TRADE FACILITATION IN INDIA: CURRENT SITUATION AND THE ROAD AHEAD

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1 TRADE FACILITATION IN INDIA: CURRENT SITUATION AND THE ROAD AHEAD Dr. Jayanta Roy Principal Adviser, Confederation of Indian Industry, New Delhi EU/World Bank/ BOAO Forum for Asia Workshop on Trade Facilitation in East Asia Shanghai, China November 3-5 th, 2004

2 Introduction Trade Facilitation has been a neglected issue in global trade liberation process Trade facilitation is the other name for reduction in transactions costs Reduction of transaction costs in trade through trade facilitation can bring enormous gains in trade, and as such are necessary and important for the development of global trade

3 The Transaction Costs of Trade OECD- The cost of poor border procedures could vary between 2% to 15% of the total transaction value of global trade. UNCTAD- Direct and indirect transaction costs i.e. banking and insurance, customs, business information, transport and logistics etc add up to 10% of the total value of world trade (USD 400 billion).

4 Trade Facilitation: The Emerging Challenge The reduction of other types of barriers has brought border crossing costs to business, such as waiting time and Customs procedures into new focus. The plethora of procedures that have to be gone through at the border when importing or exporting have been increasing in recent years. Adding to the cost of trading both for governments and business. The volume of international trade has expanded relative to the size of many national economies, making it more difficult for administrations to cope on the basis of unchanged resources.

5 Trade Facilitation and WTO Trade facilitation came rushing to the foreground of WTO issues as the international business community increasingly expressed concern for greater transparency, efficiency, and procedural uniformity of cross-border transportation of goods. Trade Facilitation came into the WTO agenda after some important studies done by APEC, World Bank and UNCTAD came up with the conclusions that: Clearing the red tape at country borders would generate approximately twice as much gain to GDP than tariff liberalization would. Trade facilitation measures would particularly benefit developing countries, where the inefficiencies are sometimes more costly to industries than are tariff barriers

6 Trade Facilitation is not new to WTO Aspects of Trade Facilitation are not new as issues in WTO/GATT. Article V (Freedom of Transit), Article VII( Fees + Formalities connected with Importation and Exportation), Article X (Publication and Administration of Trade Regulation) Trade Facilitation was included in the agenda at the WTO Ministerial Meeting in Singapore in 1996.

7 Trade Facilitation is not new to WTO Contd. Trade Facilitation is the only Singapore issue which has survived in the WTO July 2004 Framework Agreement though initially opposed by the developing countries. For Trade Facilitation to be effective in the multilateral context, developed countries need to provide adequate TA and CB and S&D treatment. India should benefit from trade facilitation in WTO given its high transaction costs and its unilateral reform in the same direction. Also would help to counter opposition to reform.

8 Trade Facilitation in India: Current Scenario India has several problem areas in Trade Facilitation and there are substantive Transaction Costs involved in trading with India While some impressive gains have been made over the last decade in terms of eradicating transaction costs, a lot of work still needs to be done to bring India up to the global standards in this area. The following slides offer a flavor of the problems facing India vis-à-vis facilitating trade.

9 Typical Cargo Dwell Times India International Air Freight Transaction Export Import Containerized Sea Freight Ship Waiting Time Location Delhi Airport 2.5 days 8 days Mumbai 3-5 days Norm Less than 12 hrs Less than 12 hrs Less than 6 hrs Export Dwell Time 3-5 days Less than 18 hrs Import Dwell Time 7-14 days Less than 24 hrs Source: Jayanta Roy Towards International Norms for Indirect Taxes and Trade Facilitation in India Background paper prepared for the Task Force on Indirect Taxes, Government of India, October 2002.

10 Trade Facilitation in India: Current status India: Trade Logistics Documents Required for Export Clearance Documents 29 No. of Copies 118 No. of Signatures Required 257 Time Required for Typing 22 hours Source: Jayanta Roy Towards International Norms for Indirect Taxes and Trade Facilitation in India Background paper prepared for the Task Force on Indirect Taxes, Government of India, October

11 Reforms, Initiatives and the Road Ahead GOI Task Force on Indirect Taxes Recommendations (2002):! System based on trust and self-declaration.! Ex post audit! Paperless and non face-to-face contact ( importers and customs) and use of EDI.! Reliance on best practice Risk Management System.! Setting up two inter-ministerial committees

12 Reforms, Initiatives and the Road Ahead Contd. Considerable progress has been achieved:! EDI introduced in 1995 for online assessment, online duty payment and clearance. It now covers 90% of the total declaration with customs.! Dwell time has come down though not close to international norms.! Demurrage paid for hold-ups at ports and airports has come down dramatically.! The number of disputes as a proportion of the total transactions have come down.! The level of the physical interaction as well as the time spent by the user-clients with the regulatory agencies has shown a marked reduction.

13 But Still:! Cargo dwell time for imports is high 4-6 days at airports and 6-8 days at seaports.! Paper trail still there.! Government of India set up a Working Group on Trade Facilitation in April It s findings:! High dwell time because of:! unpreparedness of the importer or his agent to file the declaration expeditiously.! Delay in payment of duty.! Clearances of other ministries such as health, environment and agriculture etc.! Reforms Needed! Incentive/disincentive structure for filing documents.! Electronic money transfer and deferred payment.! Disincentive for longer shortage of cargo to ensure quick payment of duty.

14 AIM! Transparent procedures with minimum number of signatures:! No face-to-face contact between customs officials and importers! Fully automated and paperless system.! Reliance on self-declaration and ex-post audit.! Adoption of best practice, Risk Management System.