Trade
Global value chains, the missing link in India’s trade strategy
Author: Amita Batra, JNU
Global value chain-led trade has been the most significant feature of global trade in the 21st century. While the spectacular increase in trade in the first decade was largely attributed to the increasing complexity of global value chains, the slowdown since 2012 has been associated with a consolidation and restructuring of global value chains.
Supply chain disruptions following the COVID-19 pandemic, aggravated by Russia’s invasion of Ukraine, have been the defining factor in global trade in recent years.
India’s participation in global trade has remained marginal over the past two decades, with a share of global merchandise exports lower than 2 per cent. India’s weak linkages into global value chains in the manufacturing sector are not just lower relative to other major regional emerging market economies but they have also consistently declined since 2013. This is true in the case of electronics and automotives, two of the most value chain-intensive sectors globally. India’s gains from the restructuring of value chains and trade diversification in the wake of US–China trade tensions have been marginal, limited mainly to the machinery sector.
India’s trade policy over the two decades of this century has not just been more protectionist compared to other developing economies but has eschewed the objective of integration into global value chains. Trade policy measures and instruments have not been designed or negotiated with sufficient consideration of the linkages between trade, investment and services that are integral to global value chains.
Even though India initiated trade policy reforms in the early 1990s, the focus was essentially on the removal of constraints imposed by the inward-looking autarkic growth model India followed since independence. While peak tariff rates in India were brought down in the 1990s and early 2000s, average applied most favoured nation tariffs for manufactured goods remain higher than in comparable emerging market economies. Since 2015, an element of increased protectionism has found its way back into India’s tariff structure.
The proportion of India’s tariff lines in the higher tariff range (more than 15 per cent) has risen and there are fewer duty-free tariff lines in 2021 compared with 2010 even though the overall range of applied tariffs continues to be 0-150 per cent. India is a hesitant participant in free trade agreements (FTAs), which aim at tariff elimination on ‘substantially all trade’ among member economies. This is striking as an increasing share of global trade has been generated through FTAs in recent years.
The FTAs India has concluded over the past two decades reveal that policymakers and negotiators have little understanding of the role of trade agreements in facilitating integration into global value chains. FTAs around the world are aimed at deeper integration and incorporate WTO plus provisions. But India persists with shallow agreements, limited and phased liberalisation and temporary safeguard measures against import surges that continue to inhibit its integration with global value chains. This combined with India considering that ‘Mode-4’ services trade, which enables movement of professionals, is its sole comparative advantage in services liberalisation has meant prolonged negotiations and limited gains from its FTA agreements.
In contrast to other emerging market economies that have viewed, designed and utilised FTAs to undertake domestic policy reforms, India has allowed its protectionist trade policy to guide its trade negotiations at the expense of membership in potentially beneficial FTAs.
India needs to undertake trade policy reforms for it to be viewed as an attractive alternative location by multinational corporations in their ‘China Plus One’ strategy and to enhance its participation and share in global trade.
India should not interpret the objective of ‘self-reliance’ as building entire supply chains domestically. 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 needs to upgrade its FTA agenda, accepting that FTAs should be designed to facilitate global value chain trade and investments. India’s FTAs must be aimed at deeper…
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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