Written by: Pamela Ugaz Article No. 43 [UNCTAD Transport and Trade Facilitation Newsletter N°85 - First Quarter 2020]
Three years have elapsed since the entry into force of the Agreement on Trade Facilitation (TFA) of the World Trade Organization (WTO). The TFA aims at boosting the speed and efficiency of cross-border trade procedures while reducing cost. Full implementation of the TFA could cut global trade costs by 10%-18% (OECD, 2018) and increase export gains up to USD 3.6 trillion per year (WTO, 2015).
WTO Members designed a pioneering preparation and implementation mechanism, the so-called Special and Differential Treatment (SDT) in Section II of the TFA, providing favourable implementation considerations for the countries in greatest need (see Box 1). The provisions set-out in Section II seemed in theory straightforward; in practice, some countries are, however, struggling in the race of fulfilling them.
The third anniversary of the TFA is an excellent opportunity to stock-taking how developing countries and least developed countries (LDCs) are running this marathon. Let us explore this topic using the WTO TFA Database, which encompasses data from 84 developing countries and 27 LDCs that have ratified the Agreement as of 20 February 2020.
Signing up and planning the race
149 WTO Members have already ratified the TFA. Thus, only 14 additional ratifications are needed to achieve full commitment from WTO Membership to trade facilitation reforms. Despite not legally bound, 10 out of these 14 countries announced their intention to use the SDT provisions, showing their intention to be part soon of the TFA.
LDCs represent 65% of these pending ratifications[1], implying the need for further raising awareness among their parliaments about the TFA’s benefits. After concluding their ratifications, these countries will need to complete any due notification at the same time. Meanwhile, 90.9% of WTO Members apply the Agreement on a Most-Favoured-Nations basis.
The TFA includes a revolutionary SDT mechanism - a first in the Multilateral Trading System- allow developing countries and LDCs to self-determine the implementation timeline, and the Technical Assistance and Capacity Building (TACB) needs to create implementation capacity, provided such Members submit a set of notifications.
98.6% of the developing countries and LDCs bound by the TFA have made use of the SDT provisions by designating fully or partially the 36 measures contained in the TFA under one of the three categories. The number of countries that have designated the TFA measures under the categories A, B, and C increased from 85 to 115 since last year.
On a high note, all developing countries that ratified the TFA have presented their categorization. While 28%[2] of them implement the TFA without assistance, 70%[3] have requested TACB.[4] Although most of them have already submitted the dates for implementation,[5] one[6] country is still missing to notify definitive dates for category B, and three[7] countries for category C.
93% of the LDCs that ratified the Agreement[8] have designated which measures will require a transition period and TACB. The remaining 7% accounting for two LDCs[9] is two years behind in completing this designation.
The next deadline for LDCs to notify definitive dates for commitments under Category B is on 22 February 2020, pursuant to Article 16.2 of the TFA. As of 20 February 2020, only eight out of the 27 LDCs bound by the Agreement have submitted such notification.[10] On the positive note, 15 LDCs provided indicative dates for measures requiring TACB one year ahead of the deadline.
Improving performance with technical assistance
Nearly all developing countries that ratified the TFA have announced their TACB requirements. Indeed, 58 out of 59 developing countries requesting TACB have specified the type of assistance needed. By contrast, only 12 out of the 27 LDCs that ratified the TFA have communicated their TACB needs, although the deadline was one year ago (22 February 2019).
At the top of the list, developing countries and LDCs have requested human resources and training support (54.3%), followed by legal assistance (46.9%), and acquisition of information and communication technologies (43.1%). Nevertheless, 23.1% of requests does not specify the type of TACB needs, suggesting that some countries have challenges in identifying and assessing their needs.
Regarding the progress in providing technical assistance, only 5% of developing countries[1] that requested TACB has announced that they have reached arrangements with donor Members.
Two years and a half before the deadline (22 August 2022), one LDC announced TACB arrangements.
These numbers do not match with the level of resources mobilization pledged to trade facilitation at the international level.
