Published
February 22, 2017
Tariffs aren’t the only barrier to increased trade. The procedures, paperwork, and bureaucracy—customs clearance--that are required to move goods across borders gum up the works for importers and exporters alike.
Lowering trade costs is particularly good for small- and medium-sized businesses that don’t often have specialized customs staff. It’s especially costly to them when their goods get bogged down in customs paperwork and procedures.
Here’s a hypothetical small business situation. Frank’s Hydraulic Pumps does some business in Elbonia--to help them pump mud. Frank would sell more to them, but the Elbonians don’t make it easy. They require him to fill out a dozen different forms to import pumps. But he doesn’t always have the most-up-to-date version on hand, because the Elbonians don’t put the forms on a website. When he uses one of the old forms, he has to call three different offices to straighten things out. Only each office has different office hours. Sometimes when he gets an answer at one place, Frank has to wait until the next day to talk to another. All the while, his pumps are sitting at customs costing him time, money, and frustration.
Or here’s a real life example:
Jason Wilson, owner of the small business Back Forty Beer Company in Gadsden, Alabama, has encountered such obstacles. He started exporting his beer to Asia but was taken aback by the hurdles he had to clear just to do business in many countries.
“It may sound easy,” he told us. “You have a solid product and a great new market to sell it in, but the challenges are immense. Every country has different paperwork, regulations, and procedures that are often redundant. Learning how to move your product through the global supply chain and get it on store shelves is a tremendous challenge.”
The World Trade Organization (WTO) has just made it easier for businesses like Frank’s and Jason’s to engage in international trade with the Trade Facilitation Agreement (TFA). The BBC reports:
The Trade Facilitation Agreement (TFA) involves streamlining customs procedures.
[Director General of WTO, Roberto] Azevedo said it would have a bigger impact than eliminating all existing taxes on imports, known as tariffs.
It involves countries signing up to a long list of reforms, including easier access for businesses to information, reduced fees and simpler and faster procedures.
WTO economists estimated it would cut the cost of trading by 14.3%, and that developing nations would gain the most.
By making it easier for businesses to trade their goods, the TFA will reduce trade costs and boost trade by more than $1 trillion, according to the WTO.
TFA negotiations were completed in 2013, and the United States ratified it in 2015. With 110 countries signing on, it enters into force.
“This groundbreaking agreement will unleash new trade flows and spur growth around the world by cutting red tape and easing the movement of goods across borders,” said U.S. Chamber President and CEO Tom Donohue.
How does the TFA do this? By streamlining customs procedures: Simple things like having governments publish their trade procedures and forms on the Internet to big things like improving transparency and taking advantage of new technologies in customs procedures.
The TFA is a far-reaching effort to cut bureaucratic red tape and make it easier for companies to sell goods to customers all over the world.
Frank’s Hydraulic Pumps would love this—if only Elbonia signed on. But more importantly, the FTA is a gift to all the small businesses—like Jack’s—that export American goods, which “account for one-third of U.S. merchandise exports.”
“It’s a welcome shot in the arm for the U.S. and world economies,” applauded Donohue.
About the authors
Sean Hackbarth
Sean writes about public policies affecting businesses including energy, health care, and regulations. When not battling those making it harder for free enterprise to succeed, he raves about all things Wisconsin (his home state) and religiously follows the Green Bay Packers.
