WTO's Trade Facilitation Agreement Enters into Force and What It Means
The Trade Facilitation Agreement (TFA) officially went into effect Feb. 22, 2017, after reaching the World Trade Organization (WTO) members' ratification threshold of 110, or two-thirds of the WTO membership. The TFA is now part of the WTO Agreements, and as such could be subject to its dispute-settlement procedures, and possible retaliation against noncomplying members.
The TFA is the first tangible result after 14 years of negotiations under the Doha Development Agenda, and the first multilateral trade agreement concluded since the WTO was established 22 years ago.
The agreement deals with customs procedures related to the import and export of goods, by clarifying and improving aspects of the General Agreement on Tariffs and Trade's (GATT 1947) Article V (Freedom of Transit), Article VIII (Fees and Formalities connected with Importation and Exportation) and Article X (Publication and Administration of Trade Regulations).1
The TFA will not be fully enforceable for at least 5 1/2 years when all members (developing and least developed – category B and C members) will have to be in compliance with the TFA requirements.
Mexico is among the group of WTO members that should comply with the agreement as of the first day of entry into force (Category A members). It will be interesting to see if all members comply with the agreement standards, or how they can justify existing measures that seem contrary to the agreement.
For instance, the agreement requires members to limit their fees and charges for customs processing to an amount equal to the approximate cost of the services rendered in connection with the specific import or export operation in question (TFA Article 6.22). In Mexico's case, its "Federal Law of Duties" (Ley Federal de Derechos, Article 49) requires a fixed percentage payment based on the value of every import without any reference "to the approximate cost of the services rendered on or in connection with the specific import or export."
There are many studies and analysis regarding the economic benefits of the TFA. One study found that, "[the TFA] would boost global trade by up to 1 trillion dollars each year, with the biggest gains being felt in the poorest countries. The impact will be bigger than the elimination of all existing tariffs around the world." However, these benefits will not occur immediately.
Notwithstanding, the TFA contains many unenforceable obligations. This brings into question whether all members will implement the TFA to its full extent or will its application be limited to only the enforceable provisions, thereby hindering the full-trade benefits touted by the TFA’s supporters. In this regard, many of its Articles are mere goodwill obligations: "whenever practical…"; "members are encouraged to…"; "each member shall, to the extent practicable…"; "each member shall endeavor to…"; "a member may require…"; "a member may, upon request…"
Many members already comply with the TFA highest standards – some even go beyond the TFA requirements. Some members already enforce standards such as the non-mandatory use of customs brokers, "Traffic in transit shall not be conditioned upon collection of any fees or charges imposed in respect of transit" and the opportunity to comment on any amendment to a customs law or regulation before its adoption, as well as others.
A comprehensive analysis of the TFA, and some of its implications for Mexico's imports and exports of goods is available in Spanish at The Scope, Implications and Content of Trade Facilitation Agreement.
The Holland & Knight Trade Group in Mexico City and Washington, D.C., will be monitoring TFA implementation closely, and will be reporting developments as they occur.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.