THE INDIAN POSITION
All sectors in the economy, that is the primary secondary and service sectors have been affected by the ratification of the TFA. When the country’s indigenously manufactured goods are performing low in terms of global competitiveness, the TFA would further aggravate the impact of the low performance, since there would be an influx of cheap imported products flooding the home market, and the country would be legally prevented from imposing stringent tariff or non-tariff barriers of any kind.
An example of this effect can be seen in the agricultural sector. This sector is in dire need of growth and development in order to face the cut-throat competition from foreign agricultural exports and imports, both in terms of quality as well as quantity. Further, the extent of green box subsidies which are available to the farmers in the developed countries is much higher than the subsidies provided by the Indian government. This is interesting, because these subsidies cover the amounts spent on the Government services ranging from research to disease control to infrastructure and food security. Furthermore, in order to implement the Trade Facilitation Agreement, the characteristics of which have been outlined in the earlier post, such as the quantum of subsidies provided by the Indian government, would have to be substantially reduced to provide the requisite market space for global competitors. Thus, in a country whose economy is heavily dependent upon the functioning of the agrarian sector, the green box subsidies cannot be done away with , despite low incentives derived out of it.. The lack of an effective mechanism to tackle the stock piled food grains is also a matter of great concern. Export restrictions on a country whose grain reserves stand to be more than twice of the government’s buffer requirements, was becoming a matter of concern. This factor has pushed India to ask for an agreement on food subsidy and stockholding that would run parallel to the trade facilitation pact.
Even in view of the legislative framework and policy making, the country’s labour laws and environmental laws would have to be custom-made to meet the global standards, regardless of whether they are detrimental to the nation and its people.
Going by the statistics[1], the low rate of growth of the industrial sector has kept the Gross Domestic Product (GDP) obtained from it low and stagnant at an average of 15 per cent. This is extremely low when compared to the other developing countries. Furthermore, despite there being an increase in output, there has been a clear decline in the value added to the output. “International trade therefore seems to be giving tough competition to Indian manufacturing products both in the domestic market, especially from China, as well as in the external markets.”[2]
CRITICAL ANALYSIS
The International Chamber for Commerce (ICC) is one of the ardent promoters of the Trade Facilitation Agreement and it advocates the innumerable benefits that would accrue to the developing and under-developed countries, through these agreements. It states that the TFA would not only increase national competitiveness of the countries, but also would accentuate each country’s share in the international market. As per the records stated in the official website of the ICC, the OECD estimates that the potential total cost reduction from a “full” implementation of the TFA is 16.5 percent for low-income countries, 17.4 percent for lower-middle-income countries, 14.6 percent for upper-middle countries, and 11.8 percent for OECD countries.[3] Further, the World Trade Report 2015 shows that full implementation of the TFA could reduce trade costs of members by an average of 14.5%.[4]
In the words of the WTO Director-General, Robert Azevêdo, “The world is more connected than ever before. More and more developing countries are seeking to join global trade networks. Yet, all too often, outdated and uncoordinated customs processes slow down the movement of goods and raise costs to prohibitive levels. By standardizing, streamlining and speeding-up customs processes around the world, the WTO’s Trade Facilitation Agreement will help to solve this problem. It is global trade’s equivalent of the shift from dial-up internet access to broadband — and it will have a similar impact.”[5]
The major reason for the increased trade costs and the huge tariff costs can be traced to the long winding and unnecessarily complicated customs procedures and the immense documentation associated with trade activities. The losses at the borders are consistently mounting due to these activities, which cause undue delay and this is mainly because of the lack of automation of trade procedures. Thus, the trade facilitation agreement is expected to save $150 billion a year.[6] However, it must also be noted that these facts are advantageous to the interests of the importers rather than domestic exporters, as the exporters will be governed by the rules and systems of the importing country.
The TFA is also expected to boost the exports and diversify economies, in every dimension. Greater job creation due to TFAs would provide a greater thrust to the world economy. These are a few major benefits outlined by the supporters and advocates of the agreement
However, a more realistic outlook would show that the benefits outlined above are heavily out-weighed by the negative effects posed by the agreement, especially in the case of developing and least-developed countries, which comprise three-quarters of the member nations and are also the key target group of the TFA. Firstly in order to create a custom-clearance infrastructure that will be as efficient as that of the Singapore, even in small developing countries, the amount of money required may well be in excess of $100 million.[7]Further, after effectively establishing it, a greater sum would have to be spent for maintaining the system over the years. Expenses of such a magnitude would be incurred at the cost of public welfare facilities. This would definitely go against the objective of social welfare that the government of any country seeks to achieve.
A large share of these problems are caused by the inefficiency of the institutions directly and indirectly related to trade activities. Despite the budget constraints that the governments suffer, if more focus and resources were to be channeled towards trade facilitation, rather than towards investment, the domestic traders would have to bear the brunt of them, not the foreign players. This would not be an acceptable practice with respect to the native market and itsplayers, since this would be in violation of the principle of national treatment in the country which advocates giving others the same treatment as one’s own nationals.[8]
CONCLUSION
The benefits expected to be achieved by the ratification of TFA seem to be restricted to a constricted view of development and the TFA seems to be a product of hasty decisions and impractical ideas driven by illusory long term goals. Tackling these obstacles at the grass root level is a Herculean task owing to the fact that the scenario is ever-dynamic and any concerted effort to bring in change will show itself in effect only in the long run. This is a tricky combination. Hence, Trade Facilitation Agreement, the terms of which seem devised to ensure further advancement of the developed countries rather than that of the developing group of countries, violates the principle of national treatment, which is a fundamental principle of WTO law.
Endnotes:
[1]NSSO 61st (2004-05) and 66th rounds survey (2009-10); Working Group on the Twelfth Plan – Employment, Planning and Policy.
[2]RashmiBanga, ‘Trade Facilitation and ‘Hollowing-out’ of Indian Manufacturing’ [2014] EPW.
[3]<http://www.iccwbo.org/advocacy-codes-and-rules/areas-of-work/customs-and-trade-facilitation/wto-trade-facilitation-agreement-(tfa)/> accessed 29 September 2016.
[4] Ibid.
[5]https://www.wto.org/english/news_e/pres15_e/pr755_e.htm accessed 10 June 2018
[6]Calculated and approximated on the basis of volume of global trade as reported in WTO (2001).
[7]According to an estimate by Finger and Schuler (2000), the minimum costs of customs reforms alone will be about US $ 40 m in most developing countries.
[8] The General Agreement on Tariffs and Trade, 1947, Art. III:2.
The previous section of this post is available here.
This post has been authored by Sreelakshmi S, a fourth year student of The National University of Advanced Legal Studies (NUALS), Kochi.
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