CSCMP's Supply Chain Quarterly
October 21, 2018
Forward Thinking

WTO ratifies trade facilitation pact; move seen as major boost to goods movement

Agreement is expected to have a greater impact than eliminating all existing tariffs, WTO director-general says.

Members of the World Trade Organization (WTO) earlier this week ratified a landmark agreement designed to streamline global trade and transportation services, a move the WTO's director-general said will have a greater economic impact than the elimination of all existing tariffs.

The "Trade Facilitation Agreement" (TFA), the first multilateral agreement in the WTO's 21-year history, is expected to reduce WTO members' trade costs by an average of 14.3 percent, with developing countries reaping most of the gains, according to a 2015 WTO forecast. The compact will cut 36 hours off the average time required to import goods, and two days off the average export delivery times, both significant reductions from current levels, the report said. The TFA's implementation will dramatically increase export volumes from developing and least-developed countries, in many cases enabling businesses to export for the first time, the report predicted.

Depending on the pace of implementation and its coverage, the TFA will boost global exports by between $750 billion and $1 trillion a year, according to the WTO. Other forecasts have pegged annual export gains at between $1.1 trillion and $3.6 trillion, the trade group noted.

Through 2030, TFA could add 2.7 percent per year to global export growth, and more than half a percent a year to global GDP growth, WTO said. The magnitude of the gains will again depend on how fast and fully the compact is implemented, the group said.

TPA was agreed to at the ministerial level at a December 2013 meeting in Bali. However, it required ratification by two-thirds of WTO's 164 members for its provisions to be enforced.

WTO Director-General Roberto Azevêdo hailed the ratification as "fantastic news" that underscores WTO members' "commitment to the multi-lateral trading system." It comes as the future of such compacts have been thrown into doubt by President Donald Trump's decision to withdraw the U.S. from the proposed 12-nation Trans-Pacific Partnership (TPP), and to re-negotiate the 23-year-old North American Free Trade Agreement (NAFTA).

The International Air Transport Association (IATA), whose global airline members would theoretically benefit from the agreement, applauded its ratification, saying it sends a strong pro-trade message to counter the "dangers" of global protectionist rhetoric. "Trade leads to growth; and growth results in prosperity. With the treaty now in force, we urge governments to move forward with early implementation so that the TFA's substantial benefits can be realized," said Alexandre de Juniac, IATA's director general and CEO, in a statement.

For the airfreight industry, which moves about 35 percent of all global trade by value and relies on streamlined customs procedures to support the expedited transportation of high-value cargo, perhaps the TFA's main feature is its commitment to harmonize global rules for the movement, clearance, and release of goods. This includes promoting the deployment of digital technologies for document exchange and payment acceptance, two areas the industry is working to improve upon.

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