Trade Facilitation in the Multilateral Trading System

Genesis, Course and Accord

Hao Wu

• Publisher: Routledge
• Year: 2018
• ISBN:
  9780429886744
• Edition: 1
• Topic: Jura
• Subtopic: Internationales Handelsrecht

Negotiations on trade facilitation were concluded at the WTO 9th Ministerial Conference in 2013, and the Agreements on Trade Facilitation (TFA), therefore, became the first fully multilateral agreement in WTO history. Since then, trade facilitation has been in the limelight on the stage of the world trading system. During recent years, the TFA has been consistently on the agenda of the summits of G20, G7, and APEC. The Agreement has come into force and shall be implemented on a global scale. As a result, the WTO members shall be prepared to translate the Agreement into their domestic legislation, which will involve a series of reforms in trade laws and policies.

There are extensive voices demanding a comprehensive expatiation on trade facilitation and the TFA. It is essential to systematically delve into the genesis of trade facilitation, revisit the course where the TFA came into being, and analyse the well-turned legalese of the TFA. This book meets this demand.

This book is path-breaking in these aspects: it expounds on the rationales for trade facilitation and the significance of constituting an international accord on trade facilitation; it restores the one-century track of the international community's talks on trade facilitation, from the times of the League of Nations to the WTO era; it reveals how the WTO negotiating mechanisms enabled the TFA to be nailed down, which would be enlightening for trade diplomats engaged in other WTO negotiations; and it provides an in-depth commentary on the TFA articles, which will help stakeholders more accurately understand and implement the Agreement.

This book will be especially valuable for government officials and policy-makers, trade practitioners, lawyers, advisers, and scholars interested in international economic law, WTO law, international trade, international relations, and international development studies.

1 Free trade is not for free

In the post-war era, globalization has been a powerful force in shaping the world. Over the course of globalization, a wave of phenomena come to the fore: merchandise and service of various types and of high quality are increasingly available for the diversified choices of people living in different regions; capital flows with unprecedented velocity internationally out of an instinct for optimizing profit margins; labor markets are more open to foreign job hunters to alleviate the skill shortages of the hosting countries; technological innovations, which spill over more rapidly than ever before, enhance productivity; transportation and communication costs have decreased so that it is easier to reach a place or person that is thousands of miles away; natural resources, including raw materials and energy sources, are more efficiently allocated on a global scale; and economies – no matter they are neighboring or geographically distant – are increasingly integrated or connected by trade and investment.

Globalization has brought far-reaching impacts worldwide. Incontrovertibly, this revolutionary process has fundamentally transformed societies and changed everyday life for many people. At the same time, there are of course critics. Anti-globalization campaigners are vocal in their criticism that globalization concurrently has caused negative side-effects, such as inequality, marginalization of small and vulnerable economies, shrinkage of traditional industries and damage to the environment. While some may contend that ‘it is the best of times’, it could also be ‘the worst of times’¹ in the eyes of others. Nevertheless, ‘[t]oday globalization is fact of life, so the question is less about whether or not we like globalization – it is more about how we should respond’.² At the dawn of the new millennium, world leaders declared that ‘the central challenge we face today is to ensure that globalization becomes a positive force for all the world’s people’.³ As Margaret Thatcher conveyed, ‘there is no alternative’.

The calls for free trade

Free trade (also known as ‘trade liberalization’) is the enduring and dynamic engine that has driven globalization forward.⁴ Liberalizing trade entails eliminating restrictions and barriers on the exchange of goods and services between countries. Among the restrictions and barriers, tariffs and non-tariff measures (NTMs) are the most salient. In the modern world where countries are tightly connected by international trade, if we are committed to steering globalization towards a promising trajectory, we should accelerate the momentum of free trade. At least, what generations of theorists have advocated is still worth heeding.

