Faster digitalisation of the trade sector is now becoming indispensable for connecting the country with global trade.
BY PURUSHOTTAM OJHA
The first industrial revolution started in the early 18th century with the invention of the steam engine and the mechanisation of the production process. The use of machines in production helped to increase overall economic output and improved the living standards of the middle and upper classes. However, this also contributed to job losses among the poor and working class and pushed them back into agriculture and other sectors requiring manual labour. It was also a time when the English textile workers raged against the introduction of machines in the factories and wielded sledgehammers to strike a blow against the industrial revolution, also famously called the Luddites revolution. The second industrial revolution was at the end of the 19th century with the emergence of new sources of energy like electricity, gas and oil that gave a boost in bringing down the cost of production. The third industrial revolution started in the late 1960s with the rise of electronics, telecommunications and use of computers while the fourth revolution is happening now with the use of high speed internet which has made a turnaround in the way industries and businesses are run. The use of robotics, big data, artificial intelligence and block chains are emerging as the backbones for making large numbers of daily transactions.
Internet and Its Impact on Society
The virtual world is now helping us to carry out our daily transactions from receiving and sending information, personal mail, entertainment materials, making online orders, payment and host of all other things that are required in our daily life. Virtual platforms like Facebook, Twitter, Tik-Tok, YouTube and Google have made our lives comfortable by promoting social interaction, entertaining music and sharing tons of useful information. The use of the Internet of Things (IOT) is on the rise and is helping to reduce the time and effort required to carry out household chores, bringing efficiency to routine tasks.
Digital technology is spreading around the world at an unprecedented scale. It is becoming more and more inclusive as the telecom and mobile services are expanding at a faster pace to reach people in every nook and corner of the planet. In Nepal, the penetration of mobile phones has reached 130 percent; indicating that people living in almost all parts of the country are enjoying the facilities of mobile phones. Out of these, around 40 percent have access to smart phones that are being used for a variety of applications.
The increased use of the internet has brought about a sea change in the way personal and mass communication happens over the past two decades or so. Gone are the days when college students in Kathmandu would mail a hand-written letter to their parents outside the valley. Now, no one writes letters to relatives or friends. Rather, they either make a direct call through mobile phones or use the communication channels through internet based calls on Facebook, Viber and WhatsApp, Messenger and similar applications. The new generation in their twenties or thirties is thriving in a different setting in terms of means and modes of communication.
The importance of the digital technology and internet services is more pronounced in the wake of the pandemic which has ravaged countries and societies around the world. It has generated a situation where people are compelled to truncate their travel, meetings, seminars and events. Meetings, workshops and seminars have gone virtual and meeting in person replaced by phone calls, due to the highly contagious nature of the virus.
Opportunities for Trade Development
Despite all the odds, on the other side of the coin the pandemic is being considered as an accelerator of trade due to the compelling transformation in the way international trade is being carried out. The disruption in traditional supply chains caused industries to shift the line of supply from far locations to places that were closer and in many instances shifting the balance in favour of domestic markets. In countries like Nepal, a large number of returnee migrants from abroad are trying to find productive jobs and harness self-employment opportunities where they reside. This would ultimately help to increase the total output in the country and could be considered as a positive fall out of the pandemic.
On the other side, digitalisation of trade is happening at a faster pace. This is not merely a matter of online placement of orders, and e-payment but is also about applications and processing trade and transport documents electronically. It is noteworthy that countries are moving ahead to implement the Bali Package, the WTO Trade Facilitation Agreement concluded in Bali, Indonesia in 2013. This agreement envisages a number of measures intended for the simplification and harmonisation of the trade process including the adoption of electronic means in lieu of paper documents. One important element of the agreement is the requirement of the publication of trade procedures and documentation through the internet. Besides this, enabling electronic payment of duties, taxes, fees and charges, application of risk management system in customs control, establishment and use of electronic single windows in the clearance of exports and imports and the exchange of information between territorial customs, are some of the other important instruments contained in the agreement. Improvement in the current operation thus requires a strong IT based system to bring efficiency to move along the reform agenda.
Issues on improvement of productive capacity, market access, investment, competition, connectivity, public health protection and intellectual property rights are being discussed virtually in the global forums more than before the pandemic. This is supposed to reckon with a new direction in the way of doing trade in the post pandemic periods.
The agenda on electronic commerce is gaining pace in WTO as 86 member countries are now engaged in negotiating the plurilateral agreement. The agreement, among others, is intended to provide recognition to the digital signature and digital document equivalent to the signed paper document and facilitate the frictionless flow of trade related data and information among the participating member countries. This will increase efficiency in delivery of goods and enhance global trade by reducing the cost of transactions.
Nepal's international trade and transit arrangements are highly paper based. Completing a trade transaction requires stacks of paper based documents, numerous signatures and clearances at various levels of bureaucracy. This has made the trade more complex and expensive taking a toll on the competitiveness of domestic products and services.
Digitalisation of trade is still at the infant stage. Customs automation was started in the late nineties at a modest scale that is now rolled out to almost all customs houses covering 98 percent of the total trade of Nepal. Nepal customs is now improving its operations by introducing risk management system and online submission and processing of declaration and clearance processes. Nepal, being a party to the Revised Kyoto Convention, Vienna Program of Action and the WTO Trade Facilitation Agreement, still requires stepping into the reform process in trade, transit and transport operation by following the principles of these international instruments.
There is a long way to go to more than just introduce an electronic system in trade and transit related transactions. The Information Technology Act drafted in 2018 is still stuck at the parliamentary committee pending the task of legislation. Mobile banking and internet enabled services are being widely used by the commercial and development banks in the country. But the issues related to the e-payment gateway to enable cross border payment of small volumes of trade has not yet been settled and the exporters of handicrafts, jewelry and gift items are complaining over the lack of appropriate mechanisms to enable them to receive the export proceeds in a simple and direct way.
Eliminating redundancies is a challenging issue for the simplification of the trade process. This requires a comprehensive exercise for business process analysis, process simplification and removal of duplication and redundancies in the transaction.
Nepal has made remarkable progress in establishing telecom infrastructures around the country, leaving aside some occasional targeting of mobile phone towers by disgruntled groups. A large number of Nepalis were able to connect digitally during the time of the lockdown in the wake of Covid-19. Now, the telecom industry has become an integral part of our daily lives. There is no alternative to moving forward in the path of progress and prosperity based on digital infrastructures.
Faster digitalisation of the trade sector is now becoming indispensable for connecting the country with global trade. Many countries around the globe are moving towards paperless transactions in international trade. Taking cognizance of this happening in a wider scale, UNESCAP member countries endorsed a Framework Agreement on Facilitation of Cross-border Paperless Trade in May 2016. This agreement provides a broader framework for aligning the trade related documents and processes with electronic means. An estimated trade cost reduction is expected between 10-30 percent from full implementation of the agreement, depending on the current status of paperless trade development in the participating countries. The agreement is particularly important for the landlocked countries of the region as it helps to reduce the transit transportation costs by replacing paper documents with electronic ones. Hence, it is important to translate the key provisions of the framework agreement into bilateral agreements and introduce reform in their domestic rules, regulations and institutional processes. Nepal should make such efforts sooner than later in order to enhance its competitiveness in trade and economy.
Ojha is a former Secretary of Commerce.