Andrew Wilson in Reuters BreakingViews: Benefits of the TFA

03.24.2017 | CIPE in News | Andrew Wilson

Tools of trade

This article originally appeared in Reuters breakingviews, and is written by Andrew Wilson.

The escalating war on globalization is causing collateral damage. Politicians increasingly blame the economic problems confronting large sections of the American population on trade deals. Rather than demonize such agreements, the focus instead should be on making sure their benefits reach all segments of society, both in the United States and abroad. An important deal that achieves that goal has quietly advanced.

Even as NAFTA, the Trans-Pacific Partnership and other international accords have come under siege, the long-negotiated Trade Facilitation Agreement was just ratified by two-thirds of the World Trade Organization. That’s enough signatories to put the measure into action.

Since the end of World War Two, trade-driven growth has helped lift hundreds of millions of people out of poverty in East Asia, Latin America and elsewhere. Most of the world’s poorest people live in countries cut off from global trade networks, not just by geography or high tariffs, but by inefficiency and red tape that make it difficult to simply move goods across the border.

In some places, as much as 35 cents of every dollar earned from exports goes to shipping costs. Much of it can be attributed to delays caused by import authorities. About 7 percent of the global value of trade is absorbed by the cost of documents alone. These kinds of trade barriers are not the result of deliberate policies aimed at protecting national interests, but simple inefficiency and outdated practices.

The latest WTO agreement recognizes that reducing tariffs and quotas is not enough if goods end up languishing in customs houses, or if exporters have to pay bribes to move products through ports. This agreement makes streamlining import procedures and shrinking bureaucracy at the borders a top priority.

One big complaint about globalization is that it hasn’t reached small- and medium-sized businesses in emerging markets. The Trade Facilitation Agreement should help make some inroads there.

In 2008, for example, an Inter-American Development Bank project in Central America dramatically improved efficiency. It used to take 62 minutes on average for goods to cross the border in the region. Since implementation in El Amatillo, a junction between Honduras and El Salvador, the process takes eight minutes and cargo passage time was reduced by 90 percent. This was achieved by harmonizing previously cumbersome procedures into a single electronic document.

U.S. companies also have much to gain. The TFA could add up to 0.5 percent per year to GDP growth and spur 20 million new jobs around the world, according to the WTO. If that bears out, it should create new, more prosperous markets for U.S. exporters and more jobs for Americans.

Major traders can expect to pocket big savings as the agreement rolls out. In particular, costs related to spoilage, storage costs and theft are enormous. Estimates by the WTO indicate that full implementation of the TFA could reduce trade costs by an average of 14.3 percent and boost global trade by up to $1 trillion per year.

Benefits are not purely economic either. Bringing growth and increased opportunity to developing countries can help stem the flow of migration that causes so much tension and instability around the world today.

There are many areas of trade policy on which reasonable people can disagree. The TFA, however, represents the easiest path to spreading the advantages of a global marketplace. It also should help temper some of the dogmatic sentiment against trade deals that is running rampant.

Andrew Wilson is the Executive Director at the Center for International Private Enterprise (CIPE).