Will WTO formula to ease cross-border-trade norms boost developing economies?

How much do cumbersome procedures relating to import and export of goods affect the cost of goods? Well, in developing countries, for each dollar it costs to manufacture a product, another $2.19 gets added in the form of trade costs (all the costs, including taxes and duties, incurred in getting goods from the factory to the consumer in another country).[caption id=“attachment_2334664” align=“alignleft” width=“380”] Cutting red tape to boost global economy? AP [/caption] According to the World Trade Organisation’s (WTO) World Trade Report 2015 released today, facilitating cross-border trade by simplifying and rationalising trade-related procedures could bring down time to import by one and a half days and time to export by two days. Governance reforms can save 37 percent time spent to import while automation can cut down 30 percent time. The average trade cost reduction for all goods could be 14.3 percent, with the decrease in the case of manufactured goods being 18 percent and in agricultural goods 10.4 percent. Of course, all this will come only if the WTO’s Trade Facilitation Agreement (TFA) is implemented in full by member countries. The TFA is all about simplifying and harmonising trade-related procedures by individual countries. The TFA made news in India for all the wrong reasons last year when the government – then newly elected – refused to be rushed into signing it within the 31 July 2014 deadline, unless its concerns on stockholdings limits for food security were addressed. The report holds out tantalising benefits set to flow from full implementation of the TFA. Global exports could increase by between $750 billion and $1 trillion, according to one econometric model. Another model pitches the gains even higher – between $1.1 trillion and $3.6 trillion. It claims the developing countries and least developed countries (LDCS) will benefit more. If developing countries implement the TFA, their exports are likely to increase by as much as $1.9 trillion, accounting for 53 percent of global trade expansion. And they will add 0.9 percent annually to economic growth, against 0.25 percent in the case of developed countries. There’s more. The TFA could, the report promises, help developing countries enter new markets and diversify their export markets (new products exported could increase by nearly 20 percent), get the small and medium enterprises (SMEs) integrated with global markets and pull in more foreign direct investment (FDI). Can merely reducing red tape relating to imports and exports, putting procedures online and harmonising them with what prevails in other countries bring in such a windfall? Many trade experts have called out similar rosy scenarios painted earlier as hugely exaggerated. There are costs which take away from these gains, they have argued. The report doesn’t gloss over these implementation costs. It lists eight of them – diagnostic and assessment costs (identifying trade facilitation needs), regulatory and legislative costs (when laws have to be passed or amended), institutional and organisational costs, human resource and training costs, equipment and infrastructure costs (when investments have to be made in information technology tools), awareness and change management costs, political and resistance costs (when entrenched interests oppose reform) and operational and maintenance costs. It does, however, point out that the benefits far outweigh the costs and that some of the specific trade facilitation measures may be less costly than broader initiatives like customs modernisation and upgrading transport infrastructure. The report’s release comes a little over 45 days before the tenth ministerial meet kicks off in Nairobi. The issue of TFA is bound to be one of the sticking points at the ministerial and the report is clearly an attempt to drum up support for it. The report’s bias notwithstanding, is trade facilitation really such a bad thing, to be opposed strongly? The report may be exaggerating the benefits but can one reasonably argue that there will be no benefits at all? Actually a lot of the resistance to many so-called reform measures arise from the fact that they are seen to be an imposition – from the World Bank-IMF, from the WTO and as demands from foreign investors. There is little attempt to see whether they have a logic of their own and how that will benefit the domestic economy. It can be nobody’s case that easier import and export procedures will not help domestic manufacturers and traders. It is a well acknowledged fact that cumbersome procedures are affecting the competitiveness of Indian exports. The Federation of Indian Export Organisations has estimated that getting all 13 agencies involved in cross-border trade on to the electronic data interchange (EDI) platform can bring down transaction costs by 2-3 percent. Simpler rules and processes also make it easier for governments to collect revenue, pushing up collections. They also reduce scope for corruption. Ask any Indian importer or exporter about the ease of doing business initiatives of the government and they will lament that though the Central ministries have taken laudable measures, this has not percolated to the ground level and that they are still at the mercy of sundry tax inspectors. This too affects trade – the report quotes a study which shows that a 10 percent increase in trade time leads to a 14.5 percent fall in bilateral trade in a country with low levels of corruption and a 15.3 percent fall in a country with high levels of corruption. India is certainly not in the former category. It is true that the trade facilitation agenda is something that benefits developed countries more – it is trade-related obstacles that hamper their access into developing country markets. India and other developing countries may have a point when they want to use the TFA as a bargaining chip to get their own demands met. But even as they do that, it might be wise to quietly undertake some unilateral liberalisation measures on trade related procedures. After all, it is the domestic economy that stands to benefit.