The notion of free trade can be traced back to the Grotian tradition. Hugo Grotius, in The Free Sea (1609), articulated the rule of international law as the foundation: ‘it is lawful for any nation to go to any other and to trade with it’.⁵ On free trade, he wrote in Commentary on the Law of Prize and Booty (1605):

Freedom of trade, then, springs from the primary law of nations, which has a natural and permanent cause, so that it cannot be abrogated. Moreover, even if its abrogation were possible, such a result could be achieved only with the consent of all nations. Accordingly, it is not remotely conceivable that one nation may justly impose any hindrance whatsoever upon two other nations that wish to enter into a contract with each other.⁶

Grotius, however, lived in an age when Mercantilism⁷ was dominant in Europe (from the sixteenth to the eighteenth century). Against the ‘encouraging exportation, discouraging importation’⁸ mercantile system, Adam Smith, through the principle of absolute advantage, argued that unrestricted trade and free international competition were more beneficial to a country.⁹ For instance, if the wine of France was better and cheaper than that of Portugal, it would be advantageous for Great Britain to purchase the French wine;¹⁰ Great Britain should hence relax the discriminatory restraints on the importation of French wine (e.g., higher tariffs than on Portuguese wine).¹¹ As a proponent of free trade, Adam Smith explained the rationale for international trade in his magnum opus – the Wealth of Nations (1776):

In every period, indeed, of every society, the surplus part both of the rude and manufactured produce, or that for which there is no demand at home, must be sent abroad, in order to be exchanged for something for which there is some demand at home.¹²

Following Smith, David Ricardo propounded the theory of comparative advantage. According to the ‘two-goods, two-country’ Ricardian model, there is scope for mutually beneficial trade even when one country is more productive in every possible area (viz. that country can produce more goods with one unit of labor in both modeled lines of production than its trading counterpart), as long as each country specializes in its pattern of comparative advantage. Ricardo, in On the Principles of Political Economy and Taxation (1817), also advocated free trade:

Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employments as are most beneficial to each. This pursuit of individual advantage is admirably connected with the universal good of the whole. By stimulating industry, by regarding ingenuity, and by using most efficaciously the peculiar powers bestowed by nature, it distributes labour most effectively and most economically. While, by increasing the general mass of productions, it diffuses general benefit, and binds together by one common tie of interest and intercourse, the universal society of nations throughout the civilized world. It is this principle which determines that wine shall be made in France and Portugal, that corn shall be grown in America and Poland, and that hardware and other goods shall be manufactured in England.¹³

John Stuart Mill, subsequently, enriched the Ricardian model. In Principles of Political Economy (1848), Mill explicated that the countries with more elastic demands for other countries’ goods tend to benefit more in a system of comparative-advantage-based trade.

On January 23, 1860, Great Britain and France concluded a free trade treaty (usually called ‘the Chevalier-Cobden treaty’).¹⁴ Under this treaty, Great Britain and France reduced their tariffs substantially, abolished import prohibitions and granted each other unconditionally most-favored-nation (MFN) status.¹⁵ As a result, the value of British exports to France more than doubled in the 1860s, and the increase was mainly in manufactured goods; the importation of French wines into Britain also doubled.¹⁶ The Chevalier-Cobden treaty was a signal that the sentiment of free trade had reached ascendancy.¹⁷

Since then (except for those periods of depressions and wars), free trade remained the universal basis of commercial relations between countries. A wave of theorists continued to advocate this sentiment. At the beginning of the twentieth century, Eli Heckscher and Bertil Ohlin, with their Heckscher-Ohlin model, found that a country which is well endowed with a factor (e.g., capital, labor) tends to export the goods whose production is intensive in that factor. This theorem empirically verifies the pattern of trade between developed and developing countries (i.e., the exports of developed countries are concentrated in sectors with higher skill intensity; the exports of developing countries are concentrated in sectors with lower skill intensity).¹⁸

In the 1980s, Paul Krugman developed the new trade theory. Traditional trade theories had suggested that international trade is based on the production of different goods in each country to satisfy unmet needs in others. Krugman’s new trade theory, however, presented models that explain how countries benefit from producing and trading in similar goods and how production ...