Ease of doing business through implementation of WTO Trade Facilitation Agreement
Md. Joynal Abdin
The Asian Age on November 26, 2019
Bangladesh ranked 168th in the Doing Business Report 2020 of the World Bank from its previous position of 176th last year. Bangladesh’s progress in Doing Business ranking is the direct outcome of government’s doing business reforms initiatives coordinated by the Private Sector Development Policy Coordination Committee (PSDPCC), Bangladesh Investment Development Authority (BIDA) and other relevant ministries and agencies under direct supervision of the Honorable Prime Minister’s Office.
Eight steps progress of this years should not make us complacent but this should be treated as the first step towards our progress. Our target to perform in double digit and even less should get priority in coming days. A complementary way of performing better in Doing Business Index could be proper implementation of WTO Trade Facilitation Agreement (TFA) in Bangladesh.
The term ‘Trade Facilitation’ could be defined in various ways. Researchers and policymakers around the world are defining it from two major aspects i.e. the “broader” aspects and a “narrower” aspects.
The broader aspect is associated with the Asia-Pacific Economic Cooperation (APEC), where Trade Facilitation was conceptualized as the full range of policies other than reductions in tariffs that could lower international trade costs. The narrower aspect is typically focused on administrative procedures at the border, involving customs as well as other agencies involved in clearance of goods.
The World Trade Organization (WTO) Trade Facilitation Agreement (TFA) has been finalized at the Bali Ministerial Conference in December of 2013. By February 2017, two thirds of the WTO’s Members had ratified the agreement. It entered into force on February 22, 2017.
TFA aims at speed the clearance of goods through Customs for all WTO Members, swift, reliable, movement of cargo across international borders is expected to increase global trade, economic growth, and welfare.
There is a major criticism of WTO process that, it is slow and complicated in implementation of the agreed agreements. It is because sometimes bilateral or non-business issues had impact on international trade regime among the member states. With all the limitation of WTO process we have to remember that, the average applied tariffs have declined by almost half since its establishment from a simple average of 11.2% in 1995 to 6.0% in 2016.
According to the World Trade Report 2015, trade costs in low-income economies were equivalent to a 219 percent ad valorem tariff, which was 85 percentage points higher than for high-income economies. Reductions in trade costs were expected to increase exports and GDP drastically. In the interest of these benefits, formal negotiations for the TFA began in 2004.
After 10 years of negotiation the Protocol of Amendment to insert the TFA into the WTO framework was adopted by members in 2014. According to an OECD report full implementation of FTA will reduce the cost of global trade from 12.5 to 17.5 percent. On the other hand WTO expects trade cost reductions to average at about 14.3 percent with particularly large impacts on the least-developed economies.
According to OECD Report (2015), the area that would contribute most towards lowering trade costs is in formalities. Simplification of trade documents, and streamlining and automation of border processes are expected to save costs in the order of 2.8 to 4.2 percent.
The reduced bureaucratic complexity and corruption is also expected to lower average time to import by 47 percent and time to export by 91 percent. These drastic time and cost reductions will make it cheaper for existing traders to operate and also encourage new firms to trade. As a result, world GDP will grow by 0.5 percent per annum between 2015 and 2030 with particularly large positive impacts on the developing economies.
Regarding implementation of FTA, the developing and least-developed WTO member countries are allowed to choose their own implementation schedules and will be provided technical and financial assistance for capacity building if needed. Developed members are committed to implementing the TFA since 22nd February 2017. All other members have been provided with following three categories to allocate their measures to.
Category A: Developing members are committed to implement it from the first day of enforcement i.e. 22nd February 2017 and least-developed members will do the same a year later i.e. from 22nd February 2018.
Category B: Members will require additional time to implement the measure.
Category C: Members will require additional time and capacity building support to implement the measure.
All 114 member countries of the WTO have notified some measures under category A, 73 members have notified under category B and 63 of them have notified some measures under category C. From the above notification it is clear that, more than half of the members have notified that additional time is required or capacity building support is required to implement some of the measures.
The majority of the members that require support are either developing or least-developed members, since developed WTO members have a 100 percent implementation rate while developing economies have a rate of 60.6 percent and least-developed members have an implementation rate of only 22.8 percent.
None of the member states have 100 % implement the TFA, till now developed countries like Australia, Canada, New Zealand and Japan implemented about 80% obligations, some developing countries like Chile, China, Korea, Mexico, Peru, Singapore and Thailand also implemented the same around 60 % to 80%.
Implementation of TFA reduced trade cost round 9% to 12 % in the developing countries. Considerable indicators of TFA implementation are the followings:
- Availability of Information both web-based and other forms of publications about customs and border related rules and procedures, including transparency mechanism.
- Involvement of the trade community e.g. businesses with relevant government agencies to ensure their inputs in design and operation of border-related policies and procedures.
- Advance rulings i.e. prior statements by the customs administration to requesting traders concerning the classification, origin, valuation method, etc., applied to specific goods at the time of importation.
- Appeal procedures i.e number of basic characteristics of the appeal system, such as, transparency, fairness, accessibility, timeliness, and effectiveness of the applicable rules and outcomes.
- Applicable fees and charges on export and import have to be publicly available.
- Import-Export formalities, harmonization and simplification of relevant documentation process.
- Automation of borders, electronic interchange of documents, and application of risk management procedures.
- Reducing procedures through implementation of single windows, pre-arrival processing, physical inspections, post-clearance audits etc.
- Proper cooperation between (local) agencies, control delegation, and regular meetings held at the national level.
- Proper cooperation between (neighboring / international) agencies to alignment of work hours, alignment of procedures and formalities, development and sharing of common facilities, and joint controls with bordering and third economies.
- Consularization of transaction requirements.
- Governance and impartiality i.e. good governance characteristics, including clearly established and transparent structures and functions, the existence of a Code of Conduct and an ethics policy, internal audits, and transparent provisions for financing and for internal sanctions in the customs administration.
- Transit fees and charges have to be publicly available.
- Transit formalities and documentation, transit infrastructure, single windows for transit trade, pre-arrival processing for transit trade, physical inspection.
- Transit guarantees requirement, amount of guarantee, whether or not supported by some form of agreement, timeliness and full release of guarantee, and use of convoys.
- Existence of bilateral or multilateral agreements supporting transit trade, simplification of documentation, and cooperation between agencies of the economies involved.
From the above indicator list we can derive a conclusion that TFA is in line with the concept of Ease of Doing Business. Implementation of FTA will lead a country into Better Performance in Ease of Doing Business Index. For example; concept of single window services in the TFA is in line with the concept of One Stop Service (OSS) of Ease of Doing Business.
Other indicators of TFA like publication and availability of relevant information, e-payment, process automation, impartial-transparent and non-discriminatory implementation of roles, cooperation between boarder agencies etc. are the similar concept in Ease of Doing Business too.
Finally we can state that, proper implementation of TFA will promote the simplification, modernization and harmonization of trade processes to reduce cost and time, boost trade flows and increase the world GDP growth. As the World Trade Report 2015 concludes that it has the potential to reduce trade costs by an average of 14.3% and increase exports by $1 trillion per year.
Another study says that the implementation of TFA will lead to an increase in export diversification. Both TFA and Ease of Doing Business point out that the future of efficient trade lies in the modernization of electronic platforms, international cooperation at both the customs and borders, efficient risk-based inspections and simplified documentary requirements.