7 Reasons Bali Trade Agreement Needs to Happen
There are still a few signatures needed before the Bali trade facilitation agreement can enter into force. The sooner these pending ratifications are achieved, the better it will be for global trade, business and development.
[Editor’s note: Hong Kong, Singapore, Malaysia and Japan were among the first countries to ratify the deal, signifying its importance for the Asia-Pacific region.]
The World Economic Forum has estimated that the benefits of improved global trade facilitation far exceed those of further tariff reduction. An ambitious improvement in selected key components of trade facilitation would lead to an increase of approximately $2.6 trillion (4.7 percent) in global GDP and $1.6 trillion (14.5 percent) in global exports.
Exactly how many trillion dollars of trade or GDP are generated depends on a number of assumptions, but there is no doubt that the impact is positive. But why is this?
In today’s trade-logistics and development context, trade facilitation has become ever more important. Here are seven specific reasons why.
Increased trade in manufactured goods—especially by developing countries. UNCTAD’s estimates for seaborne trade illustrate the point: Developing countries are no longer just providers of raw materials, but now import higher volumes of inputs so as to produce manufactured goods for export. The share of developing countries in global imports has more than tripled since 1970.
A trade facilitation measure such as Advance Ruling (Article 3 in the Trade Facilitation Agreement (TFA)) is more relevant for trade in manufactured goods than for raw materials. When the first smart watch arrived at the border and the customs officer had to decide if this was a computer, item of jewellery, a toy or (perhaps) a watch, the importer would certainly have liked to have a binding advance ruling at hand.
Global value chains. Businesses are trading more in intermediate goods, with a growing share of intra-company trade. Within logistics expenditures, companies spend more on transport, reducing their inventory holdings. Ideally, deliveries are just in time, and waiting times at the border are either zero or at least predictable.
Any trade facilitation measure that helps to plan and speed up processes, such as pre-arrival processing (Article 7.1 of the TFA), separation of release and clearance (Article 7.3) or the publication of average release times (Article 7.6), is increasingly important for a country’s participation in global value chains.
The Bali trade agreement includes freedom of transit, inter-agency collaboration and customs cooperation.
Regional integration. The number of regional trade agreements (RTAs) continues to rise, as does the number of RTAs that incorporates trade facilitation measures. Regional integration depends crucially on the facilitation of cross-border trade and, at the same time, many cross-border operations depend on cooperation among neighboring countries.
The trade facilitation agreement specifically includes freedom of transit (Article 11), inter-agency collaboration (Article 8) and customs cooperation (Article 12). The benefits of such measures not only accrue from making trade and transit easier, but also from the regional collaboration efforts that are necessary during their implementation. One of the beauties of the multilateral TFA is that it can help regional integration without requiring a spaghetti bowl of RTAs.
Globalization. Parallel to the growing intra-regional trade, we also observe a diversification of trading partners, including an intensifying south-south trade (trade between developing countries).
The more businesses want to sell and source abroad, the more they benefit from trade facilitation measures, such as internet publication (Article 1.2) or the use of international standards (Article 10.3). In fact, by its pure entry into force, the World Trade Organization agreement in itself helps to standardize and harmonize terminologies and expectations for cross-border procedures and documents.
Enforcement and revenue collection. An unfortunate but frequent misconception is that of a balance or trade-off between trade facilitation and risks to the public interest. Trade facilitation and the protection of the public from lost revenues or health hazards are not competing policy objectives. On the contrary, a large number of specific trade-facilitation measures clearly help both the ease of doing business and the fight against under-valuation, counterfeit trade or smuggling.
Measures such as advance lodging of information (Article 7.1 of the TFA), post clearance audits (Article 7.5), authorized operators (7.7), risk management (7.4) and numerous others not only reduce the need for physical inspections, but also increase the likelihood of catching those who break the law. The more we care about protection and revenue collection, the more we should aim at ratifying and implementing the trade facilitation agreement.
E-Commerce. Be it B2B (business to business) or B2C (business to consumer), trade increasingly involves frequent and small deliveries. The internet has practically no borders.
Specifically, the facilitation of expedited shipments (Article 7.8) is of interest to those of us who buy online.
Development. Beyond the benefits of trade facilitation for trade, practically all specific measures included in the TFA are good for development on their own right. Implementing the TFA entails a direct impact on the development of nations. Development is more than just GDP per capita; it includes good governance, entrepreneurship and the transition of the informal sector to participate in the formal economy. It also includes the development of human and institutional capacities; and it includes transparency, respect and dignity.
Specific TFA articles help achieve specific Sustainable Development Goals targets such as public access to information, access to internet and reducing corruption and bribes. Many trade facilitation measures directly help to meet another SDG target, namely the formalization and growth of micro, small and medium-sized enterprises.
It is possible?
While the seven good reasons above illustrate the growing demand for trade facilitation, we also benefit from the supply of new tools. Measures such as “single window,” electronic documents or cargo tracking are all easier to implement today than when the facilitation negotiations started at the WTO a decade ago.
Setting up an inquiry point, training customs officers, automating procedures or drafting new regulations all require an initial investment. Subsequent maintenance costs should be negative—i.e., the improved revenue collection and the cost savings made after the up-front investment outweigh the potential maintenance costs. Also, it is perfectly possible to charge for services such as advance rulings or the use of a single window. In total, if planned well, the human and monetary benefits of TFA implementation will outweigh the costs.
Ratifying the TFA is a huge opportunity. Apart from anything else, it entails the possibility of taking advantage of a range of dedicated capacity-building and private-sector development programs of the World Customs Organization, UNCTAD, the International Trade Centre, the Global Alliance for Trade Facilitation and many other agencies and bilateral donors. Ratification is the responsibility of governments, but support and investment is also an opportunity for the private sector—one not to be missed.
This piece first appeared on the World Economic Forum Agenda.