For India trade facilitation is a major policy objective to enhance competitiveness.
Trade facilitation minimises obstacles to cross-border movement of goods.
The bigger these obstacles, the higher more are costs incurred by exporters and importers. For India, border costs have adversely impacted prospects of exports.
Border costs are ‘regulatory cholesterol’ choking supply chains. Lengthy, cumbersome procedures at entry and exit check points are typical examples. But regulatory cholesterol extend to ‘behind border’ domestic standards unaligned with those in major global markets leading to quality mismatches and higher costs for certification. Regulatory misalignments impose high costs for trade that are rarely understood.
India — a signatory of the WTO’s multilateral Trade Facilitation Agreement (TFA) — has been working on cutting border red-tape and associated costs. But trade facilitation must go much further. This calls for a TFA+ approach.
The pandemic brought to the fore the importance of being operationally flexible and agile.
Governments also realised the importance of being nimble and expansive in approaching trade facilitation.
Global trade has become intensely digital in character after the pandemic. Cutting procedural flab at borders and shifting to online practices is now an accepted necessity for countries. Large scale digital shifts, such as in invoicing and certification, need to be accompanied by deeper structural changes. These include implementing mechanisms like recognizing digital signatures and identities among cross-border jurisdictions.
India is actively engaging in ambitious bilateral FTAs (e.g., UAE, Australia, EU, UK, Canada) for obtaining new preferential market access for its businesses. It must also push trade facilitation to a space where it can align its digital cross-border trade system with those of the markets it is negotiating FTAs with.
Initial efficiency gains obtained from paperless processes and e-invoicing need to be augmented by establishing processes for recognising digital identities and cross-border e-payments. This requires trade facilitation to extend to ‘behind border’ regulations in digital economy.
The interoperability of digital payment systems — UPI and PayNow — between India and Singapore — is a laudable move. The next, and more difficult step is enabling trusted cross-border data flows. This is where data protection and privacy rules must be crafted internally in a manner that facilitate seamless cross-border digital trade.
For India, the costs of supply chain disruptions are too large to bear repeatedly. Chain resiliencies are vital to survive disruptions. Digital transformation and adaptability are greatly important in this regard. Trade facilitation required for achieving the above objective must have a vision broader in scope than the TFA. It must combine reforms to reduce the regulatory cholesterol at the border with development of domestic regulations that enable effective integration in global supply chains.
A TFA+ plus approach to trade facilitation for India will benefit from its engagement in plurilateral and regional rule-making coalitions. The Indo-Pacific Economic Framework for Prosperity (IPEF) is noteworthy in this regard. India’s proactive engagement in the IPEF on trade facilitation, digital economy and good regulatory practices will bring wholesome benefits. So will engaging in comprehensive FTAs that address a broad range of trade standards, such as with the EU and the UK. Trade facilitation cannot, and should not, be taken as an exercise for obtaining select efficiency gains. India must use trade facilitation for maximising the benefits of its engagement in global efforts to build resilient supply chains and developing modern trade standards.
The writer is Senior Research Fellow and Research Lead (trade and economics) in the Institute of South Asian Studies in the National University of Singapore
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