The OECD estimates that approximately USD 3.9 billion has been disbursed in aid for trade facilitation since 2005 (OECD, 2018).[2]
As to designation of donor coordinators, both developing countries and LDCs are obliged to submit to the WTO contact information (Article 22.3).
22 out of 59 developing countries[3] - bound by the Agreement and requesting TACB - sent information on the donor coordinators. Only five out of the 27 LDCs[4] bound by the TFA have provided such information. The low compliance confirms the complexities of those countries in centralizing and targeting TACB requests.
As of today, 19 countries[5] have made use of the flexibilities provided under the SDT mechanism (TFA Articles 17and 19). Ten requests shifted measures from self-implementation (Cat B) to implementation with TACB (Category C), while 13 applications demanded the opposite. Surprisingly, the WTO Trade Facilitation Committee received just one request[6] for extending time of category B commitments, compared to the five requests[7] asking to extend time of category C commitments.
Toward the finish line
In the TFA as in a marathon, swiftly arriving is not as crucial as completing the whole race. Thus, developing countries and LDCs needs to ensure endurance run. To date, developing countries seem to meet their obligations concerning the identification of transition periods, and TACB. Nonetheless, this group of countries still faces significant challenges in the concretization of technical assistance arrangements. LDCs are quite behind in this race as they still need to complete even the early stage, ratification.
Against this background, developing countries and LDCs seeking to succeed in this race and reap full benefits from the SDT provisions may consider following these recommendations:
- Leave no one behind
The TFA SDT provisions brought a new paradigm into multilateralism, refocusing trade deals from liberalization-centric to development-centric. Indeed, the TFA incorporates the Agenda 2030’s motto “leave no one behind” by linking the implementation of legally binding obligations to the capacity of developing countries to do it. Moreover, the Agreement commits donor Members to provide TACB.
WTO Members should not overlook the five countries that have not notified any of the categories. One of them (Benin) has ratified the Agreement; whereas the remaining four countries (Guinea-Bissau, Haiti, Venezuela, and Yemen) have not ratified the agreement yet. As an additional challenge, the latter countries are expected to submit all SDT-related notifications at the moment of ratification.
- Bring your GPS
As trade facilitation reforms touch upon different areas from transparency to customs cooperation, the coordination of the TFA implementation is inscribed in a multi-stakeholder body, the so-called National Trade Facilitation Committees-NTFCs. To prevent that some groups’ interests prevail over others, NTFCs should plan in advance their journey towards full implementation of the TFA in a public-private partnership approach.
One way is by mainstreaming trade facilitation reforms into national development plans. For instance, Trade Facilitation represents the second priority in the Action Matrix of the Diagnostic Trade Integration Studies (Aid for Trade Report, 2019). Another way is by elaborating trade facilitation roadmaps, targeting specific goals along with activities and indicators in a given timeframe. UNCTAD has so far supported 23 countries to draft trade facilitation roadmaps. Like a GPS, those documents will provide a prevailing direction and guide all stakeholders.
- Get competitive
While preparing for a marathon, you will train harder in areas where you are underperforming. Similarly, developing countries and LDCs must pay considerable attention to actors in international trade that are often not considered, such as SMEs and MSMEs. The WTO estimates that direct exports represent just 7.6 % of the total sales of SMEs in the manufacturing sector in developing countries (WTO, World Trade Report, 2016).
Making international trade cheaper and faster contributes to levelling the playing field between large and small firms. The OECD affirms that measures such as streamlining of procedures, automation of the border process, simplification of fees, or consultations with traders have the largest differentiated impacts on SMEs compared to larger firms (López González, J. and S. Sorescu, 2019). Thus, countries must move towards more SMEs responsive trade facilitation reforms.
- Track your performance
Developing countries must perform consistently. The TFA granted developing countries a grace period exempting them from the application of the Dispute Settlement Understanding until 22 February 2019 (Article 20). Furthermore, some countries have already reached their implementation deadlines for category B and C; thus, such measures are considered as implemented.
