received ratifications from Rwanda, Oman, Chad and Jordan. Therefore, I am very happy to announce that the WTO Trade Facilitation Agreement has now entered into force. This means that we have crossed the required legal threshold of two-thirds of the WTO membership." 

 
Candidly, we are not quite sure what "entered into force" means. The goal of the Trade Facilitation Agreement is cutting the transaction costs inherent in trade by streamlining customs procedures and eliminating other impediments. These are things many countries have done on their own because they saw them to be in their interest. It is a vital process, and the reality of the Trade Facilitation Agreement is bound to speed things up. It should also broaden the scope of efforts to improve facilitation and open new avenues of funding for countries that need help with facilitation related projects. 

 
Looking back, largely through not exclusively, through the Global Business Dialogue's own window, here is some of what we have seen. 

The WTO Ministerial Meeting in Singapore in 1996 is as good a place to start as any. As a somewhat later WTO document explained: 

"The 1996 Singapore ministerial conference instructed the WTO Goods Council to start exploratory and analytical work 'on the simplification of trade procedures in order to assess the scope for WTO rules in this area'.

Negotiations began after the General Council decision of 1 August 2004."

And so Trade Facilitation became one of the four so-called Singapore issues. The others were investment, competition policy, and transparency in government procurement. Reading the report from the Singapore Ministerial, it is hard to see trade facilitation then as much more than an afterthought. Yet Trade Facilitation is the only one of the four that is now hailed in grand terms as an agreement. And those terms may well be justified. The notion that the facilitation agreement could be "bigger than the elimination of all existing tariffs" -- today's featured quote -- is a huge claim by itself. 

 
Yet when Roberto Azevêdo, the Director-General of the World Trade Organization, talks about the Trade Facilitation Agreement, he puts as much emphasis on its significance as a WTO achievement as on the potential economic gains. He talks about the fact that this is the first multilateral agreement approved by the WTO since the organization came into being in 1995. With the implementation of the Trade Facilitation Agreement, he said:

"We have proved that 164 members can work together in a meaningful way to deliver and to implement real outcomes." 

We might add that the 2013 Ministerial Meeting in Bali was the first real test of Mr. Azevêdo's leadership as the WTO's Director-General. The unanimous approval of the TFA agreement put epaulettes of success on his shoulders in a way that nothing else could have. And it was not smooth sailing. Getting the agreement in Bali was difficult, and the deal wasn't iron clad. 

That became apparent in July 2014 when India balked at the adoption of the necessary protocol for the TFA. Ultimately, India's issue - it had to do with food stocks - was resolved. And now that the Trade Facilitation Agreement is being implemented, we assume it is no longer a potential hostage to one country's negotiating issue or another. So, we shall move on, again by looking back.

On December 17, 2013, GBD held an "After Bali" event at the law firm of McDermott Will and Emery. Jay Eizenstat, then a partner with the firm, talked about the agreement. "It is by no means a hortatory agreement," he said, explaining that, by his count, there are 104 things that the agreement says members "shall," that is, are obliged to do, such as promptly publishing information on "importation, exportation, and transit procedures."
In Mr. Eizenstat's words:

"This is not, 'Do it if you feel like it; do it if you can afford it.' This is, 'You better do it because, at some point down the line, you're going to be subject to dispute settlement if you don't."

Two years later, on December 3, 2015, GBD held an event in advance of the WTO's then upcoming Ministerial Meeting in Nairobi.   Leslie Griffin, senior vice president for international trade policy at UPS, was one of the panelists. The details of her comments then may have changed in the interim, though we suspect the broad picture is still valid. She said: 

• 113 countries hold more than 25 percent of shipments.
• More than 40 countries hold more than 50 percent of shipments.
• And 12 countries hold more than 75 percent of shipments."

The clear hope, obviously, is that, as the Trade Facilitation Agreement comes into force not just legally but practically, that picture will change. And it will change not just in its details - doubtless that has already occurred - but in in its essence.

We confess there are aspects of the Trade Facilitation discussion that give us pause. One of those is the dramatic number we lead off with. It is not that we think the analysis is flawed. We doubt that it is, and even if it were, it is unlikely that we would spot the flaw. We have a different concern. These kinds of projections are never discounted enough. It is one thing to estimate the potential for change, quite another to assess the likelihood of it occurring. (Ask any salesman about the difference between potential and actual customers.) That point gains added significance when one considers that many of the barriers the Trade Facilitation seeks to eliminate are hard to pin down legally and don't have the simple clarity of a posted tariff rate. 

Here, of course, the WTO and others have a dilemma. On the one hand, they are naturally reluctant to forgo any of the benefits that might be had from the Trade Facilitation Agreement. On the other hand, they face a potential credibility problem. If there is no effort to recalibrate (and scale back) the expected goals, then, at some point, the difference between projected gains and real ones will starts to eat away at credibility. 

 
Another concern has to do with those members who have not yet ratified the agreement. In a sense, they are free riders. When they trade with countries that have ratified and are implementing the agreement, their goods should reach customers faster and at lower costs. Yet they have no legal obligation to reciprocate. At this point, that is only a potential problem; not a real one. 

 
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We'll end this with the best explanation we have heard as to why the Trade Facilitation Agreement is so important. It came from Walmart's Sarah Thorn back in December 2013, when she said:

"Trade facilitation is trade."