Supply Chain and Transport

There's a new trade deal in town. But what is the TFA and who will benefit?

Flags of European Union member states fly in front of the European Parliament building in Strasbourg July 13, 2009, on the eve of the election of its new president. REUTERS/Vincent Kessler

Enough countries have now joined for the WTO's Trade Facilitation Agreement to enter into force Image: REUTERS/Vincent Kessler

Sean Doherty
Head, International Trade and Investment; Member of the Executive Committee, World Economic Forum
Francesca Bianchi
Privacy Counsel, World Economic Forum Geneva
Kimberley Botwright
Head, Sustainable Trade, World Economic Forum
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A global trade deal went live on February 22 that will help to smooth customs procedures and cut red tape at the border. Against a backdrop of anti-globalization sentiment, shuttered regional trade pacts and shifting geopolitics, the TFA flies in the face of the current news cycle. The following offers a quick explainer on what’s in the deal as well as what it means for you and for global trade.

It’s a trade deal. Should I protest?

You may not have heard much about this new World Trade Organization (WTO) Trade Facilitation Agreement (or TFA). On the web it’s eclipsed by the Star Wars episode The Force Awakens, which has the same three-letter-acronym.

Through the TFA, governments have agreed to publish a wide range of customs-specific information, including online where possible, outlined measures to help speed up the processing and clearance of goods – such as procedures for accompanying documents to be processed ahead of the arrival of a package – specified options for electronic payment of import or export duties and encouraged countries to use relevant international standards for import, export or transit formalities, helping to minimize the number of different procedures businesses might have to master to move goods between countries.

The deal even includes a specific provision on perishable goods, encouraging countries to adopt procedures that clear these items as quickly as possible while meeting all relevant domestic requirements, and ensuring that importers can properly store these items pending their release. This could be a boon for the world’s rural poor, who are often exporters of perishable agriculture products.

In sum, the TFA basically tackles the unintentional barriers to trade – or the barriers that exist due to old and outdated customs systems ­– fairly unobjectionable stuff.

How is this deal different – and is it fair?

Earlier trade deals have typically been about setting the duties on buying or selling in other countries’ markets or determining how to set national rules, such as regulations and procedures, which treat all products equally regardless of where they are made.

Despite these, it hasn’t always been easy to actually get products across our borders. Paperwork, complexity, delay and uncertainty have discouraged all but the biggest and bravest. Ignoring the rules or giving up has been the approach taken by smaller business.

By cutting transaction costs and improving transparency, the TFA stands to deliver gains to smaller businesses, which may be held back from accessing global markets due to transaction costs and information asymmetry. The WTO also estimates that TFA implementation could create around 20 million new jobs.

The new system is unique in other ways too. The TFA allows developing economies to determine when they will implement individual provisions and to clearly identify where they need technical assistance or capacity building. In other words, countries haven’t bargained for lower standards to avoid legal threats if they’re not ready or consider themselves not ready – instead the same good governance standards will be used for everyone, though some may take longer or need help to get things working.

Trade facilitation may also have positive effects for the world’s poorest countries, because border delays may choke export and economic growth opportunities. Some studies find that countries requiring reams of paperwork for imports are more likely to have a higher poverty rate or higher inequality rate.

Further, the TFA can also help fight corruption, with customs automation leaving less room for corrupt practices that remain rife in some developing countries and act as a significant drag on trade and investment.

Hasn’t it been overtaken by events, with the news full of trade wars?

Quite the contrary – trade facilitation is very pragmatic, it doesn’t involve more trade liberalization or market opening and it’s not generally a political football. All told, the WTO estimates that the TFA could boost export gains by up to and beyond US$1 trillion dollars per annum. TFA implementation could reduce trade costs in WTO members by an average of 14.3% and the most significant cost reductions will be in least developed countries.

Developed-country businesses and governments, including in the US, have been big supporters too, seeing the promise of efficiencies at home and abroad.

When will I see benefits?

Just as writing a short letter is often harder than writing a long one, making border crossing cheap and simple takes work. The hard work carries on. Countries have taken great strides in putting customs procedures online, letting paperwork precede or follow the actual movement of goods and so on. The Global Enabling Trade Report series, which championed the TFA from inception to entry-in-to-force, offers a useful overview of progress over the years.

The people who know the ins and outs of getting goods across borders are generally those who are trying to do so. But dedicating time to the common good is draining, even for the most community-spirited. So hybrid partnerships such as the Global Alliance for Trade Facilitation, which bring together donor funding with business priorities and expertise, can really help to get reforms moving.

What happens next?

Now that the deal is in play, a series of institutional arrangements will be activated to help support its implementation. The WTO will house a Committee on Trade Facilitation, which will provide a space for information and exchange with other international organizations such as the World Customs Organization (WCO), and allow countries to regularly review the deal’s operation and implementation.

One important question looking ahead is how governments and stakeholders might build on this deal. The TFA mainly tackles goods moving across borders and one obvious approach would be to copy the model for other types of trade. A similar logic could be applied to investment – helping to tackle some of the barriers foreign investors might have to investing in the critical infrastructure needed for sustainable development – trade in services or e-commerce.

Maybe the Star Wars comparison isn't so far off the mark: tractor-like beams carrying fast-growing digital data flows now enable vast amounts of trade and business activity, from more efficient value chains to new online platforms connecting businesses with consumers. What the TFA shows us is that the physical world may finally be catching up.

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