Say yes at WTO

Trade facilitation agreement a must for India

There is a fundamental contradiction at work when line ministries of the Union government are the sole spokespersons for India in important international negotiations. This is particularly visible in the commerce ministry's handling of international trade negotiations - especially in the run-up to the important talks at Bali later this year. The Bali meeting seeks to breathe life into the decrepit Doha round of the World Trade Organisation (WTO). One major issue on the agenda is an agreement on "trade facilitation". What this means, in essence, is an agreement between governments on introducing mechanisms that make trade easier.

As this newspaper has reported, India's commerce ministry has strong objections to various parts of the current draft agreement. The stated reasons for the ministry's objections are "substantial cost implications", needed legislative amendments, and "onerous compliance implications". It is interesting that India's ministry seems to be negotiating on behalf of itself, and not citizens. After all, compliance requirements are likely to become less onerous for traders under a trade facilitation agreement, but more effort will have to be put in on transparency by governments. Nor can the need for amendments to existing law be cited as a powerful reason for naysaying. The point of such agreements is to bring domestic law in line with accepted international best practices, and thus aid trade.

Currently, trade facilitation is governed by the non-binding "simplicity and effectiveness" provisions for customs laid out by the Kyoto Convention. The WTO is attempting to replace this with a framework that encourages customs efficiency. Most open economies have a "disclosure-based" customs system, which is what the WTO draft agreement also tries to push. But India still runs a customs regime that is structured around numerous exemptions and discretion. The commerce ministry, unfortunately, seems determined to protect its exemption raj. It appears willing to scuttle a trade facilitation agreement for the entire world to do so. And it is willing to do this at a time when India desperately needs to export more and build new trading relationships, given its current unsustainable level of current account deficit. The lack of strategic thinking is evident.

Moreover, the potential gainers from trade facilitation are many. Even the specific issues raised by the ministry - a technical question relating to rejected consignments - reveal an unwillingness to reform local discretion, as well as an unjustifiable tendency to protect existing exporters at the risk of reducing the number of potential exporters. Rejected Indian consignments are frequently those related to the generics industry that fall foul of international anti-counterfeiting laws, for long a bugbear for the commerce ministry. But that cannot be allowed to hold up an agreement that would vastly benefit India. This country suffers from a competitiveness dysfunction, thanks to high transaction costs; trade facilitation would reduce that by between 13.5 and 15.5 per cent, according to some estimates. The Prime Minister's Office must step in to give strategic direction to India's negotiators in the run-up to Bali.