Trade facilitation: Time to put our house in order?

Pradeep S Mehta

Amidst claims by commerce minister, Murasoli Maran, that “the Singapore issues” are back at Singapore, experts have a feeling that India has only secured a “postponement” of negotiations while conceding the principle that negotiations will take place. The Doha Declaration states that negotiations on so-called “Singapore issues” including investment, competition, trade facilitation, and government procurement “will take place after the fifth session of Ministerial conference on the basis of decision to be taken, by explicit consensus, at the session on modalities of negotiations.” Negotiations will take place, while consensus will be sought on the modalities: the core principles, methodology, opt-in opt-out, vehicle i.e., at the working group or under the trade negotiations committee etc.

I have always argued that the Singapore issues are not entirely against our or any developing country’s interests. Trade facilitation for instance, is one, which even Mr Maran agrees as having the potential for benefits for India because it seeks reforms in areas like customs, where we still have antiquated and inefficient procedures, adding substantially to the transaction costs. Most countries do realise that there is a need to overhaul the archaic and cumbersome border clearance systems, in order to reap the benefits of trade liberalisation to the fullest extent.

Nonetheless, trade facilitation is an issue, which has not been given the attention it deserves. As per estimates the costs to business of unnecessary red tape and procedures could be as high as $70 billion a year and such costs often fall disproportionately on SMEs (small and medium enterprises), firms, who ultimately pass it on to consumers in developing countries. In economic terminology, trade facilitation covers a wide range of non-economic measures aimed at promoting the expansion of international trade through smoothening its flows. Among others, these include publication of trade directories, co-operation on technical standards, customs and quarantine matters, periodic discussion of trade issues, trade fairs, and trade missions etc.

Simplified import, export and customs procedures can not only benefit traders, but also improve government administration, revenue collection and controls, while contributing to an improved climate for inward investment. If properly implemented and monitored trade facilitation can certainly benefit both individual economies as well as the multilateral trading system.

There is always a downside to everything. Thus skeptics will argue that, other than the over-burden, an agreement of this nature may lead to ridiculous lengths, such as the type of English language being used etc. Indeed, the fears are reasonable, but having entered into the World Trade Organisation, one has to be prepared for further and newer issues.

In the international trade context, trade facilitation is hardly a new issue though some think it is as being one. Article 8 of the General Agreement on Tariffs Trade (GATT) emphasises the desirability of reducing formalities and the debate now is whether this should be made more operational and if so how? The Doha Declaration recognised the case for further expediting the movement, release and clearance of goods in transit, and the need for enhanced technical assistance and capacity-building in this area.

Trade ministers agreed that negotiations would take place after the Fifth Session of the Ministerial Conference. In the period until the Fifth Session, the Council for Trade in Goods shall review and as appropriate, clarify and improve relevant aspects of Article V, VIII and X of the GATT 1994 and identify the trade facilitation needs and of members, in particular developing and least developed countries. Articles V, VIII and X deal with the freedom of transit, fees and formalities connected with importation and exportation, and publication and administration of trade regulations and the key words are “matters related to customs and other procedures and formalities to expedite movement, release and clearance of goods”.

This gives a clear indication to Indian policy-makers to do their homework properly and put their house in order before anything is agreed on the future of negotiations on trade facilitation. There are arguments that the developed countries are, by means of a multilateral agreement on trade facilitation, essentially seeking to replicate their existing custom procedures worldwide.

However, for a large economy like India, there is not much to worry. On the other hand, this is bound to improve efficiency of the existing system and benefit the economy as a whole. At another level, and from the point of view of making Indian products export competitive in the international market, it is also necessary to analyse customs and other procedures in major economies, which are acting as non-tariff barriers. Thus, the need of the hour is to grasp this opportunity, study import-export procedures of different countries and place a proactive agenda before the WTO Council for Trade in Goods rather than merely reacting to issues raised by others.

However, while India has to consider domestic priorities and constraints, it is for its own benefit in the long term to go ahead and ask for a framework of rules to bring transparency, predictability and non-discrimination to customs procedures world wide. The WTO could certainly establish a set of principles or commitments that would guide national efforts to simplify and modernise trade procedures, and ensure that all members followed a harmonised set of standards. India will also have to point out that for most of the developing countries, implementation of trade facilitation measures could be a big challenge and would require substantial technical assistance to build capacity , as well as time. Therefore, any WTO initiative should fully integrate and address these needs.

While it seems to be generally beneficial for developing countries to phase out their use of expensive pre-shipment inspection regimes, they should push hard for technical and financial help to replace these by sophisticated customs administration systems. Countries like India will have to take a lead to highlight the benefits and other implications of trade facilitation; in particular, the strong development dimension before any consensus on this issue is arrived at.

On the other hand, at home it has to create an environment for change and reform within customs administrations, particularly with the introduction of automated systems. Imagine the plight of the corrupt customs inspectors! Importers will certainly benefit, and hopefully so will consumers.

After the fourth Ministerial Conference, there have been claims of India winning gold medals at Doha. Indeed we can win real gold medals in future as well if we become a little proactive on issues of our interests, and trade facilitation is certainly one of them.

(The writer is Secretary General of CUTS Centre for International Trade, Economics & Environment)