2nd generation trade reforms

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What must precede integration

 

Trade facilitation measures are an essential prerequisite for developing countries to be integrated intra-regionally, inter-regionally and globally. Developing countries must be more ambitious vis-à-vis developed countries in streamlining the trade facilitation processes, if they want to reap the full benefits of liberalised trade. Even the concept of a complete trade free regime becomes least fruitful for both developing and developed countries if the processes involved in trade are not time and cost efficient.

So, why do developing countries need more facilitated trade than developed countries? According to a study by Priyanka Kher (UNCTAD, 2012), the regional trade in Developing South Asia (SA) is dismally low at four percent. On the other hand, regional trade in Developed European Union (EU) is 67 percent; North American Free Trade Agreement (NAFTA) is 62 percent. Even the regional blocks of developing nations have significant regional trade, for example, it is 26 percent in Association of Southeast Asian Nations (ASEAN), 22 percent in Common Market in Eastern and Southern Africa (COMESA), eight percent in Gulf Cooperation Council (GCC) and 22 percent in Latin America and Caribbean.

In 2002, regional trade among SAARC countries was $5 billion out of which India’s share was 76 percent ($3.8 billion) and Pakistan’s share was eight percent ($0.4 billion). The trade among remaining five countries was 16 percent ($0.8 billion).

In 2002, regional trade among SAARC countries was $5 billion out of which India’s share was 76 percent ($3.8 billion) and Pakistan’s share was eight percent ($0.4 billion)

It is very much obvious after seeing the above figures, that although there is a free trade agreement (SAFTA) between SAARC countries, still their regional trade is modestly low as compared to the European free trade area. This is because of the high transaction costs, cumbersome bureaucratic and custom procedures, presence of other non- tariff barriers and infrastructural and logistical problems prevalent in the South Asian region in general and Pakistan and India in particular, being the two biggest economies.

It has been observed that starting from 1947; trade within SA has gone down with the passage of time. As per a World Bank 2007 study on South Asia, the intra-regional trade in South Asia was 19 percent of its total trade in 1948. It plummeted to a mere two percent in 1967. This was because the governments start adopting more inward looking policies coupled with high tariffs and non-tariff barriers. It again increased in 1990s, as the countries individually adopted unilateral trade liberalisation policies.

In fact the need for trade facilitation in developing countries accelerated in the wake of some recent developments like rising volumes of trade and significance of trade to GDP, the increased trade velocity and reliance on rapid supply chain mechanisms, an amplified sensitivity about security issues due to which countries with opaque and slow trade procedures would be excluded and the rising trade between developing countries with their costly trade procedures.

Talking about Pakistan and India, the Organisation for Economic Co-operation and Development (OECD) has developed some trade facilitation indicators, according to which Pakistan performs better than the averages of Asian and lower middle-income countries in the areas of ‘advance rulings’ and ‘automation’. Pakistan’s performance for ‘involvement of the trade community and streamlining of procedures’ is below the averages of Asian and lower middle-income countries. According to OECD, Pakistan can draw considerable benefits in terms of trade volumes and trade costs from significant improvements in the areas of ‘involvement of the trade community and streamlining of procedures’.

On the other hand, India performs better than the averages of Asian and lower-middle income countries in the areas of ‘information availability, advance rulings, appeal procedures, simplification and harmonisation of documents, automaton, and internal border agency co-operation’. Conversely, India’s performance for ‘fees and charges’ and ‘streamlining of procedures’ is below the averages of Asian and lower middle-income countries.

As per a World Bank 2007 study on South Asia, the intra-regional trade in South Asia was 19 percent of its total trade in 1948. It plummeted to a mere two percent in 1967

According to a study by CUTS International (Consumer Unity and Trust Society), the establishment of an Integrated Check Post (ICP) in 2012 by the government of India at Attari in Indian Punjab, bordering Wagah in Pakistan Punjab with a cargo terminal building measuring 4700 square meters, import ware house measuring 7400 square meters, export ware house measuring 3400 square meters and a parking area of trucks measuring 55000 square metres for efficient cargo processing led to one-stop integrated facilities such as quarantine, isolation rooms, fumigation centres, weigh bridge, public address system, boom-barriers and dormitories. Similar facilities are being developed at Wagah, the Pakistan side of this border point.

The CUTS study reveals that according to the data provided by Indian Customs, in 2012-13 the total value of imports through this border was US$292 million (54 percent of India’s total imports from Pakistan in that year) as against US$161 million in 2011-12. Indian exports rose to US$509 million in 2012-13 (25 percent of India’s total exports to Pakistan in that year) as compared to US$229 million in 2011-12.This increase in trade was mainly attributed to the establishment of this ICP.

This ICP can now handle ten times the number of trucks to pass conveniently as against an earlier figure of 100-150 trucks. The cargo movement between the two countries was allowed for 12 hours (from 0700 to 1900 hours) as against eight hours before. Moreover, traffic blockade is negligible since the token system for traffic clearance was introduced.

So, it is true that trade liberalisation is important and countries are still working to bring down their tariffs for each other, but the countries or regions that are already free trade areas must now work to further improve their own trade procedures and also help developing and least developed countries to streamline their trade procedures through technical assistance programs. In fact, at this juncture, developing and poor countries can simultaneously work on achieving trade liberalisation and facilitation.

Note: This is the second of a two-part article. The first part appeared in the same space last week.