These developing countries should consistently track the compliance of those measures for their own benefit also because, if other WTO Members claim non-performance, they could be brought to the WTO Dispute Settlement Mechanism henceforth for a dispute concerning such measures. LDCs can still enjoy this exemption for a longer time.[1]
- Look for sponsors
Implementing the TFA requires investment in several ways, including financial and human resources. Although developed countries have pledged to deploy the necessary means to strengthen the developing peers’ capacity, such countries represent 24% of the WTO membership. Besides, trade facilitation strives in their cooperation agendas with other urgent priorities such as a refugee crisis, environmental degradation, gender equality and others.
Developed countries have shown steady support for trade facilitation reforms. During the global crisis, for instance, donor support for trade facilitation was relatively resilient (OECD, 2018). The excellent return on investment of trade facilitation reforms may explain this strong commitment. Empirical research found that a 1% increase in aid for trade facilitation could generate an increase of USD 415 million in global trade (Matthias Helble, Catherine L. Mann and John S. Wilson). The 2019 Aid for Trade Report also affirms that trade facilitation is the category in which aid-for-trade finance has delivered most impacts.
Finally, developing countries and LDCs should not underestimate the potential of South-South assistance. In 2013, the value of South-South cooperation exceeded US$ 20 billion and still growing (UN, 2015). The southern partnership can pull additional resources as also foreseen in the TFA (Article 22.2).
[1] DRC, Guinea-Bissau, Haiti, Liberia, Mauritania, Solomon Islands, Tanzania, Vanuatu and Yemen.
[2] Accounting for 23 developing countries.
[3] Accounting for 59 developing countries.
[4] The remaining 2% accounting for 2 countries still needs to designate Category B and C
[5] 69 out of 70 developing countries- bound by the TFA and requesting TACB- have presented their definitive dates for Category B. Likewise, 56 out of 59 developing countries- bound by the TFA and requesting TACB- have presented their definitive dates for Category C.
[6] Bolivia
[7] Armenia, Bolivia and Cameroon.
[8] Afghanistan, Angola, Bangladesh, Burkina Faso, Cambodia, Chad, Djibouti, Gambia, Guinea, Lao, Lesotho, Madagascar, Malawi, Mali, Mozambique, Myanmar, Nepal, Niger, Rwanda, Senegal, Sierra Leone, Togo, Uganda and Zambia.
[9] Benin, and Burundi.
[10] Data obtained from the WTO TFA Database https://tfadatabase.org/notifications/implementation/global-status visited on 20 February 2020.
[11] Equivalent to two countries-Cuba, Maldives and Ukraine.
[12] 2019 Aid for Trade report affirms that trade facilitation increased by USD 219 million respectively compared to its 2016 level.
[13] Bahrain, Belize, Dominican Republic, Ecuador, Fiji, Grenada, Guyana, Jamaica, Maldives, Mauritius, Moldova, Mongolia, Nicaragua, Pakistan, Paraguay, Peru, St-Kitts and Nevis, St-Vincent and the Grenadines, Sri Lanka, Trinidad and Tobago, and Ukraine.
[14] Benin, Burkina Faso, and Malawi.
[15] Bangladesh, Barbados, Belize, Cuba, El Salvador, Eswatini, Kingdom of, Guyana, Jamaica, Kazakhstan, Kyrgyz Republic, Lao, Mozambique, Nicaragua, Papua New Guinea, Samoa, Seychelles, Tonga, Ukraine, and Zambia.
[16] Belize submitted such request.
[17] Belize, El Salvador, Jamaica, Kyrgyz Republic, and Samoa.
[18] LDCs benefit from a 6-years grace period for Category A designations after entry into force, namely until 22 February 2023; while the grace period is eight years for Category B and C designations counted after the implementation of such provisions.
Contact: Pamela Ugaz | Economic Affairs Officer | Trade Facilitation Section | pamela.ugaz@unctad.org
