Proactive trade facilitation must to get the most out of WTO deal

Tags: Opinion

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We become complacent seeing few green shoots of recovery here and there. Current account deficit (CAD) was the buzzword for several months after it touched an all-time high of 6.7 per cent during October-December 2012. Everyone was talking about supporting and facilitating exports, as it was seen as the only saviour of the economy.

However with the CAD touching a new low of 1.2 per cent during July–September, much euphoria and goodwill generated for exports seems to have evaporated. The agreement on trade facilitation in Bali has brought back the focus on exports. While I would not like to be seen as a pessimist, we can hardly ignore the fact that despite robust exports and FDI inflows, the CAD is not out of wood yet, as import compression may neither be possible nor desirable.

Net capital outflows, including portfolio flows, commercial borrowings and FDI have surged in the last quarter, touching a new high of $5.8 billion. The foreign exchange reserve position is comfortable, but overseas debt stood at 136 per cent of forex reserves in June 2013. Short-term debt maturing in next one year or earlier also stands at $96 billion. The economic situation is though not alarming, but is definitely a cause of concern. Exports have to drive the economy in such challenging times.

A study by UNCTAD estimates that the average customs transaction involves 20–30 different parties, 40 documents, 200 data elements (30 of which are repeated at least 30 times) and the re-keying of 60–70 per cent of all the data at least once. With the gradual reduction in tariff across the globe, the customs compliance cost at times exceed the cost of duties to be paid. An APEC study estimated that trade facilitation programmes would generate gains of up to 2 per cent of import prices for developing countries, which in our case may result in saving of $5-10 billion.

One of the key challenges facing the country has been the difficulty in doing business in India as reflected in our ranking in the 134th place in the Doing Business Report 2014. In the ‘trading across border’ segment, we stand at 132nd, which shows that other countries are taking far more revolutionary measures in trade facilitation than us. We are leading the software sector for many decades. Yet, the EDI network required for exim operation is still far from reality. While few initiatives have been taken by DGFT, customs and banks, other agencies are living in a world of their own.

The agreement at Bali has provided us transition time to streamline our processes. To me, trade facilitation should be a self-driven agenda looking at massive advantages flowing from it. WTO pegs the overall gain from trade facilitation at $1.3 trillion, which is the combined GDP of many South Asian countries put together. The transaction cost in India is also one of the highest as the government’s own report puts it between 8 to 10 per cent of export value.

On an average, exports of $300 billion itself translates into gain of $24-30 billion annually. Assuming that 50 per cent of the cost is addressable, this will put the figure between $12-15 billion. One can very well qu­antify the benefit emanating from such saving. This may provide 3-4 per cent competitiveness to Indian exports, much more than all the export promotion schemes put together for certain sectors of exports.

While we can look at a long-term agenda of improving infrastructure bottleneck to propel manufacturing and exports, we can take small steps to facilitate trade:

n One of the key elements of the trade facilitation agreement is public comment. The trade facilitation norms would require greater consultation with stakeholders before effecting a change. Some of the departments of the government have started putting draft public communications on the websites, inviting suggestions before putting them into effect. However, this should be across all departments through the institutionalise process so that the same is invariably followed by all government agencies.

n The novel schemes of accelerated client programme (ACP), authorised economic operator (AEO) and onsite post-clearance audit schemes, which provide accelerated clearance of export import consignments have not yet taken off. The registration under such schemes remains limited and beneficiaries are only fractions of eligible stakeholders. Most of the stakeholders are unaware of such initiatives. An aggressive marketing and expeditious registration will go a long way in popularity of the schemes.

n There is need to develop a single point interaction for exporters/importers. Customs should be used as a hub for all import/export transactions. All agencies should be linked with customs through EDI network and flow of document should be between customs and rest of agencies while customs remain the face for transactions with exporters/importers.

n DGFT should be made the repository of all information and single inquiry point as mandated under the trade facilitation agreement. A back office support through nodal officers of RBI, CBEC, DOC, DIPP, FIEO and export promotion agencies can support the inquiry point.

The trade facilitation agreement is expected to come into force by 2015. We hardly are left with much time to put our house in order and comply with the provisions of the agreement. The work should start immediately and let us play a pro-active role in implementation of the same so as to reap rich dividends.

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