Being Right

Aside from the fact that global trade is picking up — despite the ever constant threat of protectionist revivals, mostly blamed (wrongly) on Trump — there is a clear dearth of substantial good news as far as the World Trade Organization is concerned. One sees that in peoples focus on the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP)

But another reason evidencing the WTO’s dry spell is from the way the Trade Facilitation Agreement (TFA) is celebrated. The TFA became effective Feb. 22, 2017, when 2/3 of the WTO’s members signed on to the agreement.

Incidentally, there are three ways to sign on to the TFA:

Category A: Provisions that the Member will implement by the time the Agreement enters into force (or in the case of a least-developed country Member within one year after entry into force)

Category B: Provisions that the Member will implement after a transitional period following the entry into force of the Agreement

Category C: Provisions that the Member will implement on a date after a transitional period following the entry into force of the Agreement and requiring the acquisition of assistance and support for capacity building.

The Philippines opted for Category A in 2016.

Remember that trade facilitation was one of the so-called Singapore Issues (i.e., trade and investment, competition policy, government procurement, and trade facilitation) that spectacularly derailed the Doha Round completion, most notoriously during the Cancun Ministerial in 2003.

But like all things, perhaps change is inevitable.

Back in 2014, I wrote that the Philippines could make the necessary customs improvements on its own, without the need of an international multilateral agreement tying it up to other countries.

After all, by doing it unilaterally, no country can hold the Philippines liable under the WTO dispute settlement system, assuming something in our customs rules do not come up to par in that country’s view.

Neither do we need a trade facilitation agreement for improving trade with other countries as most of our major trading partners are richer ones anyway with quite developed and transparent customs procedures.

In fact, most of the provisions contained in the Trade Facilitation Agreement are conceivably implemented already by these developed countries, leaving it only to the poorer countries (like the Philippines) to shoulder the additional burden of accelerating the upgrade of their customs procedures (which, as I said, could be better done unilaterally).

To emphasize, what is being objected to here is not trade facilitation itself but the multilateral mode (e.g., the TFA) in which it is to be applied. The consensus is that trade facilitation itself helps developing countries the most:

“Unduly complex processes and documentation raise costs and cause delays not only for businesses, but also for the consumers, and finally for the whole economy. This is true for all economies, but today affects particularly the developing countries. Based on a series of trade facilitation indicators, designed to measure the relative economic and trade impact of the measures under negotiation in the WTO, the Organization for Economic Cooperation and Development (OECD) found that lower middle income countries stand to gain the most from a comprehensive trade facilitation reform, which could reduce trade costs in this group of countries by 15.5%. Potential cost reductions are almost 14.5% for low income countries and 13.2% for upper middle income countries (1), while they can reach 10% for OECD countries (2). Keeping in mind that a reduction of global trade costs by 1% would increase worldwide income by more than $40 billion (3), these are reforms that could bring a very welcome boost to developing countries’ economies.” (see Moïsé, E., The impact of trade facilitation on developing countries. GREAT Insights, November 2013)

There are admittedly, two issues that could be of interest. The first is the problem of language, particularly with regard to China (and perhaps, Japan). But both are parties with the Philippines in regional trade deals (e.g., ASEAN-China, JPEPA, and ASEAN-Japan), of which trade facilitation is included.

The other is that the TFA does declare that developed countries are entitled to “assistance and support for capacity building,” with capacity building being defined as “technical, financial, or any other mutually agreed form of assistance.” Yet with the Philippines choosing Category C, it would be interesting how that goes.

In any event, the value of the TFA for the Philippines is still hazy for me.

After all, we just had the Customs and Tariff Modernization Act, which was touted as being not merely a revenue raising measure but also one of trade facilitation.

The CMTA, remember, took into account developments regarding related party transactions (with the application of “test values” and “circumstances of safe analysis” concepts, designed to better gauge the arms length nature of certain business transactions), as well as increased surcharges for misdeclarations, misclassifications, and undervaluations (i.e., technical smuggling). Nevertheless, customs risk management procedures, duty drawback, and rules of origin compliance remain further areas of improvement.


Jemy Gatdula is a Senior Fellow of the Philippine Council for Foreign Relations and a Philippine Judicial Academy law lecturer for constitutional philosophy and jurisprudence.

Twitter @jemygatdula