Trading across borders: If not for export incentives, trade agreements, documentation would be simple

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Updated: December 22, 2016 7:38:56 AM

Had it not been for export incentives or preferential trade agreements, documentation would have been simple

export-l-reutersLet’s first understand what World Bank does. As most people know, the entire World Bank exercise is based on two cities, Delhi and Mumbai. (Source: Reuters)

In 2017, World Bank’s “Doing Business” project ranks India 130th out of 190 countries. Rankings are a function of how other countries also perform. Ignoring that point, these rankings are based on ten heads: (1) starting a business; (2) dealing with construction permits; (3) getting electricity; (4) registering property; (5) getting credit; (6) protecting minority investors; (7) paying taxes; (8) trading across borders; (9) enforcing contracts; and (10) resolving insolvency. There is another head on labour, but that doesn’t enter the overall rankings. Compared to the other nine, the eighth head, trading across borders, receives relatively less attention in reform discussions.

Let’s first understand what World Bank does. As most people know, the entire World Bank exercise is based on two cities, Delhi and Mumbai. Specifically, on trading across borders, there is an export side and an import side. For exports, a shipment has to go from a warehouse in India (Mumbai/Delhi) to the US. The representative item is electrical machinery and equipment. For imports, it is the reverse and the representative item is parts and accessories of motor vehicles, imported from Republic of Korea. The respective ports are Nhava Sheva and Mundra.

There is a bunch of documents associated with exports/imports—bill of lading, invoice, packing list, customs declaration, terminal-handling receipts, import general manifest, bill of entry, cargo release order, certificate of origin. Notice this has nothing to do with price-based measures like tariffs or duties. Notice also that had it not been for export incentives or preferential trade agreements, documentation would have been simpler. Straightforward exports/imports require fewer documents. In the Bank’s work, there is an attempt to capture three types of costs—documentary compliance (non-custom type documentation), border compliance (custom type documentation) and domestic transport, cost defined both as time taken and money spent. There is no need to get into the rest of the methodology. Suffice it to say, India doesn’t do as well on trading across borders, as it does on getting credit, getting electricity or protecting minority investors. In future, I suspect increases in India’s rank will be driven by starting a business, dealing with construction permits, enforcing contracts, getting credit and resolving insolvency. The government has charted out a eight-point strategy to improve rankings, and except the focus on increasing percentage of direct delivery shipments, most elements pertain to these, not trading across borders.

In the past, if you look at what World Bank considered big bang (worthy of separate mention) under the head of trading across borders—you will find electronic data interchange (EDI) in 2008/09 and IceGate, the e-commerce portal of CBEC in 2017. Here is a quote from the CBEC website. “ICEGATE stands for the Indian Customs Electronic Commerce/ Electronic Data interchange (EC/EDI) Gateway. ICEGATE is a portal that provides e-filing services to the trade and cargo carriers and other clients of Customs Department (collectively called Trading Partner). At present, about 24,000 users are registered with ICEGATE who are serving about 6.72 lakhs importers/exporters.” If ICEGATE delivers what it promises, why isn’t there a greater improvement in 2017 rankings for trading across borders?

Let me digress and mention a study done by IIFT (Indian Institute of Foreign Trade) for National Shipping Board in June 2016. This is titled “End-to-End Logistics & Costs for Shipping through Ports” and is a fairly recent report. There is a typo that is symptomatic of what this study found. “In import, goods are generally transported under CIF terms in which the fright (sic) is paid by the importer.” The logistics story isn’t that good. Broadly, major problems are too many unorganised and unregistered players; registration, regulation and accreditation by too many agencies under too many statutes/orders; too many heads for levying charges; and non-standardised formats for documents. That’s the gist of it. You need to read the report for a wealth of detail. One can repeat the question. Why is a June 2016 study not that bright either?

Both World Bank and IIFT findings are driven by responses to survey questions. Under WTO, there is a trade facilitation agreement (TFA). India formally ratified this in April 2016. (That doesn’t mean India has to accept every provision of TFA.) Following this, CBEC now has something called SWIFT (Single Window Interface for Facilitating Trade) that integrates into ICEGATE. This should integrate assorted government agencies and standardise documents, declarations and forms. Not too many countries have such a single-window interface and clearance system. Stated differently, whether it is the World Bank or the IIFT, there is a time-lag issue. Because of what has already been put in place, somewhere down the line, India’s rankings will inevitably improve, subject to the caveat that ranks are a function of what other countries also do. However, there is yet another caveat, flagged by IIFT. There are too many unorganised and unregistered players. This is true not only of ports, but elsewhere too. Efficiency improvements occur only when there is a greater degree of formalisation and fragmentation declines, leading to larger players.

Years ago, thanks to economist EF Schumacher, people used to say, “Small is Beautiful”. His book was published in 1973 and was then regarded as one of the most influential books ever published. That book had a point, particularly from the point of view of choice of appropriate technology. However, in other areas, efficiency and competitiveness have little to do with beauty. Trading across borders need not be beautiful and small.

The author is member, NITI Aayog. Views are personal

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