Written by Alexandre Larouche-Maltais and Nourhan Abdellatif, Article No. 100 [UNCTAD Transport and Trade Facilitation Newsletter N°97 - First Quarter 2023]
On 27 November 2014, the Protocol of Amendment was adopted at the WTO, which launched the Trade Facilitation Agreement ratification process by member-countries. For the TFA to enter into force, two-thirds of all WTO members had to ratify it. Some countries have confirmed their acceptance quickly, the first one being Hong Kong in only 11 days, on 8 December 2014. It took 27 months for the required number of WTO Members of two-thirds of the membership to be reached and the TFA entered into force on 22 February 2021. The ratification pace has slowed down since.
As of today, seven WTO members have yet to ratify the TFA, 3000 days (and still counting) since the opening of the ratification process. Why did some countries take quick action to ratify the unanimously-adopted Agreement, while some others have shown hesitancy – or reluctance to confirm their willingness to be bound by the TFA?
This article identifies factors impacting the time to ratify the WTO TFA and provides explanations on those results based on UNCTAD’s experience. It seeks to draw lessons for development partners to better respond to developing and least developed countries’ assistance needs.
High-income developed countries quick on their toes, low-income LDCs behind
If one picture is worth a thousand words, then data might be worth even more. And data shows that income and development levels are determining factors significantly impacting the time to ratify the WTO TFA. On average, developed countries have completed the ratification process within a year (359 days). Developing countries and least developed countries, in contrast, have taken two years and three months (832 days) and three years and half (1278 days), respectively.
A similar story can be told using country classification by income level. High-income countries completed their ratification processes in 510 days, upper middle-income countries in 825 days, Lower middle income in 977 days, and low-income countries in 1,385 days. The 10 countries that ratified the TFA the earliest are all either high-income countries (7) or upper middle-income countries (3).
Earliest TFA ratifying countries, by development status and income levels
|
WTO member States |
Ratification date |
Days needed to ratify |
Development status |
Income level |
|
8 Dec 2014 |
11 |
Developing |
High income |
|
|
8 Jan 2015 |
42 |
Developing |
High income |
|
|
23 Jan 2015 |
57 |
Developed |
High income |
|
|
5 Mar 2015 |
98 |
Developing |
Upper middle income |
|
|
26 May 2015 |
180 |
Developing |
Upper middle income |
|
|
1 Jun 2015 |
186 |
Developed |
High income |
|
|
9 Jun 2015 |
194 |
Developed |
High income |
|
|
18 Jun 2015 |
203 |
Developing |
Upper middle income |
|
|
27 Jul 2015 |
242 |
Developing |
High income |
|
|
30 Jul 2015 |
245 |
Developing |
High income |
Are those results surprising in any way? One could think that developed countries have more implementation capacities and thus, should feel readier to comply with TFA measures, while developing and least developed countries likely have less capacity and at the same time likely have more implementation work to do to fulfill their obligations under a new binding multilateral agreement. This is only partially true.
As a matter of fact, thanks to the special and differential treatment provisions, developing and least developed countries have full flexibility to implement trade facilitation measures at their own individual pace, by categorizing each measure into A-B-C, conditioning implementation to receiving technical or financial assistance, and defining specific implementation dates that they feel comfortable with. In contrast, developed countries must be 100% compliant with all TFA measures as soon as they ratify it – and that it entered into force. That is why ratification does not necessarily entail implementation for developing and least developed countries.
Leading trading nations more motivated to ratify
Another set of factors influencing the ratification speed relates to countries’ current trade performance. These factors encompass the ease of crossing the borders, trade openness, and merchandise exports. The World Bank’s Doing Business data shows that exporters and importers operating in countries that ratified early enjoy reduced time and cost for cross-border trade in goods. On average, the first 20 countries to ratify scored 80.7/100 on the “Trading Across Borders” indicator, while the last 20 countries to ratify scored only 53.5/100.
The degree to which international trade contributes to the national economy also correlates with the time to ratify the WTO TFA. Early ratifying countries have much more open, trade-oriented economies, with a 111.7% trade-to-GDP ratio, on average. The last 20 countries to ratify the WTO TFA have much less trade-dependent economies, with 68.3% trade-to-GDP ratio. UNCTADstat data shows that top exporting nations have ratified the TFA earlier than others. The 20 first ratifying countries ranked 63.5 out of 220 economies for merchandise export value while the last 20 countries to ratify ranked 139.6/220.
In other words, countries with an open economy, which are already exporting in substantial volumes and reduced delays and costs at the border ratified the WTO TFA faster than other ones. Surprising? Countries that have already implemented trade facilitation reforms may fast-track TFA ratification. But it may also demonstrate willingness, motivation, or political support for continuing trade facilitation modernization, and a readiness to remain a leading trading nation.
Political stability plays a role, national legal systems much less
Another key factor affecting the time to ratify to the WTO relates to countries’ political stability. The World Bank’s “Political Stability and Absence of Violence/Terrorism indicator” is one of the Worldwide Governance Indicators, and aims to measure perceptions of the likelihood of political instability and/or politically-motivated violence, including terrorism. Data shows that the first 20 countries to ratify the TFA are perceived as more politically stable, reaching 68.1/100, on average, compared to the last 20 countries, which are perceived as much less politically stable, getting 34.9/100, on average.
