trade aid

Hope for the World Economy

  • Why it matters

    Why it matters

    If people put prejudice aside, an increase in global trade could benefit many people in developing countries.

  • Facts

    Facts

    • The WTO Trade Facilitation Agreement has been passed by 108 countries and could some come into effect after further countries ratify it.
    • The new WTO agreement reduces the costs of transactions in the market by focusing on IT-supported automation and transparent regulations.
    • If passed the TFA could help countries from Rwanda to Sri Lanka and Kyrgyzstan and Jamaica manage to trade more easily.
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  • Audio

    Audio

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An employee works inside a garment factory of Orient Craft Ltd in Gurgaon
New rules could considerably ease trade. Source: Reuters

Multilateralism appears to be taking a beating. The same holds true for the liberalization of trade. Even the simple suggestion that the World Trade Organization can provide meaningful progress is met with increasing levels of disbelief.

Since nationalism seems to be on the rise, it is worth remembering that a few decades ago it was primarily developing countries resisting openness in world trade. Instead they insisted on national solutions. But it didn’t take long for many of them to realize that they had worked themselves into a dead end and should reverse direction.

Because the roles have arguably swapped and it is now chiefly some OECD countries seeking to pursue nationalistic paths, we would all do well to remember the most important lesson of the 20th century. Nationalism is never the way to salvation.

At the same time, there can be no doubt that the pace of globalization was (and is) very fast. So the resulting feeling of nervousness is understandable. But we also need to be clear that globalization has made it possible for very many people, particularly in developing countries, to lead a better life and participate in the world economy. As a result, the global “pie” hasn’t shrunk, but rather continues to grow.

To keep moving forward, societies and states must be prepared to carry out domestic reforms. In any case, they would also have to undertake these steps to improve their own welfare, even if there were no globalization.

Against this backdrop and marked by an overall feeling of apprehension, it is not surprising that few have noted the significant progress there is to report on the world stage. We are living in such a moment. This fact is all the more remarkable when we think of the great attention rightly paid to the Paris climate change deal.

There was a veritable global countdown to the day when enough countries had ratified the agreement to make it effective. When the number was finally reached on October 5, 2016, it made headlines all over the world.

But there is no public drum roll counting down to the ratification of the WTO Trade Facilitation Agreement. Drawn up in 2013, it comes into effect as soon as two-thirds of WTO members (in other words 110 nations) have ratified it. With 108 countries having already done so, this threshold is about to be reached.

Perhaps the agreement hasn’t developed any kind of good publicity because its name is so technocratic. Even those with an interest in world trade have little concept of how it connects, in purely practical terms, to everyday life.

And yet the whole thing is a really big deal, especially for many developing countries. Understood correctly, the new WTO agreement is the key to creating improved competitive conditions for small and medium-sized companies active there. At its core, it is about agreeing clear rules for expediting customs procedures and making them more efficient. The agreement also contains measures on cross-border cooperation and on reciprocal support in the movement of goods.

In a nutshell, the TFA promotes both worldwide and regional integration. It does this by tackling the current inefficient and – as has sometimes been observed – less helpful practices and methods of some players involved in the cross-border movement of goods.

These inefficiencies and irregularities mostly affect the many medium, small and micro-entrepreneurs in developing countries, since they lack the resources to remove such hurdles. As long as bureaucracy and complex procedures continue to exist on various borders, these entrepreneurs will not sufficiently be able to contribute their business potential to the regional economy, let alone the global one.

Anyone looking at the world economy from the perspective of these many millions of business people for just a moment will find themselves confronted by an almost absurd situation. On the one hand, the world of eCommerce and internet promises direct access to the global market – and with it a far larger number of potential customers than, say, an African fashion designer would be able to find in her home market. On the other hand, these entrepreneurs are facing a veritable “wall” of obstacles.

Removing this wall of inefficiency and lack of transparency is the main goal of the TFA. So it is not about the interests of major corporations. The lack of transparency rules and the need for reams of paper documents in the age of digitalization and smartphones are now completely out of step with the times. After all, we are increasingly moving towards a world where same-day delivery has become the byword.

Strictly speaking, the new WTO agreement is nothing more than taking a decisive step to democratize world trade.

And yet, at the same time, it is also true that this new agreement, despite all its practical significance, is not a revolutionary step. But that is not a bad thing. We happen to live at a time when we must take many small steps to make progress. That may appear unsatisfactory to some, but ultimately it is an appropriate reflection of the human condition.

If the finalization of WTO Trade Facilitation Agreement “only” achieves one thing, that countries from Rwanda and Sri Lanka to Kyrgyzstan and Jamaica manage to move forward through the establishment of more transparent and understandable regulations, then we have reason to be happy about it. The democratization of world trade is ultimately about taking such steps.

And when such countries then attract more foreign direct investment and become regional hubs of commercial trade, that would be just reward for their courage in opening themselves up. We can only hope that their neighbors are paying close attention. There can be no better incentive for them to follow the trendsetter. All of the countries in the region stand to benefit when national economies are strengthened through increased regional trade.

And, as technical as it all may sound, it would be very significant progress if the new WTO agreement reduces the costs of transactions in the market by focusing on IT-supported automation and transparent regulations.

We speak of a win-win situation in business and negotiations that the term has almost become a cliché. But for once, it really applies here. The countries that go along with transparent regulations and greater efficiency will be seeing more public revenues in their coffers, given the more intense regional (and global) trade relations.

Lastly, the new trade facilitation agreement effectively makes us aware that the relative impermeability of borders and the vast distances in world trade continue to remain the greatest obstacles to growth for many developing countries. The more commercial trade is built up on a regional level, the greater the growth and integration into the global economy as a result.

 

To contact the author: gastautor@handelsblatt.com

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