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WTO: Fast & consistent moves could better global trade

Sentinel Digital DeskBy : Sentinel Digital Desk

  |  17 Nov 2015 12:00 AM GMT

Dr B K Mukhopadhyay

India is rightly planning to adopt a more balanced approach at the upcoming World Trade Organization (WTO) ministerial, not taking any hard stance that can come in the way of any agreement, after being blamed of blocking a deal last year. Yes, the country has to strongly take up the issue of food security and farmers’ interest, especially after the US had very recently floated a proposal that sought to dismantle the price support and subsidies of developing countries — but would not want to be seen as an obstructionist.

Incidentally, it may be mentioned here that India had refused to be party to the WTO’s trade facilitation agreement last year till a permanent solution for its food security issues was found, leading to an stalemate that was broken only after US President and India’s Prime Minister took up the case.

Whatever it is, the roles and responsibilities of the WTO should not be lost sight of. In the fast changing global economic and commercial scene flows, a number of questions centering around WTO comes up as the expectation level has been going up especially keeping in view the fact that the WTO is not an agreement but an Institution where 163 members take part in doing the right things that are beneficial for the global trade flows and thus the global economy.

The very pertinent question that comes up at this junction is: Will the WTO formula to ease cross-border-trade norms boost developing economies?

According to the World Trade Organization’s (WTO) World Trade Report 2015, facilitating cross-border trade by simplifying and ratiolizing trade-related procedures could bring down time to import by one and a half days and time to export by two days. Governce reforms can save 37 percent time spent to import while automation can cut down 30 percent time. The average trade cost reduction for all goods could be 14.3 percent, with the decrease in the case of manufactured goods being 18 percent and in agricultural goods 10.4 percent.

Of course, all this will come only if the WTO’s Trade Facilitation Agreement (TFA) is implemented in full by member countries. The TFA is all about simplifying and harmonizing trade-related procedures by individual countries.

The report holds out that a number of benefits would set to flow from full implementation of the TFA. Global exports could increase by between $750 billion and $1 trillion, according to one econometric model. Another model pitches the gains even higher – between $1.1 trillion and $3.6 trillion.

It claims that the developing countries and least developed countries (LDCS) will benefit more. If developing countries implement the TFA, their exports are likely to increase by as much as $1.9 trillion, accounting for 53 percent of global trade expansion. And they will add 0.9 percent annually to economic growth, against 0.25 percent in the case of developed countries.

The report also promises that the TFA could help developing countries enter new markets and diversify their export markets (new products exported could increase by nearly 20 percent), get the small and medium enterprises (SMEs) integrated with global markets and pull in more foreign direct investment (FDI).

However, this is not free from being criticized, it has been argued that there are costs which take away from these gains, they have argued.

On this score, however, the report speaks of implementation costs as well. It lists eight of them – diagnostic and assessment costs (identifying trade facilitation needs), regulatory and legislative costs (when laws have to be passed or amended), institutiol and organizatiol costs, human resource and training costs, equipment and infrastructure costs (when investments have to be made in information technology tools), awareness and change magement costs, political and resistance costs (when entrenched interests oppose reform) and operatiol and maintence costs.

It does, however, point out that the benefits far outweigh the costs and that some of the specific trade facilitation measures may be less costly than broader initiatives like customs modernization and upgrading transport infrastructure.

It has been a fact that easier import and export procedures will help domestic manufacturers and traders - cumbersome procedures are affecting the competitiveness of developing economy’s exports. The FIEO (Federation of Indian Export Organizations) estimated that getting all 13 agencies involved in cross-border trade on to the electronic data interchange (EDI) platform can bring down transaction costs by 2-3 percent.

The report quotes a study which shows that a 10 percent increase in trade time leads to a 14.5 percent fall in bilateral trade in a country with low levels of corruption and a 15.3 percent fall in a country with high levels of corruption.

On the other hand this trade facilitation agenda could benefit developed countries more in as much as it is trade-related obstacles that hamper their access into developing country markets.

It has been rightly pointed out that India and other developing countries may have a point when they want to use the TFA as a bargaining chip to get their own demands met.

The ongoing facts and circumstances should not be lost sight of. Every effort must be there to ensure that the world trade’s wings are not clipped.

The Geneva-based WTO itself has lowered its latest estimate for world trade growth by 0.5 percent and 0.1 percent for 2015 and 2016 respectively thus clouding the outlook for the world economy in 2015 and beyond.

Accordingly, world merchandise trade volume is expected to rise 2.8 percent in 2015, down from the previous estimate of 3.3 percent, and to 3.9 percent in 2016, down slightly from the last estimate of 4 percent.

Gloomy forecast. Reuters

The WTO lowered its estimate for exports, especially for Asia, from 5.0 percent in April, 2015 to 3.1 percent now (attributed mostly to the slowdown in the Chinese economy as intra-regiol trade as a consequence has fallen). Side by side, the downward revision for Asia on the import side was even stronger— from 5.1 percent to 2.6 percent—partly due to lower Chinese imports. The trade volume for exports in Asia in 2016 is projected to go up to 5.4 percent and for imports to 4.3 percent.

A number of factors that weighed on the global economy in the first half of 2015 remain still alive -falling import demand in Chi, Brazil and some other emerging economies; falling prices for oil and other primary commodities plus significant exchange rate fluctuations. The fincial instability arising out of interest rate rises in the United States and costs associated with the migration crisis in Europe are also stern realities that have seen bearing effects on the global economy.

Though the latest assessments locate that world trade growth would pick up to 3.9 percent from 2.8 percent in 2016, yet the same would remain below the average rate between 1995 and 2015 (5 percent).

For the fourth consecutive year the annual trade growth registered a fall below 3 percent along with the fact that trade has grown at the same rate as the world GDP instead of twice as fast like that happened in the 1990s and early 2000s.

The Director-General of WTO Roberto Azevêdo is right in saying that WTO members can help to set trade growth on a more robust trajectory by seizing the initiative on a number of fronts, notably by negotiating concrete outcomes by the December Ministerial Conference in irobi.

(The Writer, a noted Magement Economist; Principal, Eminent College of Magement and Technology and an Intertiol Commentator on Business and Economic Affairs, can be reached at m.bibhas@gmail.com)

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