The Hindu Business Line : Time to focus on trade facilitation

Developing and least developed nations have won special and differential treatment relating to trade in the WTO. But that is not enough. As they step up efforts for a multi-lateral agreement on trade facilitation, it is vital they get the necessary financial and technical support.

Anil K. Kanungo

The issues that continue to hold centre-stage in World Trade Organisation (WTO) negotiations in the six years since the Doha Round began in 2001 are agriculture, non-agricultural market access (NAMA) and services. This was the case even when the Doha Round talks were resumed in Geneva earlier this month. But one issue of great significance which may not yet be in sharp focus is that of trade facilitation.

The importance such a process holds in the conduct of international trade is well realised as the gains accruing from this for both developed and developing countries have been found to be enormous (UNCTAD Study, 1994). Trade facilitation is by no means a new issue in the gamut of international trade operations.

It formed a part of the agenda in the League of Nations in 1923. Later, it was discussed in various international forums driven by the initiatives of organisations such as World Customs Organisation, United Nations Conference on Trade and Development (UNCTAD), International Maritime Organisation (IMO), Asia Pacific Economic Cooperation (APEC), World Bank, etc. In addition, different trade lobbies such as the International Chambers of Commerce earlier and even till date, worked hard to make it an issue of great concern and finally brought it under the WTO.

Critical dimension

Today, in the wake of proliferation of trade in goods and services, trade facilitation is fast assuming a critical dimension. Emerging as one of the four Singapore issues in 1996, it drew significant attention only at Doha and later formed an integral part of July Framework of 2004 to activate and identify the modalities for negotiations on the issue. As world trade today demands faster movement, release and clearance of goods, simplification and harmonisation of international trade procedures established through a multi-lateral agreement become crucial.

All member-countries feel that a multi-lateral agreement on trade facilitation will be beneficial to them as it reduces transaction costs and increases revenue. Yet, such a system would require huge financial resources and large technical assistance and capacity building for implementation. Many member countries, especially developing and least developed countries (LDCs) are not equipped and, hence, are reluctant to undertake any legal obligations under the WTO. At the same time, these countries, irrespective of their level of development, are convinced about the role that trade facilitation plays in economic development, and are keen to pursue it as a part of unilateral reform agenda based on available resources.

So, the key issue is how to carry forward the negotiations on trade facilitation at the WTO. The WTO has already granted special and differential treatment to developing nations and LDCs through the July Framework of 2004. This, however, does not arm them with all the measures necessary to implement trade facilitation, though it may be a good gesture.

More is needed

Developing nations and LDCs also feel more is needed that just granting of special treatment. It appears that the onus of identifying such measures lies with these countries. The effort requires huge human resources, technical skills and financial assistance. Not only do they have to calculate the one-time cost of a particular measure, but also the recurring costs of sustaining the system.

It is further argued that in such an effort, there are important variables that go beyond a simple cost-benefit analysisGiven the nature and dimension of the issue, the social cost of investment, particularly opportunity costs and social rates of return in terms of creating a better and corruption-free society, are important variables to holistically understand the implications of trade facilitation.

This is more so in a group of countries where SMEs form the backbone of the economy.

(The author is with the Indian Institute of Foreign Trade (IIFT), New Delhi.)