Trade Facilitation Agreement ratified by WTO

• The Trade Facilitation Agreement (TFA) in Goods of World Trade Organisation (WTO) came into effect with its ratification by two-thirds members of WTO including India.

About Trade Facilitation Agreement (TFA)

• In December 2013, WTO members concluded negotiations on a Trade Facilitation Agreement at the Bali Ministerial Conference, as part of a wider “Bali Package”.
• It contains provisions for expediting the movement, release and clearance of goods, including goods in transit.
• It also sets out measures for effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues.
• It further contains provisions for technical assistance and capacity building in this area.
• The problem with TFA runs in a clause that says farm subsidies cannot be more than 10 percent of the value of agricultural production. If the cap is breached, other members can challenge it and also go on to impose trade sanctions on the country.
• The developing countries would have a problem with the solutions offered by the developed countries as without the subsidies the food security of the developing nations could be seriously harmed. India agreed to the TFA in Bali only under the condition that interim relief would be provided to the developing nations.

Analysis:

• According to the WTO, full implementation of TFA could increase global merchandise exports by up to $1 trillion annually. The overall boost to world export growth has been estimated at 2.7 per cent per annum.
• This pact will bring much-needed predictability to trade related matters, by allowing advance authorisations, easier sharing of information with exporters and ease of business.
• Implementing the WTO’s TFA will cut global trade costs by up to 15%.
• The WTO's General Council, the highest decision making body of the organisation, had accepted India's demand for extending the peace clause till a permanent solution is found for its food stockpiling issue.This has enabled India to continue procurement and stocking of foodgrain for distribution to the poor under its food security programme without attracting any kind of action from WTO members even if it breaches the 10% subsidy cap as prescribed by the multilateral trade body. For a permanent solution, India had proposed either amending the formula to calculate the food subsidy cap of 10%, which is based on the reference price of 1986-88, or allowing such schemes outside the purview of subsidy caps.
• The TFA could help developing countries diversify their exports, increase their involvement in global value chains, expand the participation of small and medium enterprises in international trade, help to attract more foreign direct investment, increase government revenues and reduce corruption.
• The agreement would help channelise world trade, reduce cost and help developing and least-developing countries (LDCs) become part of the globalised trade system.
• It will also give them (LDCs) ample opportunities to integrate with the world market thus bring more global investments and economic diversity, the WTO said and asked all the member countries to implement the agreement as early as possible in order to realise maximum gains
• This agreement can be proved costly to India. trade facilitation could cut global trade costs by more than 10%, by one estimate, raising annual global output by $400 billion, with benefits flowing disproportionately to developing economies. Also, India has accepted the TFA without securing cast-iron guarantees for a permanent solution for public stockholding programmes or special safeguard mechanism for its farmers.

By: Vishal