Sixty-five million years ago, the last of the dinosaurs went extinct. The event caused dramatic changes to the planet and provided space for new species on earth. A similar event and change is about to happen in Vietnam and all other WTO members. It is the entry into force of the WTO Trade Facilitation Agreement (TFA).
What is the TFA?
The TFA is a document adopted by WTO member countries at the 9th WTO Ministerial Conference in Bali, Indonesia on 6th December 2013 after 10-year negotiation.
In order for the TFA to take place, two-thirds of the 164 WTO members have to notify their ratifications to the WTO after forming a National Committee on Trade Facilitation.
In November 2015, Vietnam became the 60th country to ratify the TFA. On 22nd February 2017, the TFA officially entered into force after Rwanda, Oman, Chad and Jordan submitted instruments of acceptance of the TFA to the WTO, bringing the total number of acceptances to 112 while only 110 ratifications are needed for the TFA’s entry into force. At the time of writing this article, there have been 118 ratifications received by the WTO.
What is the TFA about?
The TFA aims at expediting the movement, release and clearance of goods across borders, helping to cut trade costs globally and creating a significant boost for global trade and commerce system.
The TFA is a self-contained agreement and includes three separate sections. Section I includes 12 Articles covering a range of specific trade facilitation measures. Section II covers special and differential treatment for developing country members and least developed country members. The final section deals with institutional arrangements (i.e., establishment of a Committee on Trade Facilitation within the WTO and at a national level) and miscellaneous provisions. The TFA will interact with other legal commitments specified in the WTO Agreement and Multilateral Agreements on Trade in goods.
The agreement requires its members to ensure the availability and prompt publication of information about cross-border procedures and practices, mandates that rights of appeal for traders be improved, fees and formalities connected to the import and export of goods be reduced, customs clearance procedures be faster and conditions for freedom of transit of goods be improved, just to name a few. The TFA also contains measures for effective cooperation between customs and other authorities involved in the facilitation of trade and customs compliance issues. Overall, the main purpose of the TFA is to simplify and harmonize customs procedures among all WTO member countries, which will later result in cutting red tape that slows down and impedes international trade, thereby speeding up of the goods flow across borders.
Different from other agreements, the TFA pays particular attention to developing and least developed countries when allowing them to set their own implementation schedule. While developed countries have to immediately implement the agreement, developing countries will only have to implement the TFA provisions that they have designated as Category A commitments. Other categories of commitments are Category B commitments, which will be implemented after a given period; and Category C commitments, which will apply to the countries after they are provided with technical assistance and capacity building support. Based on the latest WTO’s statistics, there have been 46% of 240 notifiable article items notified to the WTO, of which Category A measures account for 40.5%, Category B measures account for 3.3% and the remaining 2.3% is for Category C measures.[1] Vietnam has already submitted to the WTO its Category A commitments on 31 July 2014.
Why is the TFA important?
The impact of the TFA implementation can even be compared with the worldwide tariffs reduction and elimination. According to the WTO, full implementation of the TFA can reduce trade costs by 14.3% on average with many developing countries and least-developed countries forecast to enjoy the highest reduction (15.8-23.1%) (including Vietnam). This could result in up to US$1 trillion of gains around the world annually. In addition, the time needed to import and export goods (thanks to streamlined customs procedures) is much more reduced. Full implementation of the TFA also adds 2.7% a year in global export growth by 2030, and creates more jobs and growth on a global scale (i.e., more than 0.5% to world GDP growth). For developing countries and least-developed countries, their annual exports will increase by 3.5% together with an increase in the diversity of exported goods because of the TFA implementation. In US dollar, “the TFA has the potential to increase merchandise exports of developing countries by up to 730 billion dollars per annum.”
The TFA is vitally important and has the potential to fundamentally reform global customs practices. One could question why. Here are some of the main reasons:
- The TFA includes provisions on facilitating rapid movement of goods across borders such as advance rulings, pre-arrival processing, allowing the release of goods prior to final determination of customs duties, taxes, fees and charges.
- The TFA helps to ensure the predictability of rules and procedures related to trade and customs by requiring its members to timely publish relevant documents preferably on the Internet and establishing enquiry points to respond to enquiries by interested parties.
- The TFA aims at creating harmonized process and standards which traders find it familiar and predictable when doing customs procedures in different countries.
- The TFA recognizes the importance of growth and benefits for every member states. Thus, it provides for special and differential treatment for developing and least developed countries to make sure these countries receive sufficient assistance to reap the full benefits of the TFA implementation. In addition, the WTO Trade Facilitation Agreement Facility will support developing and least developed countries in addressing their needs and concerns.
Overall, the agreement demonstrates the commitment of the WTO member states to trade reform, and increased confidence in the multilateral trading system.
Impacts on Vietnam?
The TFA is expected to boost national and business competitiveness as a result of Vietnam’s implementation of its commitments under the agreement.
On 13 October 2016, the Prime Minister issued Decision No. 1969/QD-TTg on approving the “Plan of preparation and implementation of the TFA of the WTO”, and identifying specific responsibilities of each ministry in upcoming years (Decision 1969).
According to Decision 1969, the Ministry of Finance (MOF) is the national agency to implement the TFA. In particular, the MOF is responsible for, among others:
- Implementing national outreach plans to provide information on the TFA;
- Operating the single-window system;
- Classifying Categories A, B, and C provisions;
- Seeking technical support and assistance for capacity building;
- Formulating roadmap for implementation of Categories B and C provisions; and
- Reviewing relevant legal framework for further amendments.
Other ministries are tasked with coordinating with the MOF in the implementation of the TFA: the Ministry of Transport, the Ministry of Health, the Ministry of Science and Technology, the Ministry of Agriculture and Rural Development, etc.
Following the issuance of Decision 1969, Vietnam has formulated plans to implement Categories A, B and C. The Prime Minister also signed the decision to formally establish on the National Steering Committee on ASEAN Single Window and the National Single Window regime on trade facilitation. On 06 February 2017, the Government also issued Resolution No. 19/2017/NQ-CP on improving the business environment and national competitiveness. The Prime Minister once said: “It is not acceptable to take 4 days to complete customs procedures for exports which is 2 times higher than the regional average, and 4 days for imports while the regional average is only 3 days.” Following the Government’s directive and strong momentum for reforming customs procedures caused by the TFA implementation, Vietnam has been reviewing thousands of customs procedures and revising several legal documents to bring them into conformity with its commitments in the TFA.
The Government cannot act otherwise if it hopes to help Vietnamese businesses to be competitive in the global marketplace. These improvements will greatly facilitate trade across borders, thereby reducing the costs in both time and money for Vietnamese businesses. In general, it is expected to reduce the time needed to import goods by over a day and a half and to export goods by almost two days. For Vietnam, the TFA could reduce trade costs by 20% and trade facilitation measures will help businesses in formal international trade. According to Mr. Nguyen Dinh Cung, Director of the Central Institute for Economic Management, one-day reduction in customs clearance time could result in a saving of VND1.6 billion. It is a huge amount given the busy customs activities in Vietnam’s ports.
A lot of work has been done so far to implement the TFA. However, there is still a long way ahead and we have good reasons to expect further dramatic changes to come.
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If you have any question on the above, please do not hesitate to contact Dr. Oliver Massmann PhD under omassmann@duanemorris.com. Dr. Oliver Massmann PhD is the General Director of Duane Morris Vietnam LLC.
Thank you very much!
[1] https://www.tfadatabase.org/notifications/by-measure