Tough challenges on the trade front

In days to come, Indian policy makers have to take cognisance of new trade blocs and alignments taking place.

Indian policy makers face a number of stiff challenges as they prepare for the 10th ministerial meet of the World Trade Organisation (WTO) to be held in Nairobi, Kenya during the middle of next month. The ministerial meet is the highest policy making body of the WTO covering 161 members.

First, the news on trade front is nothing to cheer about. The September foreign trade data showed Indian exports declining for 10 straight months in row. The slowing Chinese economy is a significant factor impacting global demand and investment. Other countries, both emerging as well as developed ones are reckoning with the declining Chinese demand and not just for raw materials.

The sad fact is emerging market countries as a group have become a drag on global trade. This is in sharp contrast to just a few years ago when they boosted global trade. It is not clear as to when and what measures will be necessary to reverse the trend.

A serious threat

A more ominous threat is to the orderly conduct of world trade. Less than two months before the Nairobi ministerial, the very relevance of the WTO and more specifically its Doha development round is once again being called into question. India might be wrongly accused of single-handedly blocking the trade facilitation agreement, which has been the only tangible success of the WTO’s Doha round so far. India’s persistence in seeking a simultaneous agreement on an extended food stocking might go well with certain domestic constituencies but has done nothing to dispel its image as a tough and often difficult negotiator.

Mega alignments

In days to come, Indian policy makers have to take cognisance of new trade blocs and alignments taking place. These may strike at the very structure of the WTO and more importantly the multilateral trading it embodies.

The reference is to the emerging mega trade deals involving some, but not even a majority of WTO members. Referred to as plurilateral deals, to distinguish them from bilateral (two countries) or multilateral these are bound to alter the structure of world trade.

Two important trade blocs are on the anvil — the Trans-pacific Partnership (TPP), which excludes India and Regional Comprehensive Economic Partnership (RCEP), which includes India and ten members of the ASEAN (Association of Southeast Asian Nations) plus Australia, China, Indonesia, Japan, South Korea and New Zealand.

Very recently, the U.S. concluded negotiations with 12 countries of the Pacific RIM to create what is called a Trans-Pacific Partnership (TPP). Although two major economic powers of the region — China and South Korea are not yet in, the TPP includes the U.S., Canada, Australia, New Zealand and Japan among the large economies and Chile, Peru, Mexico, Vietnam, Singapore, Brunei and Malaysia among the smaller economies. Together they account for 40 per cent of global trade. 800 million people live in these countries.

The TPP has not yet been voted into law. Even at this advanced stage it faces opposition within the U.S. as influential politicians stoke the fear of job losses at home in the wake of the mega agreement. But with the U.S. President backing it to the hilt, the TPP might soon become a reality.

The TPP seeks to ease the flow of goods, services and investments among its members and to strengthen the rules on labour standards, environmental issues, origin criteria and intellectual property. Tariff reduction will hardly been an issue as much has been achieved already.

For India, the TPP might signal the erosion of the competitive edge its goods and services enjoy especially in the traditional markets of European union and the U.S. India might also have to meet the challenge of a new rule bound trade architecture.

India must act proactively

The Commerce Ministry has urged Indian exporters to convert the imminent threats into opportunities. But that is going to be easier said than done. Policymakers should adopt a more give and take attitude in trade matters without compromising on India’s needs for food security. The emergence of plurilateral agreements is a warning that the world will simply pass by ignoring India’s interests. It has been reported that China will soon seek membership of the TPP, a move India should emulate, if possible at all.

Setting back multilateralism

At the global level, the TPP, the biggest trade pact in recent times, has been welcomed but with a few qualifications. The fine print of the agreement has not been released but those in the know of things say that it could boost the GDP of its members by one per cent by 2025, with the emerging markets among the signatories gaining more. The biggest loser is multilateral trade and its main sponsor the WTO which has been trying and largely failing to negotiate a deal since 2001. Regional deals are the next best thing, but by definition they exclude some countries and so might steer business away from efficient producers.

The 10th ministerial of the WTO is bound to take note of the perils of plurilateral trade deals.

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