Good news for cross-border trade as govt readies customs pacts

Easier cross-border trade may lift India’s position in business-readiness ranking. (Bloomberg)
Easier cross-border trade may lift India’s position in business-readiness ranking. (Bloomberg)

Summary

  • The CBIC will shortly sign agreements with Australia and Russia, followed by deals with Japan, South Africa and the East African Community by March

India is set to sign trade facilitation deals with five more key partners over the next three months, bestowing coveted ports and customs privileges including fewer inspections, faster tax refunds and deferred duty payments on half of its external trade.

The Central Board of Indirect Taxes and Customs (CBIC) will shortly sign such agreements with Australia and Russia, followed by deals with Japan, South Africa and the eight-nation East African Community by March, a person aware of the matter said.

India currently has such customs agreements with the US, the UAE, South Korea, Hong Kong and Taiwan.

The new agreements will mutually recognize a highly valued trade facilitation scheme in India called the authorized economic operator (AEO) programme and its equivalent in these countries, the person cited above said on condition of anonymity.

Under these bilateral deals, the accreditation offered by each country to its highly trusted merchants and logistics players for customs privileges will be honoured by the partner countries.

This will not only enable Indian exporters and importers to get privileges in the partner country, but also enable their clients in that country to get similar benefits even if they themselves are not part of their home country’s accreditation.

The privileges that accredited merchants and logistics players get under these schemes include priority customs processing, lower inspection rates and acceptance of self-declaration of origin of goods, a vital certification for cross-border trade.

“Once these deals are done, India will have 10 mutual recognition agreements (MRAs) in place and it will raise the extent of India’s cross-border trade that benefits from customs privileges under the AEO scheme and its equivalents in other countries, from 36% now to over 50%," the person cited above said on condition of anonymity. In the case of Australia and Russia, only the dates are to be finalized for signing, the person added.

India’s overall cross-border trade stood at $1.17 trillion in FY23; of these, Russia accounted for $50 billion, Australia $26 billion and Japan $21 billion.

Mutual recognition of AEO programmes to smoothen cross-border trade is different from free trade agreements, which facilitate market access through tariff reductions, but experts said both play a crucial role in trade.

“Mutual recognition of AEO programmes together with FTAs can be a game-changer in stepping up India’s footprint in global trade," said M.S. Mani, a partner at Deloitte India. India’s AEO programme has helped accredited merchants command a lot of confidence and comfort in the global market, Mani added.

The person quoted earlier said the goal is to have around 30 MRAs over the next few years.

The move to stich together deals to make cross-border trade more efficient and hassle-free comes at a time India has set a target of becoming a $30 trillion economy by 2047, in which domestic manufacturing and exports are expected to play a key role. Net exports, one of the key drivers of economic growth, stood at negative 2.85 trillion in the September quarter, as the export market remained subdued.

The efforts to make cross-border trade smoother are also part of making it easier to do business in India. The World Bank is expected to come out with a report next year on the business-readiness of countries, which will replace its now-discontinued ease of doing business reports. Making cross-border trade easier is expected to improve India’s position in that report.

An email sent to the spokesperson for the finance ministry and to the CBIC on Friday seeking comments for the story remained unanswered at the time of publishing.

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