Fostering India’s Future Trade: Trade Facilitation and Beyond

The COVID-19 pandemic exposed the vulnerabilities of the global supply chain, with a number of countries adopting protectionist approaches towards trade. However, it at the same time exposed the need for reforms like digitalization, paperless trading, data governance, etc. for greater cross-border trade facilitation.

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Transparency, innovation, inclusiveness and an efficient regulatory framework form the cornerstones on which the edifice of global trade rests. Unduly complex processes and documentation raise costs; causes delays for businesses, affect consumers and impede economic growth. A multilateral Agreement on Trade Facilitation (TFA) was introduced into the WTO legal framework through an amendment protocol as a result of the 9th WTO Ministerial Conference. It aims at simplification, harmonization, and modernization of the export-import process; transparency; technical assistance; compliance; co-operation among customs authorities; etc.

Crisis stemming out of COVID-19 prompted countries to take a number of measures and accelerate implementation of their TFA commitments. The rise in number of non-tariff measures (NTMs), disruptions to global supply chains, and steadfastly increasing cross border e-commerce heightened the need for reforms like digitalization, paperless trading, data governance, etc. among several others to ensure that goods keep crossing the borders seamlessly and supply of services remains uninterrupted. 

Why trade facilitation is important and what India has done?

Trade facilitation helps consumers and businesses alike. Easier access to production inputs makes consumer products cheaper; less time and lower costs enhance the competitiveness of our industry, thereby ensuring its effective participation in global supply chains.Various reports and the WTO outlines significant reduction in trade costs which TFA provides for. India has shown its resilience by moving towards a better trade regime through NTFAP, establishment of NCTF and full implementation of its commitments under various categories of TFA. Introduction of Open Network for Digital Commerce, the SWIFT and ICEGATE portal, online storage facility like e-Sanchit, the AEO program and TURANT are some of the notable reforms undertaken by India with a view to facilitate trade. 

However, digitalization and technological innovation are raising new governance and regulatory challenges for governments worldwide. To make governance and regulatory approaches more agile and flexible, India has also ushered in innovative domestic reforms like a framework for regulatory sandbox by the RBI on four thematic cohorts. 

Optimizing the potential gains of trade facilitation

Carrying out reforms is an obstreperous task which would require concerted efforts to overcome existing constraints. As India continues to tread towards the path of development, it should increase its focus on some of the areas like digitalization, participation of SMEs, institutional structure, and regulatory reforms, etc.

1. Digitalization: Studies suggest that challenges emerging out of fourth industrial revolution greatly impact the trade competitiveness of a country. Those able to increase production of digital content can integrate better while those don’t would miss the bus. India’s engagement with the FTAs and other global alliances has recently gained significant momentum. The India-UAE CEPA contains a chapter on digital trade. While ongoing India-UK FTA would supposedly have  a chapter on digital economy, which also forms an integral part of Indo-Pacific Economic Framework for Prosperity, which India recently joined. India has also adopted OECD/G-20 inclusive framework on BEPS, which tries to address tax challenges arising out of the digitalization of economy. Effective participation in the aforesaid would be contingent on how quickly a transition is put in place by India. Recently, having a draft data governance framework by India is a step in right direction. But, for developing country like India, there is a dire need  to augment its digital infrastructure, and formulate a better strategy to bridge the digital divide to integrate better.
2. Effective participation of SMEs and trade finance: FTAs often have provisions on NTMs in the form of SPS and TBT, which adds to the challenges of harmonization and compliance with international standards. Owing to their small size, financial constraints, and information asymmetry, it becomes a herculean task for SMEs to effectively participate in global trade. Putting in place a portal like Enterprise Singapore can make our SMEs better informed.  SMEs are seldom able to raise money from capital markets; thus, exploring trade finance as an area of cooperation is another viable option which would cater to their financing needs. Developing economies like India can greatly benefit from the trade opportunities offered by shifting patterns of production. Exchange of best practices, adoption of those into our domestic framework, finding innovative solutions such as blended finance and sustainable development bonds would help in better participation of our SMEs.
3. An integrated institutional structure: Increasing competitiveness of our industry and better participation in the FTA negotiations would require an integrated institutional structure. Preparing an effective strategy for negotiations entails sound understanding of existing interest, domestic policy framework, capability, and the vulnerability of our domestic industry.  Ultimately it will pave the way for better prospects for industries competitive in a particular segment. It would also be beneficial in strengthening our domestic legal framework, compliance with our international obligations, ensure maximum utilization of human resources within industry and the government. Exploring the feasibility of having a similar framework like United States (US) COMPETES Act may open new vistas for sustainable economic growth.
4. Re-visiting our existing FTAs and preparing better for the future FTAs: Given the existing stalemate at the multilateral level and the current global crisis, FTAs are playing an increasingly prominent role in the international trading system at both the bilateral and plurilateral levels. This serves as the clarion call for FTAs to be designed in a manner to achieve the two-fold objective of: (i) mitigating the negative impacts of the current pandemic and economic downturn; and (ii) promoting an inclusive path to recovery that helps to build a global economy that is more resilient to future crises. Trade facilitation, investment, and IP measures can play a key role in mitigating losses, but these provisions, if not carefully crafted or if misused, can also exacerbate the losses. Bearing in mind that efforts don’t fall a step short, India may look at measures taken by other countries on some of the provisions like cross- border paperless trade, investment, digital economy etc. After exploring the plausibility of the aforesaid, an attempt should be made to weave those provisions within the fold of our existing, ongoing, and future trade agreements.

A consideration to the above mentioned would be a win-win situation for the government, businesses and the public at large. Focused, targeted and early reforms would certainly contribute towards India’s journey of becoming a self-reliant nation.

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Presently working as a Senior Research Fellow (Legal) at Department of Commerce, Ministry of Commerce and Industry, Government of India. Views expressed are personal.