India is one of 112 countries to have ratified the World Trade Organization’s (WTO) Trade Facilitation Agreement (TFA), which took force on February 22 this year.
Intended to overcome the global slowdown in trade, the TFA introduces new best practices for member-states to ensure the easier movement of goods across international borders.
Nations who have ratified the agreement will be expected to implement changes to their customs infrastructure within two to three years. However, the basic set of provisions have to be implemented by the least-developed countries (LDC) within one year.
In recent times, growing protectionism and doubts over the effectiveness of trade liberalization have put a damper on long-standing trade relationships across the world, including among western countries.
The TFA is, therefore, an important international institutional mechanism; if successful – it will allow states to consolidate their trade linkages, and better engage with the global trading network.
Below, we ask key questions on how will the TFA boost business in India, reduce costs, and improve the overall quantum of international trade.
What is the TFA?
The TFA stands for a series of reforms that will improve transparency, mobility, and predictability in the conduct of trade across borders.
Breaking this down, it means that signatories to the agreement will need to create a non-discriminatory business environment, and independently notify various provisions fulfilled.
To achieve this, countries like India are introducing faster clearance procedures, better conditions for freedom of transit for goods, improved appeal rights for traders, as well as reduction in fees and formalities connected with the import and export of goods.
Why does it matter for businesses in India?
Industry watchers believe that the TFA will rationalize prices or reduce the overall cost of doing business. Moreover, since the new trade rules will come into effect via coordination between private sector and government stakeholders, instead of by diktat, introduction of the new trade procedures and mechanisms should be smoother.
The Federation of Indian Exports Organizations estimates that based on present trade figures, reforms under the TFA could create additional trade of about US$15-20 billion.
The WTO’s forecast is similarly optimistic – estimating an average decrease in trade costs of member-states by 14.3 percent.
Full implementation of the TFA will likely reduce time to import goods by over 36 hours, and to export goods by around 48 hours. This is a reduction in time taken by 47 percent (imports) and 91 percent (exports) over the current average.
How is India implementing the WTO’s TFA directives?
Coordinating the reform efforts at the federal level, is the National Committee on Trade Facilitation (NCTF) – established under Article 23.2 of the WTO agreement.
Operations undertaken by the NCTF will be steered in tandem by the federal government’s Revenue Secretary and Commerce Secretary.
In order to avoid delays in execution – the NCTF has already adopted a 76 point National Trade Facilitation Action Plan (NTFAP).
Actions under this plan are categorized into short, medium, and long-term to enable efficient and systemic reforms.
Major initiatives under the NTFAP include:
- Reduction in cargo release time and cost;
- Paperless regulatory system;
- Transparent and predictable legal regime;
- State-of-the-art sea ports, airports, and land borders;
- Specific time-bound goals to be carried out by all regulatory agencies like Customs, Food Safety and Standards Authority of India, Drug Controller, Plant Quarantine, and the Directorate General of Foreign Trade;
- Infrastructure augmentation, particularly the road and rail infrastructure leading to ports, as well as the infrastructure within ports, airports, inland container depots, and land customs stations; and
- Specified targets for all federal ministry stakeholders – shipping, civil aviation, railways, road transport and highways, home affairs, finance, and commerce.
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