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Trade

India navigates a new global order

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A crow flies past a container ship docked at a port in Vallarpadam in the southern Indian city of Kochi (Photo: Reuters/Sivaram V).

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 The doctrine of poorer countries receiving special treatment has been replaced by expectation of burden-sharing, irrespective of level of development.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,…

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Trade

Fixing fragmentation in the settlement of international trade disputes

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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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WTO ministerial trading in low expectations and high stakes

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The WTO’s 13th Ministerial Conference is set to focus on e-commerce transparency, investment facilitation, and admitting new members. However, progress may be hindered by disputes, especially regarding fisheries subsidies.

The World Trade Organisation’s 13th Ministerial Conference

The World Trade Organisation’s (WTO) 13th Ministerial Conference is set to take place in Abu Dhabi on 26–29 February, with expectations of deals on electronic commerce transparency, investment facilitation for development, and the admission of Timor Leste and the Comoros as WTO members. Despite these positive developments, the expectations are relatively modest compared to promises made at the 12th Ministerial Conference, which included addressing fisheries subsidies and restoring a fully functioning dispute settlement mechanism by 2024.

Challenges in Dispute Settlement and Agricultural Trade Reform

However, challenges remain, especially in the deadlock of dispute settlement since December 2019 due to a US veto on the appointment of Appellate Body judges. Progress in restoring the dispute settlement mechanism has stalled, and discord continues regarding India’s grain stockholding policy as a potential illegal subsidy. Restoring a fully functioning dispute settlement mechanism hinges on addressing US concerns about perceived bias against trade remedies in relation to China’s state subsidies.

Geopolitical Tensions and the Future of Trade Relations

The likelihood of reaching agreements amid geopolitical tensions between Western democracies and China appears slim, with issues surrounding subsidies and global supply chains causing rifts in trade relations. As nations focus on self-reliance within the global value chain, opportunities for trading face obstacles. Advocacy for open markets and addressing protectionist sentiments remains crucial for fostering resilience to external shocks and promoting economic growth.

Source : WTO ministerial trading in low expectations and high stakes

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Trade

Getting Vietnam’s economic growth back on track

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Vietnam’s economy grew 8% in 2022 but slowed in 2023 due to falling exports and delays in public investments. The economy’s future depends on structural reforms and reducing dependency on foreign investment.

Vietnam’s Economic Roller Coaster

After emerging from COVID-19 with an 8 per cent annual growth rate, Vietnam’s economy took a downturn in the first half of 2023. The drop was attributed to falling exports due to monetary tightening in developed countries and a slow post-pandemic recovery in China.

Trade Performance and Monetary Policy

Exports were down 12 per cent on-year, with the industrial production index showing negative growth early in 2023 but ended with an increase of approximately 1 per cent for the year. Monetary policy was loosened throughout the year, with bank credit growing by 13.5 per cent overall and 1.7 per cent in the last 20 days of 2023.

Challenges and Prospects

Vietnam’s economy suffered from delayed public investments, electricity shortages, and a declining domestic private sector in the last two years. Looking ahead to 2024, economic growth is expected to be in the range of 5.5–6 per cent, but the country faces uncertainties due to geopolitical tensions and global economic conditions.

Source : Getting Vietnam’s economic growth back on track

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