Free Trade Agreements
On 28 July 2017 the WTO issued the latest annual statistical report World Trade Statistical Review 2017. This publication examines trends in trade in goods and services and trade policy developments including restrictive trade practices.
World merchandise exports have risen by around 32% in value since 2006 to USD 16 trillion in 2016, and exports of commercial services have increased by around 64% in the same period, reaching USD 4.77 trillion in 2016. However trade growth in terms of volume of merchandise showed its lowest growth since the financial crisis, at 1.3% in 2016. This was half the growth rate of the previous year. This is due partly to low growth of world GDP at 2.3%, down from 2.7% in 2015. Growth in world trade is expected to rise slightly in 2017 to 2.4%.
In recent years the ratio of global trade growth to GDP growth has fallen to around 1:1 from an average of around 1.5:1 since 1946. In 2016 the ratio was 0.6:1, falling below 1 for the first time since 2001.
International trade is still concentrated within a few countries with the highest ten trading nations accounting for more than half the global trade in merchandise and commercial services. The share of developing countries in world merchandise trade is 41% and their share of trade in commercial services is 36%. Trade between developing countries is rising and accounted for more than half their total exports in 2015. However those countries classified as least developed countries (LDCs) still have a share of less than 1% in exports of merchandise and commercial services.
The increasing use of new technologies is expected to have a positive impact on digital trade in future with opportunities for entrepreneurs and small businesses. To analyze these trends and formulate good policy in the area improved statistics are necessary. The WTO and OECD have therefore put together an inter-agency task force to take the issue forward.
Trade policy trends
From mid-October 2016 to mid-May 2017 WTO members implemented 74 new trade restrictive measures, a decrease on the amount recorded in the previous annual report. Trade restrictive measures include new tariffs on import or exports; increases in existing tariffs; import bans or quantitative restrictions; more complex customs regulation or procedures; or restrictive changes to local content requirements. The measures could be temporary or permanent.
In the same period WTO members introduced 80 measures to facilitate trade. However the trade coverage of the import-facilitating measures is more than three times the amount in value of the estimated trade coverage of the import restrictive measures. Trade facilitating measures include the elimination or reduction of tariffs on imports or exports; simplified customs procedures; elimination of import or export taxes; or elimination of quantitative restrictions on imports or exports.
Trade facilitation agreement
The report notes that the WTO’s Trade Facilitation Agreement (TFA) entered into force in February 2017. The agreement aims to save trade costs for WTO members by simplifying and standardizing customs procedures and facilitating the flow of goods across borders.
Developing countries are permitted to set their own timetable for implementation according to their capacity. They can also obtain access to capacity-building resources to enable them to implement the agreement. The WTO has established a Trade Facilitation Agreement Facility to assist developing countries in assessing their needs and finding potential development partners. Developing countries are requested to set out the provisions of the TFA that they can implement immediately, the provisions that will require more time for implementation and those that may require capacity building support. The various commitments therefore provide a road map for the full implementation of the agreement by all WTO members.
On July 18, the governments of Singapore and Sri Lanka signed a statement on the opening of negotiations on a bilateral free trade agreement (FTA). The Free Trade Agreement (FTA) with Singapore would be beneficial to Sri Lanka because it would result in more opportunities with Sri Lanka.
With this free trade agreement, Sri Lanka will be able to substantially increase volume of exports in Singapore and at the same time it would welcome the industrialists in Singapore to set up their production facilities in Sri Lanka and make use of the resources they have.
Once concluded, the agreement would pave the way to lower barriers to trade and would create more confidence for the companies to commit the investment activity.
The Free Trade Agreement between Canada and Ukraine will enter into force on 1st August 2017. As per previous discussion, from August 1, 2017, the agreement will cut 98% of the tariffs for Ukrainian exports to Canada and 72% of the tariffs from Canada to Ukraine. This agreement had been signed on July 11, 2016. The law on ratification was signed on April 3, 2017 by the President of Ukraine.
Recently the Prime Minister of Canada and the European Commission announced that they were agreed that the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) would enter into force on September 21, 2017. The CETA will create jobs, strengthen economic relations and boost Canada’s trade with the world’s second-largest market. The CETA is a progressive free trade agreement which covers virtually all sectors and aspects of Canada-EU trade in order to eliminate or reduce trade barriers. The agreement was signed on October 30, 2016, in Brussels.
Currently, only 25% of EU tariff lines on Canadian goods are duty-free. On CETA’s entry into force, the EU will remove tariffs on 98% of its tariff lines. Once CETA is fully implemented, the EU will have eliminated tariffs on 99% of its tariff lines. Once CETA is ratified, Canada will be the only G-7 country to have a free-trade agreement with the world’s two largest markets: the EU and the United States.
The top benefits include duty-free access for forestry and wood products, new markets for agricultural and agri-foods products, new markets for fish and seafood, and improved access for professional services. Current European Union tariffs on Canadian fish and seafood average 11%, with peaks of 25%, which will be reduced or eliminated under the agreement. Salmon, accounting for the majority of British Columbia’s fish and seafood exports to Europe, has faced an average tariff of 5.5%, which would be eliminated under the Canada-EU trade agreement.
The Japanese Ministry of Finance on 14 July 2017 issued a press release announcing that the Government of Japan and the Government of the Republic of Lithuania have signed a Double Taxation Agreement (DTA). The agreement provides for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. This Convention is the first tax convention to be concluded between Japan and the Republic of Lithuania in the light of an increasingly close economic relationship between the two countries.
The Treaty contains a number of treaty-based recommendations from the BEPS project and contained in Actions 2 (neutralizing the effects of hybrid mismatch arrangements), 6 (preventing the granting of treaty benefits inappropriate circumstances), 7 (preventing the artificial avoidance of permanent establishment status) and 14 (making dispute resolution mechanisms more effective).
Both Japan and Lithuania have signed the OECD MLI. Given that the Treaty already incorporated the treaty-related BEPS minimum standards, it can be expected that this treaty will not be listed as a CTA and thus will not likely be further modified by the MLI.
Although the DTA has been signed, it has not entered into force yet. For the DTA to enter into force, the respective ratification procedures have to have been finalised in both countries.
The Prime Minister, Justin Trudeau, announces that Canada agreed to commence operation of the Free Trade Agreement with the European Union (EU) on September 21, 2017. The commencement of the Comprehensive Economic and Trade Agreement (CETA) had been delayed by disputes on some issues including pharmaceuticals. The EU also had some concerns about the opening up of the Canadian market to imports of European cheese.
Both sides have now agreed to begin the interim application of the agreement, thus allowing for all the necessary implementing measures to be taken before September 21, 2017. The agreement will enter into force after all 28 EU member states and parliaments have ratified it.
The Japanese Ministry of Finance issued a press release on 5 July 2017, announcing that the exchange of diplomatic notes between the Government of Japan and the Government of the Republic of Latvia for entry into force of the Convention between Japan and the Republic of Latvia for the Elimination of Double Taxation with respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance (signed on January 18, 2017) has taken place in Tokyo.