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Business News/ Opinion / A trillion dollar opportunity cost
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A trillion dollar opportunity cost

For the general population across the world, including India, improvements in trade will translate to higher standards of living and greater opportunities

Photo: AFP Premium
Photo: AFP

The failure of World Trade Organization (WTO) members to adopt the necessary protocol for agreement on trade facilitation (TFA) by 31 July is extremely disappointing. There are no winners from foregoing the benefits of an agreement manifestly beneficial for global trade.

International trade is the world’s growth engine. It is essential to securing global job creation and higher living standards. Made in the world is the reality of modern global trade. Global supply chains have transformed the way business is conducted around the world. With the ongoing fragmentation of production, imports have become essential components in exports.

The TFA, signed by 159 WTO members at the ninth ministerial conference of the WTO in Bali was a particularly momentous signal of intent, reinvigorating multilateral trade negotiations, which had stalled since 2001. Despite this set back, the B-20, the summit meeting of business leaders from the Group of Twenty (G-20) countries, will continue to work with G-20 to press the case for trade facilitation to ensure they reap the benefits, even if it is not the subject of an international trade agreement.

India is clearly a trading nation with trade representing more than 50% of its gross domestic product (GDP). Like other G-20 countries, India can still benefit from trade facilitation. All governments can maximize benefits from implementing the Agreement, even if only in part, immediately.

Trade facilitation is more important than ever as it allows the smooth operation of supply chains that cross international borders multiple times.

Global supply chains have become an influential driver of global growth, providing new trading opportunities for business, particularly emerging market economies and small and medium enterprises. Failure of G-20 members to rapidly implement and ratify the Bali Agreement on Trade Facilitation represents a significant opportunity cost.

For example, it is estimated that 30% of globally traded food is lost in transit due to inadequate customs procedures or infrastructure, including refrigeration.

According to the Organisation for Economic Cooperation and Development’s (OECD) latest estimates, the agreement signed in Bali would reduce total trade costs by up to 15% for developing countries, 10% for OECD countries and create millions of jobs.

It also suggests that India could draw considerable benefits in terms of trade volumes and trade costs by making improvements to fees and charges and streamlining of procedures.

The sooner these changes can be made, whether or not they are made within an international agreement, the better for growth, including for developing countries such as India.

The G-20 has set an ambitious growth target of two per cent above trend over the next five years which is entirely appropriate and necessary against a backdrop of lower than expected growth in the global economy and its impact on job creation and unemployment.

Only last month, almost 400 international business leaders and policymakers, including five senior representatives from India, gathered at the B-20 Australia Summit in Sydney and called for G-20 economies to ratify and implement the TFA.

Leaders also called on G-20 governments to ease regulatory and infrastructure barriers to trade in competitive export industries, wind up barriers to trade introduced since 2008 and ensure preferential trade agreements produce value to business commensurate with the effort required to achieve them.

The successful and rapid implementation of the Bali Agreement would contribute at least one per cent to global GDP over the next five years and could increase global exports by more than $1 trillion, with global GDP uplift estimated at $820 billion. If all four B-20 trade recommendations are implemented by G-20 governments, it could generate up to $3.4 trillion in GDP growth and support more than 50 million jobs across G-20 economies. This would be akin to adding another Germany to the global economy.

For the general population across the world, including India, improvements in trade will translate to higher standards of living and greater opportunities.

The B-20 leads official engagement with G-20 countries on behalf of the international business community. This year, more than 300 business leaders from G-20 member countries, including 12 from India have developed a set of 20 mutually reinforcing recommendations that drive global economic growth and create jobs.

Robert Milliner is Australia’s sherpa to the B-20, the business leaders summit from the Group of Twenty Nations.

Comments are welcome at otherviews@livemint.com

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Published: 15 Sep 2014, 05:50 PM IST
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