The benefits of a treaty that will cut red tape at borders and standardize customs procedures are much larger than previously thought and could add $3.6 trillion to annual global exports, the World Trade Organization said in a report on Monday.
The WTO's Trade Facilitation Agreement, struck at a ministerial conference in Bali in December 2013, will do more to boost trade than if all the world's import tariffs were removed, cutting costs 9.6 to 23.1%, the WTO calculated, Reuters reported.
"You could say that it's global trade's equivalent of the shift from dial-up internet to broadband," said WTO director-general Roberto Azevedo.
Once the new rules come into effect, which Azevedo hoped would happen by the end of 2016, it will cut waiting times at customs, lessen the potential for corruption and hasten foreign direct investment into weaker economies.
The TFA had previously been expected to add $400 billion to $1 trillion to trade, according to various economic studies. Many trade experts had shied from using the upper end of those forecasts, but the WTO's own research found they were on the low side.
Trade Gains
Azevedo said, "Overall, the simulations confirm that the trade gains from speedy and comprehensive implementation of the TFA are likely to be in the trillion dollar range, contributing up to almost 1% to annual GDP growth in some countries," the report said.
The agreement, which was created in December 2013, will come into force when two-thirds of WTO members have ratified it. Fifty have ratified it so far, out of 161 current WTO members.
The report used two main models for estimating the gains from the agreement: a "computable general equilibrium" simulation–which makes assumptions about "what if" certain barriers are removed–and a "gravity model", based on historical evidence of removal of trade barriers.
The CGE model predicts exports will rise by at least $750 billion to well over $1 trillion per year, adding 0.34 to 0.54 percentage points to annual global economic growth, it said.
Gravity model estimates put the annual export gains at $1.1 trillion to $3.6 trillion, the report said. It did not estimate the impact on GDP under the gravity model.
Full and Swift Implementation
“The world is more connected than ever before. More and more developing countries are seeking to join global trade networks. Yet, all too often, outdated and uncoordinated customs processes slow down the movement of goods and raise costs to prohibitive levels. By standardizing, streamlining and speeding-up customs processes around the world, the WTO's Trade Facilitation Agreement will help to solve this problem. It is global trade's equivalent of the shift from dial-up internet access to broadband—and it will have a similar impact," Azevedo said.
“This report takes a rigorous, detailed look at the impact of the Trade Facilitation Agreement. It provides new evidence of the significant boost that the agreement will provide by expanding world trade, reducing costs and helping developing and least-developed countries to integrate into an increasingly globalized production system. The report also highlights previously unseen benefits for developing and least-developed countries, such as increased investment and economic diversification.
“This underlines the importance of implementing the agreement in full—and doing so as quickly as possible. In fact, the report shows that the benefits of the agreement will be substantially larger depending on the scope and pace of implementation. The more extensive and faster the implementation of the TFA, the greater the gains,” he concluded.
