Trade
India navigates a new global order
Author: Suman Bery, Wilson Center
With Indian economic growth slowing, commentary is focused on Finance Minister Nirmala Sitharaman’s 2020–21 Union Budget.
Less public attention is being paid to India’s external challenges. The world economy matters to India today and India has itself become a global player. The rules-based multilateral economic order which supported global integration for a generation is under widespread challenge. As multilateral institutions weaken and bilateral negotiations assume centre stage, India is compelled to articulate an economic sovereignty that’s politically grounded domestically while remaining sufficiently flexible to grasp opportunities in the years ahead.
Deep shifts in global order have been building, but a key marker is the 2008 financial crisis. Its origins in the most advanced financial markets provoked continued widespread questioning of the liberal consensus in vogue.
The crisis also triggered recognition by the advanced countries (meeting as the Group of Seven) that emerging markets were systemically important in output, trade and finance. The Group of 20 (G20), including India, first met at the head-of-government level in 2008 and has met at least annually since.
G20 participation has had two subtle but profound implications.
As with the G7, meetings among leaders on the great issues facing the world economy has downgraded the importance of treaty-based economic institutions, notably the IMF, the World Bank and the WTO.
These institutions possess the legitimacy of near-universal membership and hold formal responsibility for guiding the global economy, but ended up followers rather than shapers of cross-border policies between the world’s economies. They are accordingly less effective in cushioning disagreements and ensuring consistency of treatment than originally intended. These developments affect India adversely.
Second, the G20 embodies a shift in global attention from national living standards (real per capita income) to size of economy. The doctrine of poorer countries receiving special treatment has been replaced by expectation of burden-sharing, irrespective of level of development. Two critical domains are in rules for trade and expected action on climate change. As the poorest (and least urbanised) G20 member, India’s particularly affected.
Changes in the political economy of inter-governmental relations have been accompanied by unsettling global economic changes that could be seen as a ‘new normal’. One feature is the collapse of inflation, particularly in the advanced economies, but even flirted with by China.
This shift is reflected in astonishingly low interest rates, whose weakness as a monetary stimulus tool has led to massive expansions in advanced countries’ central bank balance sheets — designed to stimulate spending by boosting the prices of domestic financial assets. While the recovery in growth is welcome, the associated global monetary disorder and volatile capital movements complicate economic management in emerging markets such as India.
Equally troubling are two other developments: the slowing in world trade growth since 2008 and the rise of anti-migrant sentiment in many advanced economies. Trade and immigration are beneficial for growth, productivity and real incomes. Populist politicians have been quick to blame ‘unfair’ globalisation for stagnant wages, rising inequality and for hollowing out manufacturing sectors. The spectacular success of China as an exporter of manufactured goods has provided ammunition to these critics.
India is compelled to take a clear-eyed strategic view of the emerging international economic landscape and the implications for growth. Even if India’s development path remains largely driven by domestic choices, shifts in the global order will affect its opportunities. Fresh thinking in its economic diplomacy is urgently required.
In addition to financial volatility mentioned earlier, there are three sources of worry: access to markets, access to technology and weakened multilateralism.
Till now India has taken comfort that WTO rules would maintain its market access in merchandise trade. Today the WTO’s dispute settlement function is shut down by US veto; the consensus principle is regarded by advanced economies as ‘unworkable’; special and differential treatment is being challenged; the issue of state aid for exports has become a major concern; and new issues such as digitalisation are being discussed in plurilateral groups that India has chosen to avoid. With China in mind,…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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