The Trade Facilitation Agreement (TFA) has generated much expectation in terms of development returns for least developed countries (LDCs). Ratified in February 2017, the first multilateral treaty to be adopted by the World Trade Organization (WTO) since its creation is designed to reduce transaction costs and stimulate trade as an engine of growth and poverty reduction.
Trade facilitation has emerged as an important priority of both developing countries and development partners. Since 2005, annual donor commitments have increased fivefold and US$3.9 billion has been disbursed in aid for trade facilitation.
Yet are LDCs engaging as anticipated in the TFA?
Tailor-made implementation and state of play
The TFA is primarily concerned with changing the way border agencies operate in order to reduce trade costs. Recent estimates suggest that the potential cost reduction from full implementation of the TFA is 16.5% of total costs for low income countries. Measures with the highest potential impact include harmonising and simplifying trade documents (4.2%) and automating trade and customs processes (3.6%).
Even if lower, these changes in relative costs can be significant in the fierce competition that characterises international trade today, much of which takes the form of global value chains in which LDCs generally have a low level of participation.
The TFA includes innovative provisions on special and differential treatment that enable developing countries and LDCs to design tailor-made implementation plans within an agreed notification timeline. These members can self-designate the 36 substantive provisions into three categories – A, B and C – that provide for different levels of flexibility. The TFA further creates a legal obligation to provide technical assistance and capacity building to LDCs based on their Category C implementation needs. To benefit, LDCs must comply with the notification requirements set out in the agreement.
As of May 2019, the level of engagement could be described as mixed. The rate of implementation commitments for LDCs stood at 24.7%. Of the 36 LDC members of the WTO, 12 were yet to ratify the TFA, 22 had notified the three categories, 11 had notified their indicative dates for Category B designations and seven for Category C. However, only three LDCs had submitted the type of support required to implement Category C designations by the February 2019 deadline, despite the fact that assistance is available to help with this process. This low compliance could indicate that LDCs are encountering challenges in identifying their assistance needs.
Rate of TFA implementation commitments