Importance of Streamlining Cross-border Trade Procedures

Worldwide, countries are working to create a seamless and efficient trading environment, both within and beyond national boundaries.

“For the only way in which a durable peace can be created is by world-wide restoration of economic activity and international trade” ….    (James Forrestal)

In recent times, with globalization attaining its peak and organizations striving to capture the market across borders, it becomes indispensable to talk about cross-border trade. According to the World Trade Organization, total cross-border trade accounts for 52 percent of the global GDP. This percentage illustrates how important cross-border trade is to a country's economic development. 

Earlier, tariffs were one of the most often used government tools for encouraging or regulating commerce, but their relevance has declined in recent years. They have been overtaken by other considerations such as trade-related transaction costs and taxes. Logistics and freight costs, customs administration fees, and border expenditures have all become more important to traders. 

Worldwide, countries are working to create a seamless and efficient trading environment, both within and beyond national boundaries. Such steps are helpful in streamlining the trade procedures and guarantee that processes are error-free and export-friendly. There should be no delays in exporting goods and any process that remains a barrier to exports should be abolished and reduced. Streamlining cross-border trade is likely to become a vital player in global supply chains, hence, boosting economic growth prospects. 

One of the issues faced while streamlining trade is the high cost of cross-border transactions. Procedures and organizational bottlenecks obstruct the efficient flow of trade transactions, resulting in higher costs for traders. Also, the countries situated on the border face numerous obstacles such as fraud-prone paperwork, repetitive manual processes, and insufficient availability and usability of critical trade information technology (IT) systems.

Trading items over foreign borders can be a complicated affair. Customs clearance necessitates not only extensive planning and documentation but also differs country-wise. Today, international trade is much more straightforward than it was a few decades ago. This can be credited to decreased trade barriers, simplified laws, and the introduction of new technologies. Though still, customs clearance remains a hurdle.

Keeping aside these concerns, a strategy for accelerating cross-border trade is to work towards formalizing and equipping themselves with a functional custom clearing procedure. Customs procedures play a vital role in enabling cross-border trade. A brief description of three key factors that constitute these procedures is provided below:

  • Logistics: Cross-border shipping is when goods are shipped from one country to another, and it entails a lot more paperwork than a local shipment. Goods can only be traded across international borders if they meet strict requirements for labeling, packaging, declaration, transportation, and storage. Due to these criteria, tracking orders, assessing responsibilities for in-transit items, and maintaining specified delivery deadlines can be more difficult in cross-border trading. For example, while exporting goods to Egypt, the African country has a requirement that the goods should be labeled in the Egyptian language. All these requirements are checked at the time of offloading the cargo at the country’s port. Failure of which causes the exporter loss in terms of logistic cost.
  • Regulations and Compliance: This head includes custom declarations, manifests, product permits, packaging regulations, export evidence, and invoicing. Most firms find it difficult to even comprehend these regulations, let alone comply with them completely. Product categories such as alcohol, food, cosmetics, and electronics are more strictly regulated than others, and their restriction or prohibition into certain foreign markets must be reviewed before additional legal documentation is completed. For example, European countries require certification of certain electronic goods only from European testing agencies and not from the testing agencies of the exporting country.
  • Duties and Taxes: Exporters are affected by unexpectedly high custom tariffs and other taxes which operate as a deterrent and a barrier to trade. These taxes and tariffs are sometimes concealed and poorly communicated, discouraging overseas sellers from doing business with a country in the future. To address these challenges, countries have started using trade agreements like the Free Trade Agreement (FTA), Preferential Trade Agreement (PTA), and others. These types of trade agreements between countries enhance trade by decreasing tariffs and mitigating risks involved during global supply chain practices. Furthermore, trading within a free trade zone can be considered. 

The international circuit has started streamlining the cross-trade procedures making it more friendly and less cumbersome. Trade Agreements are based on the concept of open and integrated economies, but the Covid-19 pandemic has compelled countries to close their borders. Despite this shift in the global landscape, trade agreements continue to be an important tool for facilitating and revamping global trade. This also provides an opportunity to diversify its economy and make it more export-oriented through aggressive bilateral and multilateral FTAs and RTAs (Regional Trade Agreements).

India has always expressed interest in negotiating free trade agreements with nations. Recently it signed a Comprehensive Economic Partnership Agreement (CEPA) with UAE and an Economic Cooperation and Trade Agreement with Australia intending to enhance its exports and increase market access in other countries. According to Ministry of Commerce & industry data, Indian exports have shown an increase with its FTA partners like the ASEAN countries, under CEPA with Korea, SAFTA, etc. The value of India's exports to ASEAN has risen from $25.13 billion in 2015-16 to $42.33 billion in 2021-22. India's exports to SAFTA (South Asian FTA) countries have risen from $18.60 billion in 2015-16 to $34.18 billion in 2021-22, while exports to South Korea have risen from $3.52 billion in 2015-16 to $8.1 billion in 2021-22.

The Covid pandemic aftermath has forced the countries to re-engineer their foreign trade policies to make cross-border trade procedures smoother. Indian Policy makers are anxiously modifying their foreign trade policies in hope of some ease of doing business. Through ICEGATE, the e-commerce portal of The Central Excise and Customs department of the Government of India, the Indian customs have started online operations for most of the documentation involved in the process of international trade. Moreover, the trading of restricted or prohibited products has been digitalized by the Indian government and the issuing of import/export licenses is handled by the Directorate General of Foreign Trade (DGFT). With the Indian government popularizing its Digital India mission, the usage of digital tools for handling trade-related activities hints at a very bright future for prospect traders. 

Author: Manila Sharma, Senior Analyst Cross Border, Avalara India.

Publication: Indian Retailer.

Get direct help with your questions about GST software