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Trade

Global value chains, the missing link in India’s trade strategy

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An employee works inside an engineering goods export unit in the manufacturing hub of Faridabad on the outskirts of New Delhi, India, 13 January 2023 (Photo: Reuters/Manoj Kumar).

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…

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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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