It’s been hailed as a landmark in global trading in the World Trade Organization’s 21-year history, overshadowing a series of frustrating failed international trade negotiations, and recently, the emergence of protectionist tendencies by no less than the world’s biggest economy, the United States.
We’re talking here of the Trade Facilitation Agreement (TFA) that was reached last February 22 when the WTO received two-thirds acceptance of the agreement from its 164-strong membership, thus bringing this multilateral trading system into force.
(Rwanda, Oman, Chad, and Jordan were the deal-makers when they submitted their instruments of acceptance to the WTO in February to bring the total number of country ratifications over the required threshold of 110. The Philippines sent its ratification in late October, the 95th WTO member to do so.)
The TFA contains 12 articles that involve measures to improve transparency and predictability of trading across borders. Developed countries have committed to immediately implement the agreement by creating a less discriminatory business environment.
The WTO says that the full implementation of the TFA could reduce trade costs by an average of 14.3 percent and boost global trade by up to $1 trillion per year, with the biggest gains to accrue to the poorest countries.
It would also reduce the time needed to import goods by over a day and a half, and to export goods by almost two days, representing a reduction of 47 per cent and 91 per cent, respectively, over the current average.
Implementing the TFA is also expected to help new firms export for the first time. Moreover, once the TFA is fully implemented, developing countries are predicted to increase the number of new products exported by as much as 20 per cent, with least developed countries (LDCs) likely to see an increase of up to 35 per cent, according to the WTO study.
And by way of recognizing that the states of development and capacities of its member countries are different from each other, the TFA is directly linked to the country’s capacity through three categories, which could be considered as safety nets.
In Category A, for example, developing and least-developed member countries need to apply only the substantive provisions of the TFA which they have indicated they are in a position to do so, from the date of the TFA's entry into force. LDCs are given an additional year to do so.
In Category B, developing countries and LDCs have submitted a list of provisions they will implement after a transitional period following the entry into force of the TFA.
In Category C, notifications contain provisions that a developing country or LDC designates for implementation on a date after a transition period and requiring the acquisition of implementation capacity through the provision and assistance of capacity building.
This is the first time in WTO history that the requirement to implement an agreement is directly linked to the capacity of the country to do so. To provide support, the WTO created a Trade Facilitation Agreement Facility (TFAF) to help developing and least-developed countries obtain the assistance needed to reap the full benefits of the TFA.
While lauded for its attempt to help reform global trade in today’s context, the TFA faces significant implementation challenges – more so for developing country members – since majority of its provisions are considered “best-endeavor” commitments that are difficult to enforce.
If there are significant direct economic gains to be reaped from the TFA for countries like the Philippines, for example, investments in physical infrastructure that are related to the trading – airports, seaports, roads, trains, and even customs procedures – need to be reformed outside of the TFA.
Still not an easy road for MSMEs
Indeed, it is not an easy road for the country’s micro, small and medium enterprises (MSMEs) and small traders that the Department of Trade and Industry has singled out as receiving a boon from the implementation of rational, efficient, and simple rules that would encourage more active participation in international trade.
Any MSME in today’s borderless world dreams for exporting goods and finished products to other countries with ease, and truly becoming a part of the global value chain (GVC).
For the country, this integration into the world’s trading network creates pass-on benefits to other industries, generates more jobs, exposes Philippine businesses to new trends in technology, and advances the skills and capability of our local entrepreneurs.
According to the DTI, the Philippines serves a crucial processing link in the GVC chain, both as a source and destination for intermediate goods, with a 56 percent overall participation rate measured by share of foreign value added in total exports. It is also ranked 8th in the list of the top 25 developing economy exporters in the 2013 World Investment Report of the United Nations Conference on Trade and Development.
A good start
Still, ensuring that the TFA will actually work will require the Philippine government’s full commitment to introducing the required infrastructure and systems, aside from availing technical assistance from a number of international and inter-government agencies and organizations.
For instance, if the country aspires to become an automotive hub in the region where the downstream auto parts suppliers and manufacturers will play a major role, more strategic and selective investment attraction policies need to be introduced.
Furthermore, attention must be given by the government to improve the capacity building for these auto suppliers, including opening up credit facilities and technology enhancement partnerships that will enhance their production ability.
The TFA is a good start. It will not immediately bring economic benefits, and does not automatically ensure that MSMEs will instantly receive its vaunted benefits. But it can eventually be a tool in trade facilitation reform over the long term as long as our government and the private sector continue to work towards it.
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