The Hindu Business Line : `India has been doing modern trade facilitation for about a decade'

International trade gets a fillip when formal trade barriers come down. Thereafter, focus is `trade facilitation' issues, such as making it possible for companies to know about the import/ export regulations in other countries. Watchers of WTO (World Trade Organisation) may know that the phrase `trade facilitation' is one of the four `Singapore issues', arising from the1996 Singapore Ministerial Conference.

Subsequently, in the 2001 Doha Ministerial, it was noted that the trade documentation requirements often lack transparency and are vastly duplicative in many places. "Despite advances in information technology, automatic data submission is still not commonplace," reads a snatch from the `briefing notes' on www.wto.org.

The phrase `trade facilitation' was coined in the late 1960s, when the UN (United Nations) bodies started using it," writes Mr Nirmal Sengupta in his recent book `The Economics of Trade Facilitation,' from Oxford (www.oup.com) . Yet, surprisingly, "standard textbooks do not even mention this term," he rues. "Nor does one find this term regularly in advanced literature on international trade." Here, Mr Sengupta answers a few questions from Business Line.

What is trade facilitation?

Trade facilitation consists of numerous tasks, encompassing commercial measures, as well as those relating to international payment, controls, transport and so on, as emphasised by the UN's Centre for Trade Facilitation and Electronic Business (CEFACT). Doha Ministerial's definition of trade facilitation refers to `further expediting the movement, release and clearance of goods, including goods in transit'. This is broader than that in the Singapore Declaration (`simplification of trade procedures in order to assess the scope for WTO rules in this area'), but is narrower in scope than the UN's. Over the years, the WTO has further greatly narrowed the scope of the phrase for the purpose of regulations.

Is there a metric to measure the level of trade facilitation (TF)?

Two methods are in use. One, by percentage reduction of cost from a TF reform, added over `major' TF items (according to the OECD or Organisation for Economic Co-operation and Development). And, two, by `closing the gap' approach where the TF in one country is considered as ideal (as per APEC or Asia-Pacific Economic Cooperation, and the World Bank). If you are looking for a metric to measure TF benefits, there are two methods, viz. estimation of trade cost reduction by a TF reform, and estimation of economy-wide benefits due to trade by computational general equilibrium model.

Do you see a trade-off between facilitation and control/security?

Certainly not. Methods to improve control/security also qualify for being TF, and are in use, because TF, unlike tariffs, is a general term for numerous reforms.

What are the costs of trade facilitations? How soon can be the payback?

Some reforms may be tough challenges and costly, yet worthy in the long term. Just about 10 years ago, correspondence took days to elicit a response. Not so now, with instant communication possible. This facilitation is, indeed, costly because it involves a huge e-network. For countries not in e-regime, this kind of TF will be very costly to introduce. A second point, much facilitation can be made by multiple routes (e.g. standardisation). If WTO insists on specific methods, compelling a country to change its own course, but without a matching gain, there can be a costly wastage of national resources.

Are there lessons from trade facilitation for internal processes of companies?

There are many. The principles are applicable even beyond trade.

A simple example is a uniform procedure for college admissions that will save students spending days, filling up several forms.

Since, over the years, societies gather many processes as patchworks, it requires a centralised effort to reject garbage from these.

On trade facilitation in India.

India has been doing modern TF for about a decade. It features in Budget Speeches and the Kelkar Report, among others. Countries like India need to pursue a careful and selective approach instead of a blind acceptance of everything sold in the name of TF.

Any impact of trade facilitation on jobs?

Yes, and there are both losers and gainers. For example, containerisation led to massive job loss in global ports, but there were great gainers too. Job loss rules are similar to those in technological progress. Therefore, as with technology adoption, one has to take this aspect into consideration for deciding about the right TF strategy.

Can transaction cost analysis reveal the cost of compliance?

It is the other way round. TF studies reveal c-of-c or cost of compliance, and thereby enrich transaction cost analysis, since TF qualifies for being a transaction cost analysis. TF analysis has developed largely around the Hicks-Samuelson framework of transaction cost analysis, rather than Coasian or NIE (new institutional economics) frameworks, although there is much potential for the latter.

More Stories on : Interview | WTO | Foreign Trade

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page