Trade
Getting India’s trade strategy aligned with its national development ambitions
Author: Editorial Board, ANU
India is stepping into the spotlight on the world stage this year as the host of the G20. It comes after a relatively successful year for the forum under Indonesian stewardship. Hopes are not as high for India’s presidency, though India’s behind-the-scenes role in helping with the 2022 Bali Communiqué showed deftness in global diplomacy. The main worry is that the G20 agenda in New Delhi does not yet get to the heart of the challenges facing the world economy.
A global economy that is fracturing on geopolitical lines needs leadership to preserve and protect the open, liberal trading order and there is still scepticism, not ill-founded, about whether historically protectionist India has what it takes to step up on the substance of these problems.
Indian trade policy has long had a protectionist bent. Even the liberalising reforms of the early 1990s – as important and beneficial as they were – were limited, and vested interests and populist domestic politics continue to trump policies that would be beneficial for India now and into the future.
India’s aversion to open trade was on full display in late 2019 when India withdrew from the Regional Comprehensive Economic Partnership (RCEP), Asia’s most consequential economic agreement, citing the risk of import surges and damaging trade deficits, particularly with China. These are fallacies and contradict basic principles of economics. They will prove costly not only to consumers, but also to firms who lose access to cheaper inputs, vital for increasing industrial competitiveness and the opportunity to expand production, employment and profits.
In an era where global trade is increasingly characterised by complex global value chains, India should be pursuing every avenue available to integrate itself into these networks. India hasn’t missed the boat as some Indian policy circles suggest. In the current geopolitical environment, India is indeed well placed to chart a new internationally oriented growth strategy. As costs rise and confidence falls in China, firms are looking to diversify production networks in order to hedge geopolitical risk. With a mixture of carrots and sticks, governments around the region and the world are egging them on. With its large working-age population and relatively low labour costs, India should be positioning itself to reap the huge benefits from this circumstance.
But despite this potential, Indian policymakers remain flatfooted and India’s international trade diplomacy a creature of its past. Even the FTAs the country has recently signed onto with some enthusiasm, such as that with Australia, are of relatively low quality, offering only piecemeal gains by way of market access let alone modern, WTO plus provisions around labour and environmental standards.
To absorb its large and still-growing labour force into the future, India still needs a strong, broad-based, internationally competitive and dynamic manufacturing sector. For this, trade openness is essential.
As Amita Batra writes in this week’s lead article, ‘enhancing manufacturing sector specialisation and competitiveness through participation in global value chains needs to be the underlying objective of Indian trade policy. It needs an open and more liberal trade regime with tariffs at par with comparable emerging market economies for the manufacturing sector as a whole and especially in sectors with potential for integration into global value chains.’
India has a growing domestic market, but even very large markets cannot serve as the basis for rapid structural change and economic growth if per capita incomes are low. Autarky has its limits and its costs. This lesson should be clear from India’s pre-1990s economy – import-substitution proved not to be a successful growth strategy. On the other hand, the path to economic development through exports and an open trade regime that ensures flexibility and competitiveness is well-established in Asia. If India is to reach its national potential it needs a new era of reform, one that dedicates substantial focus to an FTA agenda ‘aimed at deeper integration and broader trade coverage’ as Batra says.
As manufacturing becomes increasingly sophisticated, the cost of India’s autarkically-inclined trade policies will only grow. By divorcing itself from global value chains India is denying itself important knowledge and technology spillovers. The dividend from research and development exchange, collaboration and competition that occurs naturally with liberal trade is…
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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