Although political stability plays a role in time to ratify the TFA, WTO members’ national legal systems seem not to. States’ constitutional law affects the relationship between their domestic law and international law, as one may distinguish between dualism and monism. Countries where international treaties, such as the WTO TFA, must be incorporated into domestic legislation are considered as “dualist” states. In contrast, in “monist” states, international law will directly apply in the national legal system. Our analysis did not show any significant difference between these two systems as regards the time it took countries to ratify.
Transit-dependent LDCs more eager to ratify, just like well-connected nations
Maritime connectivity can be an additional factor impacting the time to ratify the WTO TFA. Facilitating the movement of goods in international transit is one of WTO TFA key objectives, as stated in its preamble. Paradoxically, data shows that two opposite types of countries stand out: the best and least connected countries.
On one hand, WTO members with the best maritime connectivity have ratified the TFA the fastest. The TOP 15 countries on UNCTAD’s Liner Shipping Connectivity Index (LSCI) ranking, which measures countries’ position within global liner shipping networks, have ratified the TFA early. All of them, except for Viet Nam, have taken less than a year time to ratify the WTO TFA.
On the other hand, low-income transit-dependent countries have also taken swift action for ratification. Landlocked least developed countries have ratified the WTO TFA much earlier than LDCs with direct access to the sea. On average, landlocked LDCs ratified the WTO TFA in 817 days, which is significantly faster than small island developing states (SIDS) and almost half the time LDCs with a coastline did, in 1143 days and 1585 days, respectively.
UNCTAD’s experience in assisting developing and least developed countries
Typically, the countries that ratified that WTO in the shortest time are politically stable, developed or high-income developing countries with open economies that enjoy good trading performances in terms cross-border trade time and cost and export volumes.
According to the 2015 WTO World Trade Report, least developed and low-income countries could reduce trade costs by 16.73% and increase trade flows by up to 36% in a full implementation scenario and should thus also be highly motivated to ratify early. However, the data suggests that apart from the motivation, the technical, human and institutional capacity of countries has a strong bearing on the time it takes them to ratify. UNCTAD’s experience in assisting developing and least developed countries with the TFA implementation suggests that it is taking them longer than developed countries is associated with the complexity of TFA legal requirements, and the necessary technical, human and institutional capacity to navigate this process. To benefit from special and differential treatment provisions, developing countries and LDCs are expected to present a series of notifications to the WTO. However, they face multiple challenges, including limited awareness of transparency obligations, past commitments that cannot be fulfilled, inappropriate ABC designation, staffing issues in capitals and permanent missions, and notification deadlines, as explained by UNCTAD.
Additionally, domestic political obstacles, such as a lack of parliamentarians’ awareness of trade facilitation, a change of minister-in-charge, a lack of political support may significantly delay the ratification process.
Policymakers from developing countries may be preoccupied with the risk of not receiving financial or technical assistance from donors, or missing implementation deadlines that were decided before the covid-19 pandemic, and may choose to postpone TFA ratification. In some cases, implementation deadlines for category B and C measures have already passed
Lessons learned
3000 days and still counting. This lengthy ratification process by some WTO members seems to have been underestimated and is leading to concrete assistance challenges. The delayed or even lack of ratification by developing countries and LDCs preclude them from taking full advantage of much-needed financial assistance, including from the Trade Facilitation Agreement Facility (TFAF) Grant Program. Some countries that have not ratified yet should have implemented several Category B or C measures with deadlines that have already passed. Those countries may legitimately feel like they “missed the train” and that ratification would simply formalize a breach of their obligations. UNCTAD supports developing countries and LDCs experiencing these particular challenges, within existing projects and available resources, but more such assistance will be required.
Our analysis on TFA ratification data suggests that the need for ongoing capacity building and technical assistance for developing and least developed countries, especially advisory services on the notification and the ratification processes, have been seriously underestimated. In order to ensure that all countries benefit from the TFA, the WTO Trade Facilitation Committee could show flexibility by giving sympathetic consideration to granting special requests from those countries experiencing difficulties with TFA ratification and implementation.
A few words on our methodology
A statistical analysis of the data has been conducted using SPSS software, to analyze the relation of a series of factors on the time to ratify the WTO TFA. Two tests were conducted: first, an ANOVA test to compare the variability of mean of the time to ratify across the sub-groups for the nominal categorical variables, which are the country’s development status and income level. The ANOVA test results showed that with an F-value equal to 15.4 for income level and an F-value equal to 20.9 for the level of development, there is significant variability of mean between countries in different sub-groups higher than the variability of mean between countries in the same group. Moreover, the level of association between both variables and the time to ratify is also large with an ETA squared equal to 0.226 for income level*time to ratify and equal to 0.207 for the level of development*time to ratify.
The second test was Pearson’s correlation test, which showed a significant weak to moderate correlation between the time to ratify and the three indices that we considered. Firstly, a positive correlation between the time to ratify and UNCTAD's liner shipping connectivity index (LSCI) with a Pearson’s coefficient of 0.32. Secondly, a negative correlation between the Trading Across Border indicator and time to ratify with a Pearson’s coefficient of -0.49. Thirdly, a negative correlation between the political stability index and time to ratify with a Pearson’s coefficient of -0.316.
