For advocates of trade liberalisation as a means to spur growth, 2017 got off to a rocky start. US withdrawal from the Trans-Pacific Partnership (TPP) posed a major setback to an agreement that had the potential to add billions of dollars to the economies of the 12 partner countries.
But soon after the TPP hit a wall, a new pact was ratified at the World Trade Organization (WTO) which should give businesses, workers and consumers everywhere fresh reasons for optimism.
When Chad, Jordan, Oman and Rwanda ratified the Trade Facilitation Agreement (TFA) on 22 February, it gave that pact the two-thirds majority support among WTO members it needed to bring it into force.
The TFA paves the way to simpler, safer and cheaper cross-border trade
This is a significant development and marks the first time a multilateral trade accord has been implemented by the WTO. The TFA paves the way to simpler, safer and cheaper cross-border trade, and so promises a significant uplift for the global economy.
Put simply, the new pact aims to make international trade more efficient. I’m struck by the practical nature of many of its provisions. It makes intuitive sense, for example, for WTO members to consult on new customs laws and regulations; to minimise documentation requirements; to publish customs procedures in a non-discriminatory manner; to post information on the internet; and to accept electronic payments for fees and duties.
The WTO estimates that the TFA could reduce the time it takes to import goods by about a day and a half, while cutting the time it takes to export by almost two days.
Implementation of the TFA offers the prospect of win-win outcomes. Preventing unnecessary delay and expense is in the interest of both sides of a transaction.
Of course we must acknowledge that many people are concerned that further liberalisation could have negative implications for some types of jobs and wages, particularly in developed markets. Businesses and governments have a greater role to play in providing social support, for example through retraining.
But trade is often wrongly blamed for changes caused by other factors such as automation. In fact, trade can offer economic benefits for the labour market. We know from various studies that businesses trading internationally tend to be more productive, pay higher wages and provide better working conditions than less trade-oriented firms.
Imports used in the production process may help domestic firms become more competitive and so able to create jobs. Consumers benefit as well: imported finished goods may stimulate competition and offer those on low incomes better value for money.
The TFA shows that multilateral trade deals can still be part of the solution to weak global growth. And there’s no shortage of initiatives underway with this goal in mind.
A broad group of WTO members, for example, recently opted to provide each other’s companies with duty-free access for a wide range of electronic products. Another group is pursuing a deal to remove tariffs on environmental goods.
So while the path towards trade liberalisation will remain a rocky one, many people are clearly still willing to walk it. Those who believe that free, rules-based trade helps to boost prosperity have reasons to celebrate the TFA, and much work to do to help realise its potential.
A version of this article appeared in Economia Hoy (Mexico) on 7 March 2017.