Saturday, February 20, 2016

Approval of Trade Facilitation Agreement in India – A Brief Overview

[The following guest post is contributed by Ananya Banerjee, a 5th Year Student of University of Calcutta, Department of Law]

In another effort to promote the ease of doing business in India and to create a more business friendly environment in India, the Union Cabinet has, on February 17, 2016, approved the proposal for notification of commitments under the Trade Facilitation Agreement (“TFA”), the ratification and the acceptance of the Instrument of Acceptance of Protocol of the TFA to the World Trade Organization (“WTO”) Secretariat.

What is TFA?

The TFA is the first multilateral trade agreement to be concluded since the establishment of WTO, the organization which regulates international trade. The WTO members had concluded negotiations on the TFA at the 9th Ministerial Conference in December, 2013, held in Bali (as a part of Bali Package). An amendment protocol for the TFA was adopted by the General Council of WTO in November 2014 to bring the TFA into WTO’s legal framework. Hong Kong, China became the first member to deposit the Instruments of Acceptance to the Secretariat in December 2014. The TFA shall come into force only when 2/3rd of the 162 members of WTO deposit their Instruments of Acceptance.

Salient Features

Presently, international trade involves a series of transactions and requires several documents. On an average, in 2014, an export transaction required 6 to 86 days and involved 2 to 11 documents, whereas, an import transaction required 4 to 130 days and involved 2 to 17 documents[1]. The object of the TFA is to expedite the movement, release and clearance of goods, including goods in transit in order to establish a standardized customs procedure among all the WTO members. Special consideration has been given towards the needs of developing and least developed country members and the need for effective cooperation among all the members of the WTO.

The TFA has set forth a series of measures to facilitate expeditious movement goods cross-border trades. In addition to the foregoing, the TFA provides that commitments of developing and least-developed countries shall be linked to their capacity to implement the TFA. In line with the objective of the TFA, provisions have also been made for providing assistance to the countries to achieve its fullest capacity. The TFA has 3 main Sections, along with other provisions.

Section I: This Section contains provisions which would facilitate expeditious movement, release and clearance of goods, including goods in transit through improvement of relevant articles of the General Agreement on Tariffs and Trade, 1994 (“GATT”). This Section also lays down provisions for customs cooperation among the member states.

Section II: This Section contains provisions relating to special and differential treatment (“SDT”) which would allow the developing and least-developed countries to determine when they would be able to implement individual provisions of the TFA and would also enable them to identify the provisions which would require technical assistance and support for implementation. Every such country, falling in the ambit of this Section, would categorize the provisions of the TFA in the following manner and notify the members of WTO in order to benefit from the provisions of SDT.

- Category A would contain the provisions which each such country would implement on the date on which the TFA comes into force (“Commencement Date”). Although, the least developed countries would have the option to implement such provisions within 1 year from the Commencement Date.

- Category B would contain the provisions which each such country would implement after a transitional period following the Commencement Date.

- Category C would contain those provisions which such country would be able to implement after a transitional period only upon receiving technical assistance and support.

The transitional period, after which the countries falling under this Section II would be able to implement the provisions categorized under Categories B and C above, also need to be mentioned in accordance with the provisions of this Section.

Section III: This Section mainly provides for the establishment of a permanent committee for trade facilitation and requires every member to establish a national committee to enable proper implementation and facilitate domestic coordination, required to achieve the purpose of the TFA.

Union Cabinet’s Approval

India has, pursuant to the provisions of Section II of the TFA, sought a transitional period of 5 years from the Commencement Date to implement few measures such as releasing of goods before the payment of duty against surety, and, a single window clearance. While India has sought for a transitional period to implement 152 provisions out of the total 265 provisions, it has decided not to seek financial assistance for implementing any measure under the TFA. The Union Cabinet has also provided for the formation of a National Committee on Trade Facilitation, to be set up in accordance with the provisions of Section III of the TFA.

Conclusion

It is expected that once the TFA comes into full force, it would not only be able to harmonize customs procedures worldwide, it would also facilitate a saving of up to USD 1 Trillion annually. The WTO members shall be highly benefitted from the TFA as the cost of implementing different provisions of the TFA is expected to be far less than the projected benefits arising out of a simpler cross-border flow of goods. It is estimated that upon successful implementation of the TFA, the total cross-border trade cost would be reduced by 14% in least developed countries, 15% in lower middle-income countries and 13% for upper middle income countries. Although India will take at least 5 years to implement all the provisions of the TFA completely, the ratification of the other provisions is expected to boost India’s cross-border trade scenario to a great extent even before that. Not only India, with the simplification of international trade and establishment of uniform customs procedures, the overall growth of worldwide export would also be significant. The positive impact on export scenario would not only help in the growth of world economy, it would also work effectively in the reduction of global trade barriers, as envisaged under the Bali Package.

- Ananya Banerjee


[1] Source: World Bank “Doing Business” project, 2015

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