New WTO Trade Facilitation Agreement

December 11, 2013

pic-export-shipOn Saturday, Dec. 7, the World Trade Organization (WTO) reached a deal on customs issues that could boost global economic output by as much as $1 trillion and create more than 21 million jobs, most of those in the developing world.

The draft deal unveiled in Bali, Indonesia, was the first major multilateral agreement negotiated by the WTO’s 159 member nations since it was started in 1995. The Bali agreement was part of a once-every-two-years ministerial conference at which WTO members may make decisions on issues of common concern. The agreement emerged after the U.S. and India compromised on food subsides and a Latin American bloc led by Cuba dropped its opposition to an agreement.

The biggest element of the Bali package is a trade facilitation agreement that would make it easier and cheaper to move goods around the world by cutting red tape and improving customs procedures. Besides boosting trade, the pact could reduce corruption by eliminating opportunities for customs officials to extract bribes to get goods across border.

The U.S. Trade Representative (USTR) Michael Froman estimates the trade facilitation measures in the deal will reduce costs for developed countries by 10 percent and developing countries will save 15 percent. Studies indicated that for every one percent in cost reduction, worldwide income increases by more than $40 billion, 65 percent accruing to developing countries.

President Barack Obama worked tirelessly to put food security—including increasing the productivity and trade of agricultural products—front and center on the global development agenda. In turn, the deal reached in Bali includes an agriculture provision that lets India and other developing nations continue to subsidize their crops to bolster food security without having to worry about legal challenges, so long as the practice doesn’t distort international trade. The U.S. and other members of the WTO would retain the right to file a complaint if subsidized goods are sold in global markets and depress prices or harm competitors.

According to USTR Froman, under the new agreement, a small business, including those in the United States, seeking to break into global markets and increase its export opportunities will be able to do so because it has faster, simpler, and less costly access to 159 economies.

For NSBA and its international trade arm—the Small Business Exporters Association (SBEA), it is still relatively early to tell how significant an impact this will have on the real-world exporting operations of small- and mid-sized exporters. However, any efforts to enhance transparency, streamline paperwork requirements and provide greater uniformity among WTO-member countries’ exporting and importing rules are welcomed.

This complexity is a huge hurdle for small, exporting firms. According to a recent NSBA/SBEA survey on exporting, the average small-business exporter reports spending approximately 8.4 percent of their annual operating revenue just preparing to export – the average S-Corp reports spending 11.1 percent of their annual operating revenue on salaries and wages, according to the most recent information available from the IRS. That’s a huge cost—not to mention disincentive to new, small exporters.

Congress might have a chance to vote on the Bali deal, which is not a treaty, if it requires legislative changes. It remains unclear if the administration will seek any congressional vote.