Trade Regulatory Structures in India and the world -I

Recently the Commerce Ministry issued an RFP for review of the workings of Directorate General of Foreign Trade (DGFT). While stray calls for re-structuring or even shutting down the DGFT may have been heard earlier, there was no official sanction or mandate till now. I believe this current development is unprecedented for the Indian Executive except in the times of massive transitions like the liberalisation process of the 90s. Given that the DGFT is mostly staffed by the Officers of the Indian Trade Service, the recommendations would eventually re-shape the role of the Indian Trade Service. Without going into the Hows and Whys of the current proposal, I would leave the question of what should become of DGFT to the powers that be. However, right now I am keen on the question of the relevance of the Indian Trade Service in general.

Some articles like this one compared ITS to the Indian Salt Service and went on to say that the “Indian entrepreneur is highly motivated to conquer the global markets and does not need to be told by  … an Indian Trade Promotion Organization”.  Being quite unaware of the trade eco-system of India the author has offered comments on it. From my reading I understand that the author does not even knowing the difference between an export promotion council and a trade regulation directorate. Further, going by the article’s logic half of Commerce ministry(Trade Policy Division, DGFT etc.) is not required and can be compensated by the “high motivation levels of the Indian entrepreneur”, notwithstanding the evolution of WTO, FTAs, mega-trading agreements and increasing complexities in the tariff and non-tariff of international trade.

While reshaping Indian bureaucracy might be a good idea, what astounds me is the lack of any rigor or research to follow up on that idea. Given the pressures in writing such  articles and the possible lack of time and effort bandwidth, I would like to complement this article by covering some of the grounds for such an analysis.

The standard starting point would be to look at other countries which have a trade volume comparable to or more than India. In the following paragraphs I summarize the trade service structures and the trade administration of some such countries.

United States of America

Just as in India the DGFT is an attached office under the department of Commerce, there is a unit under the US department of commerce called the International Trade Administration (ITA). ITA’s stated goal is to provide

• Statistical information for selecting markets and products
• Ensure that Americans have access to international markets through various trade agreements
• Safeguard USA from unfair trade practices like dumping, subsidies etc

Just like DGFT, the US ITA ensures compliance with trade laws and trade agreements, ensures fair trade and promotes trade.

The US Commercial Service is the trade promotion wing of ITA, under the US Department of Commerce. It has 109 domestic offices in the USA, 128 commercial consulates in 75 countries across the world and a strength of 1400+ trade professionals. Its mandate is trade counselling, trade promotion, market intelligence, business matchmaking and commercial diplomacy. US commercial service is present in more than 1 city in India, actively lobbies for promoting US trade interests in India and even hires Indians for various India-specific inputs.

The DGFT, DGAD and the Trade Policy Division under Ministry of Commerce collectively serve this function in India. All these there bodies are staffed by Indian Trade Service officers in varying numbers. The key difference between the Indian and US structure is as follows –

• While DGFT does some trade promotion activities under the Niryat Bandhu Scheme, the canvas and mandate here is fairly limited. The regional authorities in India are not mandated to study the issues endemic to the region in its jurisdiction and provide active hand-holding. The staffing, funds and expertise are limited to holding open houses on basic theoretical aspects international trade. On the other hand the US commercial Service has a round the year trade mission schedule, international buyer programs, a series of webinars related to trade issues and channels on YouTube with 100s of explainer videos on trade.
• In India DGCI&S collects trade data. However, the data is not disseminated through regular web based efforts and webinars in a form palatable to the export community at large. The effect is that while rich data is available, it is not even used by the State government to actively work its policies leave alone private individuals.
• There is no liaison with the Indian commercial consulates abroad to actively provide inputs and follow up, while US commercial service has a presence in 75 major countries. One possible reason here is that the Indian Foreign Service is also understaffed for manning these all the responsibilities.
• The staffing of the Indian offices of the DGFT is also not comparable to the US commercial service. While DGFT has presence in around 35 cities in India, the strength of officers and clerical staff is too low, to carry out the broad roles like providing market intelligence and business matchmaking.

Japan

In Japan, the METI (Ministry of Economy, Trade and Industry) is a broad umbrella ministry which came into being after reforms in 2001 to cover for the lost decade of the 90s. It is roughly equivalent to the Indian commerce ministry, Ministry of MSME, Ministry of Heavy Industries, Ministry of Communications and IT clubbed into one( maybe some more). METI manages not just industrial, natural resources, IT, MSME policies and promotion activities, but also trade regulation, patents management and even the soft power of Japan through projects like Cool Japan.

The Trade and Economic Cooperation Bureau (TECB) under METI handles the issues of trade control, trade licensing, trade facilitation, financial and technical cooperation and trade insurance. Most of this work overlaps with the role that DGFT plays in India. The bureaucratic structure of DGFT is also similar to the TECB headed by a career bureaucrat called the Director General, with various directors heading each of the chapters outlined in the mandate of the TECB.

The difference between TECB and DGFT lies in the broader scope of TECB. DGFT’s role is limited to trade promotion, regulation and licencing. Trade insurance in India is handled by ECGC, financial and technical cooperation is managed through standalone bodies co-ordinated by the line ministries or the PMO.

Basic models of trade explain that trade also leads to transfer of technology, flow of investments and other factors of production besides the flow of foreign exchange. Japan recognizes this truth which is symbolised by the fact that it clubs the regulation of technical and financial cooperation under the same body that regulates trade.

There is not enough information on the internet about the officers manning the TECB so a clear comparison with the Indian Trade Service is not possible. However, given the success Japan has had in engaging internationally on issues of trade and investment (including the funding of the Delhi-Mumbai industrial corridor in India through JICA) one can safely assume that TECB is adequately staffed and specialised.

This is all for now. In the next post, I shall be covering the comparison with trade regulatory structures in UK, France and most importantly China. Please do provide your inputs and feedback.