The most important multilateral trade agreement you never heard of just came into effect

Don’t tell Donald Trump but this week a major global trade deal, the Trade Facilitation Agreement, came into effect — and the U.S. is part of it.

By: /
February 24, 2017
Delegates in front of World Trade Organization (WTO) headquarters in Geneva, November 27, 2014. REUTERS/Denis Balibouse
Visiting Associate Professor, Department of Politics and Public Administration, University of Hong Kong

On Jan. 23, with characteristic flourish, Unites States President Donald Trump fulfilled a campaign promise by signing an executive order to withdraw the U.S. from the Trans-Pacific Partnership (TPP), a major trade deal among 12 countries (including Canada) that was the centrepiece of his predecessor Barack Obama’s strategic pivot to Asia. 

The TPP would have required congressional approval, which despite the Republican majority in both houses would have been difficult to achieve, even though the GOP typically supports free trade initiatives. Obama did not try to get the TPP through during Congress’ lame-duck session after the November election. Now that Trump is in the White House, the TPP is out the window – and likely dead in the water. (Without ratification by the U.S., the TPP cannot reach the trigger point for coming into force. The deadline for achieving the approval threshold of six countries representing 85 percent of the total GDP of the 12 signatories is the end of this year.) 

While proponents of free trade will lament the stalling and possible demise of the TPP, some may take comfort in reports that some signatories, including Australia, New Zealand and Singapore, are determined to find a way to keep it alive. 

Much greater consolation came this week when the Trade Facilitation Agreement came into effect, as Chad, Jordan, Oman and Rwanda all ratified, bringing the total number of World Trade Organization (WTO) members that have adopted the accord to 112, two more than necessary for it to enter into force. (The U.S. ratified the TFA on Jan. 23, 2015, while Canada’s parliament did so on Dec. 16, 2016.)

What is the Trade Facilitation Agreement?

Signed by WTO members in December 2013, the TFA is the biggest global trade pact in 20 years — and arguably the most important multilateral trade agreement most people have never heard of. 

Its provisions speed up the movement, release and clearance of goods, including those in transit. The agreement’s measures also provide for greater cooperation among customs and other national authorities on trade facilitation and customs compliance. It also arranges for technical assistance and capacity building in countries that need help.

While the TPP has attracted a lot of attention because of the presidential campaign in the U.S. — both Trump and Democratic Party nominee Hillary Clinton opposed it — the TFA has been notching ratifications under the radar. 

The TFA will have greater positive impact on global trade than the TPP (and much broader impacts than the recently celebrated Canada-European Union Comprehensive Economic and Trade Agreement, or CETA). The global agreement is certainly more straightforward: It is only 30 pages long, while the TPP, which covers a wide range of issues including environment and labour standards, has nearly 5,600.

Non-tariff barriers represent an estimated 219 percent de facto tax on trade. A 2015 study by WTO economists concluded that the TFA would reduce the trade costs of members by an average of 14.3 percent, with the most gains by developing economies. According to the forecasts, the TFA would reduce the time to import goods by over a day and a half, a 47 percent improvement over the current average. Export time would be cut by nearly two days, a 91 percent advantage. The report estimated that implementing the TFA would increase global merchandise exports by up to US$1 trillion. The overall impact of the TFA would be greater than the elimination of all existing tariffs around the world. Developing countries could increase the number of products they export by 20 percent; least developed economies by up to 35 percent.

An impact on domestic policy

The TFA will serve as a catalyst for countries to push reforms, revise laws and push through new regulations and frameworks to meet their commitments. The TFA is also significant because it offers a new model for implementing global trade agreements and will take effect in a different way from previous WTO accords. Implementation is linked to the capacity of each member to meet the agreed requirements. Developing and least developed countries are able to tailor their implementation schedules to their specific needs. 

The TFA also includes assistance for countries that need to build the capacity to meet their commitments. A Trade Facilitation Agreement Facility will provide funds to help developing and least developed countries with implementation. 

“By ratifying the agreement, WTO members have shown their commitment to the multilateral trading system,” WTO Director-General Roberto Azevêdo said on announcing that the TFA had come into effect earlier this week. Azevêdo had previously called the benefits of the TFA “transformative.” 

While Trump’s decision to discard the TPP has likely killed off another potentially transformative trade deal, supporters of free trade should celebrate the TFA’s launch — but do so quietly so as not to attract the attention of the new protectionist president, whose opposition to the TPP was motivated less by what was in the agreement than what the treaty had come to symbolize. Much more than the TPP, it would be a big-league loss for global trade if the U.S. were to repeal ratification and withdraw from the TFA.