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Getting India’s trade strategy aligned with its national development ambitions



People shop at a crowded market ahead of Diwali, the Hindu festival of lights, in the old quarters of Delhi, India, 11 October 2022 (Photo: Reuters/Anushree Fadnavis).

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…

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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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WTO ministerial trading in low expectations and high stakes



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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Getting Vietnam’s economic growth back on track



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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