The WTO: Troubles in Trade

The reaction came thick and fast. Logistics service provider Agility referred to it as a tragic failure, no less, citing big losers in developing countries across Africa, Asia and Latin America. DHL, FedEx, TNT and UPS, in the form of the Express Association of America, bemoaned the loss of potentially large gains in world trade, GDP and jobs. In Washington, the National Association of Manufacturers said an agreement would have stimulated growth in the developing world and helped US companies expand their exports.

So what triggered this chorus of displeasure? Well, it was the failure in Geneva of the World Trade Organisation (WTO) to meet the end-July implementation deadline for the Trade Facilitation Agreement (TFA) that was hammered out at the WTO ministerial conference in Bali last December.

Back then, the fact that the 160 members of the WTO had come to an agreement on something ­– especially something that many observers predicted could boost the world economy by some $1 trillion and reduce trade costs by as much as 15 percent – was hailed as a rare triumph for the now 19-year-old global trade body, which has been criticised for its failure to do much to ease the mechanics of global trade since the collapse of the ambitious Doha Round in 2001.

What the Trade Facilitation Agreement specifically seeks to do is expedite the movement, release and clearance of goods and improve cooperation among WTO Members on customs matters. The details behind these two broad aims are many but include aspects such as member countries making timely, accurate and accessible information on trade laws, fees and tariffs; pre-arrival processing of customs information to reduce delays and bottlenecks at border crossings; and instituting transparency for detained goods (a common supply chain pain) such that traders must be notified their goods are being held for inspection. Sounds good and sensible, doesn’t it?

Indeed, while the TFA maybe a watered down version of what was envisaged in Doha all those years ago, it would still deliver clear and present benefits around improving the flow of the goods and reducing associated costs. So surely by now you must be itching to know why the TFA has (at least for now) ground to a halt. And this is where it gets political.

It was India that vetoed the Trade Facilitation Agreement and prevented it from moving ahead. Not because the world’s biggest democracy which also recently elected a pro-business Prime Minister violently objects to the TFA ideals, but because it could not get assurance from WTO members on an essentially separate matter, that of the level of subsidies the Indian government can provide to the country’s farmers without incurring WTO penalties.

So really more of a negotiating tactic than anti-trade stance. Interestingly, as well as getting blasted by the likes of DHL and UPS, emerging countries like Mexico and Thailand have criticized India’s effective stalling of the TFA.

The disharmony at the WTO sits in rather stark contrast to the increasing number of regional and bilateral trade agreements that are being successfully signed and implemented. In Asia alone, there are currently more than 260 free trade agreements (FTAs) in operation. These do vary in effectiveness, it has to be said, with notably strong ones such as between individual Asian countries and the US contrasting with many weaker intra-Asian deals that have not really done much to tackle protectionist behavior and boost trade.

In the WTO’s case, with 160 members to cajole and satisfy plus the principle that every item of the negotiation is part of a whole, indivisible package and cannot be agreed separately (“Nothing is agreed until everything is agreed”), the difficulties in successfully formulating and implementing a resolution are all too apparent.

While few would debate the merits of improving the efficiency of customs procedures, which remain far too onerous in many parts of the world, the case of the Indian TFA veto in Geneva illustrates how pressing domestic concerns can override a country’s desire to play with the team for the global good.

Still. it is not quite game over for the TFA. WTO director general Roberto Azevêdo has advised WTO members to take time over the summer break to reflect and come back in September. US Secretary of State John Kerry talked about being sensitive to India’s position and striving to work towards a solution. There have also been mutterings about ignoring India and going ahead with a majority vote on the TFA.

This latest incident has put the credibility and relevance of the WTO under the spotlight again. And it will be in the interest of that organization as well as shippers and service providers in both the developing and developed worlds to see the Trade Facilitation Agreement get back on its feet after this stumble and make it over the finishing line before too long.

Bob Gill is the General Manager for Southeast Asia at ARC.  Bob has a background in editing industrial trade publications including those covering Asian logistics and supply chain management.

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