Procedural Bottlenecks to international Trade

Trade facilitation is an important area which came for discussion at the recently concluded interministerial multilateral Bali conclave. With tariff rates having fallen after the Uruguay Round, trade and commerce facilitation has become important in the context of dealing with non-tariff barriers. With more countries becoming part of the global supply chain, goods manufactured in a Country are made of components assembled in many countries. Slow and complex procedures complicate supply chain dynamics. The sheer volume of Exim trade forces countries to look at new and newer measures to tap markets, existing and new. Indian bi-lateral trade has grown enormously; from $ 123 billion in 2002-3 to $ 792 billion in 2012-13. Transaction costs hurt small and medium companies which contribute around 40% of India’s total export efforts ($ 125 billion) in value and dominate transaction in volume terms. Government of India constituted a Task force which estimated that the transaction losses amounted to around 8-10% of free-on-board value, which translated to $ 63-79 billion in 2012-13 alone. Global transaction losses are pegged at $ 1.3 trillion/year. India’s freight transport remains heavily reliant on roads- more than 60%, against 22% in China. This makes it more expensive and time consuming, besides being fewer environments friendly. The average turnaround time for a ship at an Indian Port has worsened to 4.2 days from 3.85 days four years ago, while it has improved significantly in China to less than a day from 5.8 days in 2006. As a result, one estimate places our average logistical costs remain high, at around 14% of GDP vis-à-vis less than 7% elsewhere. This not only leads to loss of potential growth opportunities and employment, but also erodes our overall competitiveness globally. Exporters and Importers, from developed and developing countries, face and encounter enormous problems and bottlenecks when they move merchandise across borders. Documentation requirements often lack transparency and are repetitive in many countries including ours being no exception. Despite advancements in information revolution, data flows are a problem, between the various agencies involved in the Export/Import regulation regime. While the Customs daily list is an accurate picture of shipment which corresponds to the entries in the shipping manifest, RBI’s realization of foreign exchange in convertible currency list shows a different realized foreign exchange figure, with the result the export figures between what is released by DGCI&S and RBI often do not tally and picture the actual exports from the Country. Inspite of different agencies like DGFT, DGCIS, Customs, Banks, all have documentation, yet agencies ask exporters to provide information regarding their transactions in paper form. Agreement on Trade Facilitation at Bali, would require a) each member shall promptly publish information on imports and exports; b) establish or maintain one/or more enquiry points to answer reasonable enquiries of Governments, traders and other interested parties; c) provide an appropriate time period to traders to comment on the proposed amendments or introduction of laws relating to movement, release and clearance of goods. Issues connected with Trade facilitation Measures: The revised Kyoto protocol convention has recognized the importance of the use of Risk Management System (RMS) which comprises a series of technical processes meant to identify and quantify individual risks. The RMS has helped in faster customs clearances in India. But the new RMS for imports has increased the percentage of physical examination, which is a great set back. It is suggested that only high risk cargo be put to physical examination to ward inconvenience to users. Another facet of risk management is to do away with obsolete practices. Most cases of duty drawback are held up due to non filling or incorrect filling of Export General Manifest (EGM) by shipping/airlines companies. Shipment of exports takes place after endorsement of the ‘Let Export Order’ by Customs. Less than 0.05% of shipments are withdrawn after the attestation of LEO, and doing so requires complex procedure. Why don’t issue of drawback at the LEO stage itself which will result in quick disbursal, adding to exporter’s liquidity, with negligible apprehension or risk to the exchequer. In the case of application for import authorization, the amount of fees payable is based on the cif value of authorization. This is unreasonable breaches the reasonable fee norm of WTO. Customs advance ruling coverage introduced is discriminatory (introduced in 2004) as only foreign firms who invest in India through JV or wholly owned subsidiaries can avail the facility. Indian companies cannot avail the benefit of advance ruling. The novel Scheme of Authorized Economic Operator (AEO) which provides for accelerated clearance both inside and outside India is yet to take off. Other disadvantages to the Export Sector: Foreign Banks with more than 20 branches in India are not required to lend to the export sector. Foreign Banks are compelled to provide loans to agriculture as priority sector advance but export sector is excluded and is not mandatory. Foreign Banks operating in India expanding their lending to the export sector could offer more sops through their network of branches abroad where export operations take place. Standard Chartered Bank, HSBC, Citibank, all having more than 20 branches in India have to lend 18% of priority sector advances to agriculture and nothing to exports as it is non priority area! This dried up export credit to export oriented units, thereby affecting exports and GDP. It is estimated that a 1% fall in priority sector lending to the export sector will reduce the export GDP by 0.76%. India is facing a rising current a/c deficit and an export led growth strategy could reverse the trend. Mismatch between imports & exports: The volumes of exports from India is still much lower than import in sharp contrast to some Southeast Asian nations and China which run export surpluses. Deficit, being a function of both exports and imports requires multiple changes at a macro level; Rupee has been driven largely by inflation management which has led to a bias against Indian goods; Capital formation has not taken place in the country in areas like capital goods, electronic machinery and technology goods- import of these items have ballooned. With the right incentives and signals, capital formation in these areas can lead to manufacturing investments; The definition of Small & Medium businesses differs from country to country. When you have WTO and Preferential Trade Agreements, a disinvest get created in front of an entrepreneur when his competitor is eligible for concessions when he is twice his size; In India, an entrepreneur has to approach 25 different windows he ends up setting up a Plant while in an overseas location, his counterpart has to approach just 1. Besides the increasing levels of tax incidence, multiplicity of tax incidence at both Union and state levels, the industry also suffers from retrospective effects of tax ruling. Huge amounts of tax revenues remain under dispute- estimated to be at Rs 2.56 lakh Cr in 2011-12. In India, investment decisions are made on tax considerations and not purely on economic concerns, - this is most unfortunate! India, if it needs to gather momentum in trade, need to grow to its potential by cutting red tape, labyrinth of laws, bring down the many windows of regulatory maze, and create one solid door. We compare the achievements of many countries with ours; but seldom, we compare the easiness with which regulatory authorities act in other countries and facilitate results.