Moving towards trade facilitation 2.0

Trade facilitation is gaining renewed importance as countries try to resurrect their trade and increase their resilience after the supply chain disruptions caused by the pandemic and geopolitical conflicts. Trade facilitation, simply put, refers to a specific set of measures adopted by a country to streamline and simplify procedures for products entering or leaving for international trade. These measures cover border procedures, the exchange of data about a shipment, and simplification and harmonisation of trade documents. Advanced trade facilitation could also include an appeal against the administrative decisions by border agencies. The basic objective of trade facilitation is to improve inclusion (of small-and medium-sized enterprises), lowering of trade
costs and increase economic welfare, reduce the delivery time of goods, and promote predictability by making global supply chains resilient. 

World Trade Organisation (WTO), keeping in view the above objectives, forged Trade Facilitation Agreement (TFA), which came into force on 22 February 2017. The agreement, with a view to promoting international trade, enjoins WTO member countries to build on transparency (access to information), technology (digital and detection technologies), procedures (simplification, standardisation, attunement, and risk-based approach), and infrastructure (augmentation in seaports, airports, railways, roads, land borders). Besides, it states that the release and clearance of goods should be swift, reducing the import/export/transit formalities, and border agencies should work towards cooperation to help the movement of goods.

After signing the WTO TFA, India put together the National Trade Facilitation Action Plan (NTFAP) 2017-2020. The action plan was built on a vision to transform the cross-border clearance ecosystem through efficient, transparent, risk-based, coordinated, digital, seamless and technology-driven procedures which are supported by state-of-the-art seaports, airports, and land borders. It was intended to create a time-bound map, not only for implementing TFA but also to improve on the ease of doing business, thereby going beyond TFA. The amendments to the Foreign Trade Policy in 2017 incorporated changes resulting from India's ratification of the WTO TFA, including a reduction in the number of documents required for export and import, the single window interface for facilitating trade (SWIFT), and the establishment of the National Committee on Trade Facilitation.

India also merged two facilitation schemes in 2016, - the Accredited Client Programme and the authorised economic operator (AEO) programme - into a
combined three-tier AEO programme for importers, exporters, and logistics
operators, such as terminal operators, customs brokers, warehouse operators,
and freight forwarders. In 2018, the Customs department further simplified the
AEO accreditation process to follow global best practices. The new AEO
programme introduced extensive benefits, including greater trade facilitation
and self-certification. An entity with AEO status is considered a "secure" trader and a reliable trading partner. Today, there are more than 5,000 AEO status holders.

India also brought out National Trade Facilitation Roadmap for 2020-23 which builds on the earlier action plan and focuses on digitalisation, with three key pillars: faceless, contactless, and paperless. The key outcomes expected
are faster clearance of goods, anonymous customs assessments, reduced interface with customs officers, and uniform India customs assessments. The roadmap is supported by an action plan, which highlights 66 trade facilitation measures for fostering trade and development. Each activity is identified with concerned agencies responsible for its execution in different timelines such as short-term (0-6 months), medium-term (6-18 months), and long-term (18-36 months).

The above trade facilitation initiatives have resulted in a remarkable improvement in the time and cost related to the clearance of imports and exports. Recently released National Time Release Study (NTRS) 2023, the third in its series, adequately highlights how the WTO TFA commitments and wider “TFA Plus” initiatives identified under NTFAP have been achieved in India.

WTO estimates that there was an increase in trade, attributable to TFA, during the years 2017-2019.  The estimated increase in global agricultural trade was an average of 5%. The manufacturing sector saw a 1.5% increase and the overall merchandise trade went up by 1.17%. These increases were higher in the least developed countries (LDCs). Agricultural exports rose by 17%, manufacturing exports by 3.1%, and total exports by 2.4% under the TFA. WTO further adds that these estimates are conservative, as large gains may have been realised, particularly in manufacturing. Comparing these trade gains to what WTO had forecast in 2015, it can be stated that the benefits of the TFA through trade and welfare gains have been encouraging and should continue to expand.

A question often asked is whether it is time to have TFA 2.0. United Nations
Conference on Trade and Development (UNCTAD) states that the existing WTO TFA covers only the physical dimension of trade and does not bring digital features to TFA, which is developing fast and quick. Simplified and harmonised procedures which could include other areas as well such as investment, services, e-commerce, and innovation may be the response to usher in 21st-century requirements. This may respond to the growing need to consider goods, services, and investments together as they are increasingly intertwined. These new frontiers for inclusion in trade facilitation, expressed as Trade
Facilitation 2.0, are what many feel would enhance trade and welfare gains. The adoption of digital payments could also be another aspect for consideration, besides developing a common digital platform for the exchange of customs data to further improve border management. Hopefully, these measures would help establish a conducive trade environment for micro, small, and medium-sized enterprises as well.