Long Road Ahead for the Trade Facilitation Agenda

By Julia Marvin

WTO members met in Geneva on July 31 to implement a historic WTO trade agreement that incorporated special provisions for developing countries, allowing for the staggered implementation of trade standards and tailored technical assistance to meet these standards. Of course, this did not happen as India chose to block the WTO consensus needed to implement the agreement unless its food security issues are addressed.

India’s decision to stall out Bali progress has raised concerns that the WTO will not be able to implement the Bali agreement at all. A coalition of 25 developing and developed countries, including Australia, Thailand, and Canada, has asked India to reconsider but so far India’s position has proven intractable.

Cargo inspection a the Port of Jakarta

Cargo inspection a the Port of Jakarta

Proponents of the agreement point to the tremendous gains; the Bali Package will greatly reduce administrative inefficiencies in trade facilitation that amount to roughly twice the average tariff cost – producing approximately $1 trillion increase in global GDP annually. Moreover, a recent study by the U.S. Agency for International Development also found that reducing global trade costs by just 1 percent would lead to a $40 billion increase in world income.

India aside, some parties hold lingering doubts about the agreement. Previous negotiations fell through in 2003 and again in 2008, and some developing countries continue worry that the Bali agreement will force them to allocate significant resources towards new infrastructure, training, and maintenance instead of more immediate development goals.

While the agreement makes clear that it will only require commitments that do not negatively affect development and general trade capabilities, many of the countries facing this dilemma will gain significantly less if they do not adopt all of the reforms.

In order to maximize gains from the agreement, developing countries need both technical support and financial assistance. The agreement provides latitude for donors to choose the form and amount of assistance they offer, raising the specter of insufficient assistance to meet trade facilitation obligations. To fill this gap, USAID has partnered with the World Bank and others to create the Trade Facilitation Support Program for developing countries. The program focuses on increasing trade, investments, and jobs in developing countries by bringing trade facilitation systems up to par with the WTO agreement.

USAID is also in the process of creating a public-private partnership composed of foreign and U.S. private sector representatives, donor countries, and host country partners. The ‘Alliance’ will seek to incentivize developing countries to move beyond implementing ‘best endeavor’ commitments into making category-C level commitments a reality. The alliance proposes to efficiently coordinate donors and the private sector to ensure the most effective partnerships, as well as eliminate project redundancy. The USAID-led project is still up in the air, particularly given the circumstances at the WTO, but approached parties all agreed that partnerships can greatly benefit trade facilitation attempts.

Despite concerns, the benefits offered by trade facilitation are compelling.  The OECD has assembled country-specific information illustrating past benefits from trade facilitation:

  • In Ethiopia, customs reforms increased imports and exports by 200 percent and tax revenues by over 51 percent.
  • In Tunisia, a reduction in cargo delays from ten days in 2003-04 to 3.3 days in 2010 helped generate 50,000 full time and 50,000 part times jobs for firms involved.
  • In Costa Rica, the introduction of a new single window system helped reduce clearance time for dairy products from 10 to 1.5 hours, and for agrochemicals from 27.5 to 2.2 hours.

The Bali Agreement is significant despite the recent setbacks at the WTO. Given the complexities of negotiations, the process forward may be difficult to resurrect, which is unfortunate – the initial unanimous support for the Bali agreement was a rare moment of functionality on the part of the WTO. While challenges and roadblocks are certain, the scale of benefit at stake is staggering. The international community has an opening to reclaim lost time, money, and business. We should seize the opportunity, and urge a compromise before the 2015 implementation deadline.

Photo courtesy of Indonesia Infrastructure Initiative’s Flickr photostream

Julia Marvin is a researcher for the Project on Prosperity and Development

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