Trade Costs Translates to 210% Tariff

Bringing the WTO’s Trade Facilitation Agreement (TFA) into force could boost global merchandise exports by US$1 trillion per year, according to a new report issued by the global trade body earlier this week.

In its analysis, the report places a high focus on the impact trade costs can have on trade flows, particularly for developing and least developed countries.

“Trade costs in developing countries are equivalent to applying a 219 percent ad valorem tariff on international trade. Even in high-income countries, the same product would face an ad valorem equivalent of 134 percent in trade cost,” the report stated.

Meanwhile, the WTO report notes, full implementation of the TFA could slash members’ trade costs by an average of 14.3 percent, with African countries and least developed countries (LDCs) predicted to experience even higher cost reductions at over 16 percent.

“Over the 2015-30 horizon, implementation of the TFA can add up to 2.7 percent a year to world export growth and more than half a percent a year to world GDP growth,” the annual report estimated. Specifically, the WTO report predicts that the TFA will lead to export gains ranging between US$750 billion and US$1 trillion annually.

Breaking it down into developed and developing country-specific figures, the report says that TFA implementation could boost developing country exports between US$170 billion and US$730 billion per year. Developed economies, for their part, could see export gains at the level of US$310 billion to US$580 billion annually.

The WTO further predicts that effective implementation of the trade facilitation pact can contribute to the developing economies’ annual growth by 0.9 percent annually over the period of 2015-30, while export growth rates could be as high as 3.5 percent.

Approximately 65 percent of developing economies and 77 percent of landlocked developing countries placed trade facilitation in their top three aid priorities, according to an Aid for Trade survey conducted by the WTO.

The report marks the first such study of the TFA text in its final form. However, the economic implications of the TFA will continue to draw attention in the coming years, with the report noting the importance of monitoring to ensure that problems arising under implementation are swiftly addressed. Under the terms of the TFA agreed in Bali two years ago, the WTO is set to establish a Committee on Trade Facilitation to review the trade pact’s implementation and operation four years from when the deal takes effect, and periodically afterward.