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When we hear the term ‘Trade’, we involuntarily assume an automatic mechanism involving import and export of commodities and to an extent, we are not wrong. Trading occurs when a country decides to exploit its abundant resource by exchanging its surplus with another country provided the latter provides something that the former is deficient in.
Image Graphics by Team Geostrata
IMPORTANCE OF TRADE
Trade keeps the global economy more connected as well as competitive which brings prices of commodities down ultimately increasing the affordability of goods and services ensuring that even the lowest strata of people in the economic hierarchy are included.
Transnational trade also allows access to products which have a higher quality and higher affordability than the domestic alternative. The impact is that the nations can focus on certain areas of manufacturing or services in which they specialise in. This article will talk about the trade and manufacturing conundrum in a later phase.
BOTTLENECKS IN GLOBAL TRADE
Tensions within the current multilateral trading system have long been looming, not just because of stalled progress at the WTO on multiple fronts, from agricultural subsidies, and industrial tariffs to intellectual property protection. Multilateral trading rules are coexistent with now proliferating bilateral free-trade agreements and increasing regionalism.
Unilateralism: When a single nation or a group of nations decides to frame their foreign trade policy in such a way that it serves their purpose and interests as a region without taking other parties involved into confidence, it becomes very chaotic for trade partners out of the grouping.
A prominent example would be the European Union’s revised trade rules in force since February 2021 allowing the bloc to introduce sanctions without prior authorisation from the WTO in an event when it faces obstruction in dispute settlement from a counterpart.
Protectionism: The two largest economies, the US and China are already waging a trade and technology war loaded with sanctions against companies, export restrictions and tariffs.
Data from Global Trade Alert reveal increasing trade interventions since the financial crisis of 2008 on the contrary to restrictive measures outpacing liberalising ones. New industrial policies encouraging indigenous production or reshoring. An eminent example would be the US CHIPS Act, China’s dual circulation strategy which indicates a long term protectionist trend.
Fragmentation: A political push for decoupling through re-shoring, near-shoring and friend-shoring, particularly of strategically sensitive goods such as semiconductors, heightens the possibility of independent supply chains that accelerates the emergence of a world coloured with politically driven trading blocs.
GLOBAL IMPACT LEVIED BY THESE DISCREPANCIES
Both IMF and the World Bank studies have revealed adverse effects of unilateralism, protectionism and fragmentation on investment, GDP, employment, real income, and poverty levels with emerging markets and developing economies being the worst hit.
Protectionist measures have already resulted in a 9% increment in wheat prices, according to the World Bank. Reshoring attempts would result in a fall in real incomes by 1.5%, taking an additional toll of bringing 52 million people into extreme poverty by 2030.
On the contrary, adoption of policies that are more GVC-friendly (Global Value Chains) supporting greater integration of populations and industries can help lift 21.5 million people out of extreme poverty in the same period. South Asia will be a major beneficiary of such an initiative.
CAN G20 PROVIDE A HEADWIND TO WTO REFORM?
In the words of late Harvard professor, Richard N. Cooper, “Trade policy is Foreign policy”. These lines didn’t make much sense half a century ago. The past decade has corroborated Mr Cooper’s theory with examples all along the timeline.
Is there a way G20 can confront the very fundamental challenges to the multilateral trading system?
Recent trajectory is heartbreaking, the G20 members have been very vocal on the cause of promotion of multilateralism but the ground reality has disappointed so far, instead focussing their political and economic efforts on regional and plurilateral initiatives. Such regional initiatives can surely promote the much needed economic reforms and constitution of next generation trading rules but with negligible application to non-member countries, consisting mainly of the low income countries. The aforementioned discrimination can be avoided when the reforms are advancing through WTO negotiations.
For the G20 to play a constructive role in bolstering the global trading system, the bipartisan powers whether developed like Australia, Canada, South Korea and Japan or developing like India, Indonesia, Brazil and South Africa need to remember that they represent crucial interests of the developing world.
These nations are needed to come together to persuade the big powers such as the US, Europe and China to work together in collaboration advancing talks and actions on solutions to the subsidies, climate finance, decarbonization, digitization, digital trade, and dispute settlement challenges.
WHAT DOES INDIA HAVE TO OFFER via G20?
India brings to the table convening ability, voice to represent the concerns of emerging markets and developing countries, and ofcourse its own interests and evolving domestic trade landscape. These factors lend India power to promote consensus on the operating conditions of international trade, advance concrete trade commitments for collective consideration, and offer lessons from its own domestic experience.
In lieu of its credibility as an emerging market and a pillar for global economic revival, its regional positioning, and emerging global leadership. It finds itself in diplomatic favour as a desired political, economic, and strategic partner, across both advanced economies and the developing ones.
India should use its G20 presidency to advance discussions and targeted interventions in areas of common interest to developing countries as aforementioned, as well as forward looking trade areas that necessitate ongoing conversation.
INDIA'S STRIVE FOR MULTILATERALISM
Advancing the digitalisation of MSMEs: The government’s main focus is on the lines of “build back digital” and “build back green” regarding MSMEs which make up almost 50% of India’s exports and are 29% of the GDP. India has developed an Open Network for Digital Commerce, currently in its pilot phase aiming to connect sellers, buyers, payment processors, and logistics partners at a singular marketplace of e-commerce markets.
An ambient logistics policy: India released a National Logistic Policy back in September seeking to bring down the logistics costs to increase the affordability and competitiveness of Indian-made goods. When integrated with other infrastructure intensification programmes such as PM Gati Shakti, Sagarmala and Bharatmala.
Development and Utilisation of Food corridors: The India-West Asia food corridor involves a $2B investment by the UAE to build food parks in India that will use Israeli and US technology and private expertise. As 2023 has been declared the International year of Millets, and India being the 5th largest exporter of the same, it could announce a millet corridor under the same arrangement as aforementioned.
Key ingredients of global trade such as food, natural resources, textiles, and consumer electronics get manufactured in climate-vulnerable countries. Another objective is a climate finance commitment directed towards climate-proofing supply chains through adaptation measures such as reinforcing storage and transportation routes.
With all the data samples and arguments, it is clear that the road ahead will be long and uneven which will be inadequate to counter without proper policy framework and global consensus. This new era of globalisation will need more than just dialogues and establishment of regulations and groupings, but actually drawing regulations, policies and implementing them in individual foreign trade policies. Global participation will be another driver for a revamped globalisation that we stand to confront presently.
BY DIGVIJAY SINGH
TEAM GEOSTRATA
digvijay.geostrata@gmail.com