Multilateralism seems down and out. So does trade liberalization. But amid all the talk of backsliding in international trade, it is almost to be expected that no one really notices when significant progress is being achieved on the world stage. This is such a moment. Now that more than two-thirds of WTO members have ratified it, the groundbreaking Trade Facilitation Agreement (TFA) has entered into force. However, the TFA has so far failed to spark enthusiasm. Even observers interested in global trade have often little idea of what this acronym stands for.
Yet, this is a big deal, especially in an age in which e-commerce is increasingly flowing internationally. According to recently published research by DHL, cross-border e-commerce is expected to grow by about 25% annually in the period up to 2020. This is nearly twice the rate of domestic e-commerce and a growth rate rarely seen in most traditional retail markets. For many micro, small and medium sized enterprises, cross-border e-commerce is becoming the route to expand their customer base and remain successful. For them, the TFA represents a major opportunity.
Look at the world from the perspective of one of these many millions of merchants and their employees: On the one hand, the power of the Internet provides them direct access to the global market – and hence a vastly larger number of potential customers. On the other hand, many of them cannot fully tap their cross-border potential due to red tape and complex procedures at the border.
Unpredictability, a lack of transparent rules, and a persistent requirement for paper documents not only adds cost and delays to the movement of goods across borders. It is also anachronistic in the age of digitalization and smartphones. Overcoming these hurdles to global trade is the principal goal of the TFA.
At its core, the TFA aims to simplify and speed up the cross-border movement and clearance of goods. It does so by facilitating more effective customs cooperation between countries and by harmonizing and modernizing export and import processes. It also contains provisions for capacity building – in order to assist developing countries in implementing their commitments.
By reducing costs, complexity and inefficiency, the TFA will make life easier for a lot of today’s merchants and encourage more entrepreneurs to trade with the world. And it will help many countries to better access far-away markets and participate in global value chains. According to the WTO, a full implementation would contribute to reducing global trading costs by up to 14.5 percent and add up to $1 trillion to global trade flows each year – with a large part of the expected gains going to developing countries.
If we achieve via the adoption of the TFA that countries from Rwanda and Sri Lanka to Kyrgyzstan and Jamaica – by embracing transparent and simple rules – have a real shot at becoming an integral part of the global economy, we should be proud of that. This is ultimately what the democratization of global trade is all about. And if the TFA helps to reduce transaction costs that currently still take a sizable cut out of the pockets of entrepreneurs and raise consumer prices, then everyone should be eager to achieve that as well.
In an environment of nervousness and uncertainty around global trade, the TFA is a ray of hope. It documents that there still is substantial international commitment to make trade flows easier and strengthen the multilateral trading system. Globalization has provided many people, especially those living in developing countries, with more opportunities to lead a better, more prosperous life. As a result, the global economic pie is not shrinking, but expanding to the benefit of all. The TFA will ensure even more progress in that direction.