Red tape, opaque regulations and inefficient revenue collection all cost developing world economies billions of dollars per year. The current systems leave food rotting at borders, delay vital goods and propagates a culture of corruption. Research by the World Bank has found that ‘a one-day reduction in inland travel times translates to a 1.5% decrease in all importing-country tariffs’. These delays are most pronounced in developing states, which has led to the cost of trade for developing economies on average being 1.8 times higher than developed states.
To address these issues, WTO Members concluded negotiations on a landmark Trade Facilitation Agreement (TFA) at the 2013 Bali Ministerial Conference. After just over three years, the TFA has come into force with the final number of required members ratifying the agreement on 22 February 2017.
The agreement commits members to address these technical barriers head on. The TFA contains provisions for expediting the movement, release and clearance of goods, including goods in transit. It lays out measures for effective deepening of integration between customs and other relevant authorities. It also comprises technical assistance and capacity building provisions. Full implementation of the TFA could reduce world trade costs by an average of 14.3%. The Director-General of the WTO as called it ‘the biggest reform of global trade this century’. And indeed, it potentially is!
No hope without the private sector
In January of this year, I attended UNCTAD’s International Forum for National Trade Facilitation Committees at the United Nations Office of Geneva. The forum was, for the most part, an exercise in instructing diplomatic trade representatives from the Global South about how their governments should set up TFA committees, which will in turn implement the TFA. Whilst the forum’s chief focus was the role of government, there was a session that highlighted the importance of the private sector.
One of the forum’s speakers, Stephen Morris, the Chair of the International Federation of Freight Forwarders Associations, stressed the importance of private sector participation in the TFA’s implementation. Mr Morris noted the unique status of the private sector as they deal with and can identify challenges and opportunities to augment trade links to global value chains. He also highlighted how it’s the private sector that creates economic wealth, not governments. He urged representatives that if private sector representatives were not present in the process, their states would see little to no effect from TFA provisions.
Unfortunately, to date, Mr Morris’ points have been overlooked. Engagement with the private sector has often been fragmented and local business awareness of the TFA remains weak in some regions. Much of this is a symptom of governments in the developing world lacking the institutional capacity to effectively engage their private sector. However, in some states, there is still an ideological unwillingness to surrender any trade reform power to the business community.
Nevertheless, for the TFA to reach its full potential, not only does the private sector need to be involved, it needs to lead the process. Listening to the business community regarding the roadblocks they face in getting goods and services to market is vital for extracting maximum efficiency from the agreement. Allowing business to tailor the FTA provisions to suit their needs will do exactly that. Additionally, this will create bottom-up demand and support for trade facilitation reforms. Naturally, this will require an ideological reassessment for many states and it may prove unacceptable for some.
However, developing states should note that many attempts to create a more efficient trading environment in the Global South, such as the first East African Community, have failed or stagnated because the private sector was left out of negotiations and implementation.
The TFA has enormous potential that could see a rapid reduction in poverty, a decrease in trade costs, facilitate the involvement of smaller companies on the international trading scene and support the increased participation of developing countries in global value chains. Each state will face its own challenges and bespoke solutions need to be created for each issue as they arise. This process will be long and problematic, and states will require great technical assistance from ECOSOC and the WTO in this area. Without the private sector on board, however, the TFA will be little more than a disappointment.
Chris Arnel is the International Trade and Economy Fellow for Young Australians in International Affairs.