IMPLEMENTING TRADE FACILITATION AGREEMENT (TFA)
Trade facilitation simply put is the streamlining, harmonizing and simplifying border procedures to expedite the cross-border movement of goods. The World Customs Organization defines trade facilitation as “avoidance of unnecessary trade restrictiveness”.
There is a universal consensus that red tape, complicated clearance procedures and poor logistics infrastructure at the border increase costs to trade which are ultimately borne by the end consumers and firms. In the age of globalization and specialization where production and manufacturing processes are dispersed across the globe, the goods, cross borders many times before reaching to the final consumers, hence expeditious and hassle-free movement of cargo albeit with adequate safeguards assume huge significance for competitiveness of an economy.
According to a World Bank research, a delay of one day in shipment of a product results in decrease of 1 percent in trade for that country. It is noteworthy to add that trade costs for the purposes of trade facilitation do not include the tariffs and non-tariff measures which a country implements as trade policy measures.
The World Economic Forum’s “Enabling trade valuing growth opportunities” report argues that improvement in only two supply chain barriers, i.e. border administration and transport infrastructure up-to even half of international best practices can increase world GDP by US $ 2.6 trillion and increase it six times more compared to removing tariffs. The trade facilitation is considered a ‘win-win’ scenario for both developing and developed countries.
The Trade Facilitation Agreement (TFA) came into force on 22nd February 2017 when two third of WTO members ratified the multilateral agreement. It aims to reduce red tape through simplifying required paperwork, modernizing procedures and harmonizing customs requirements to reduce the costs and time of international trade. The Organization for Economic Cooperation & Development (OECD) estimates suggest that full implementation of the Trade Facilitation Agreement would reduce costs to trade from 12.5% and 17.5%.
The World Trade Organization’s Trade Facilitation Agreement is the first multilateral agreement since 1995 which prescribes various binding trade facilitation commitments on member countries in order to cut red tape, reduce documentary and border compliance costs to ensure expeditious movement of cargo.
Unlike other international agreement, TFA provides flexibility to the members in terms of implementation of the provisions of the agreement. Each signatory is required to divide the provisions of the agreement into three categories, i.e. A, B and C allowing time for implementation and at the same time assistance to developing and least developed countries for implementation.
Pakistan ratified TFA on 27th October, 2015 and communicated its schedule of commitments to the WTO in 2016. According to research and empirical evidence, it is established that the countries which have fully implemented the Trade Facilitation Agreement are also topping the World Bank Doing Business Report 2019 Trading Across Border indicator and the time and costs to import and exports are minimal (1 hour and zero US $ for import and export) in those countries. Currently, Pakistan is ranked at 142 on the Trading Across Border indicator of Ease of Doing Business Report 2019. The top performers on the Trading Across Border indicator are countries which have fully implemented the Trade Facilitation Agreement such as France, Spain, the Netherlands, Portugal, etc.
Similarly, in the region, India and China have both higher ranking on TAB at 80 and 65 respectively, and their TFA implementation status is 72.3% and 94.5% as against Pakistan’s 45%. Furthermore, the time and cost to import and export are also less in case of the countries which have implemented Trade Facilitation Agreement. Predominantly, the countries higher in ranking on Trading Across Border indicator are the ones with better TFA implementation status. Hence, Pakistan’s ranking on TAB as well as time and costs for cross border movement of goods are contingent upon Pakistan’s implementation of the Trade Facilitation Agreement.
The TFA implementation is a challenging task and it is for the same reasons, Pakistan has communicated (75) of TFA measures in category (C) where it would require technical and financial assistance. These include the setting up of National Single Window (NSW), a system of Advance Ruling, Authorized Operators, Border Cooperation and a robust Risk Management System.
These measures are considered to be the most trade facilitating measures of TFA at the same time the most challenging provisions to implement. In this connection, continued commitment and political will at the highest level will be required as apart from Federal Board of Revenue and Pakistan Customs, Ministry of Commerce, hosts of trade regulatory department and private stakeholders are required to be on board not to mention the assistance of international donors.
In order to fast track the implementation of TFA, following measures are required to be taken on urgent basis. [the_ad id=”31605″]
- Legal gap analysis of all the trade regulatory bodies
- A diagnostic study/mission by WCO/WTO
- Devising an implementation plan
- Expediting the setting up of National Single Window
- Improving Customs Risk Management Systems
- Reviving and re-invigorating the National Committee on TFA implementation
- Awareness and education of the trade community
- Improvement in the port infrastructure
- Sustained and continuous will and support at the highest political level
- Meaningful engagement with international donors for assistance in implementation.