Putting Global Trade on a Growth Trajectory

The ongoing narrative and discourse against free trade is being led by some of the developed nations, who have traditionally been advocates of free trade. With the developed economies having slowed down since 2008, an attempt is being made to resurrect the barriers to trade that they have customarily pressed the developing countries to remove. In this changing global landscape, in July this year, the B20 (Business 20) made certain recommendations to G20 and is convening in China in September to deliberate on actions necessary to spur global trade and economic growth. I will be participating in these deliberations of the B20, a forum that puts together policy recommendations for the leaders of G20 member countries. China, the 2016 Sherpa for G20, will be handing over charge to Germany in 2017 followed by India in 2018.

While building up on the xenophobia and ultra-nationalistic feelings, political leaders across nations have gained much ground in electoral campaigns. However, it does raise a question about the intent of the politicians – are they often flaunting trade as a major cause of the common man’s problem just to deflect attention from their own failures? Haven’t the developed nations reached where they have on the back of global trade?

B20 graphic

While many nations have benefitted from free trade, the advantages of global trade often do not seem inclusive of all strata of society. Thus campaigns around this narrative find much favor with the electorate. Though job shifts can often be controlled by reskilling, politicians prefer to weave their campaigns around the insecurities of voters. Ever since the global economic slowdown, the middle class in the USA has been financially stressed. They believe their jobs have been taken away by the Chinese and the Indians. Brexit has been successful because the British masses believe that a large percentage of their jobs have been going to migrants and refugees.

Though there may be some truth in these fears, a positive relationship between international trade, investments and employment generation can not be denied. Additionally, with Internet of Things and Industry 4.0 picking up steam, Global Value Chains are beginning to take centre stage. As governments try to put in place restrictive trade barriers, businesses are advocating freer cross-border trade.

This dichotomous situation needs a new approach enabling nations, businesses and people towards economic development. Though the WTO can play a key role in working towards an enabling global trade environment, issues from the Doha Development Round still remain open. In many ways, this multilateral forum’s structure limits its ability to deliver on its commitments. Since acceptance by 100% of the members is a must for any proposal to go through, many of them continue to be negotiated.

The failure of WTO combined with the pressures emerging out of slow growth has led countries to sign various bilateral, multilateral and plurilateral trade deals. Global business communities, on their part, have been urging WTO to promote a robust multilateral trade scenario. I also believe rather than championing inward-looking trade policies, political leaders need to find solutions to sluggish global growth by keeping in mind interests of all nations.

The B20 members are advocating powerful action-oriented strategies to spur global economic growth. In its Policy Paper released ahead of the September meeting, the B20 Trade and Investment Task Force has made three key recommendations:

  • G20 should continue to strengthen the multilateral trading system, encourage trade growth, and stop the imposition of new protectionist measures while rolling back existing ones.
  • All WTO members should ratify the Trade Facilitation Agreement (TFA) by the end of 2016 and commit to rapid implementation, with G20 members leading the way.
  • G20 should work towards a better global investment policy environment that facilitates and appropriately protects investment.

These recommendations have enormous potential to lift global trade. It is estimated that strengthening the multilateral trading system and following a standstill policy on trade restrictive measures alone can add USD 237 billion to global exports and USD 190 billion to world GDP. Implementation of TFA has the potential to bring in export gains of USD 750 billion to USD 1 trillion per annum. Between 2015 to 2030, the TFA could add approximately USD350 billion to USD550 billion.  These two measures together can stimulate annual global GDP growth by over 0.5 per cent. While the goal is to make the TFA binding under WTO law by end of 2016, the necessary 28 member ratifications continues to linger.

Investments are vital to spurring global trade and have a long-term impact. An improved global investment policy environment is expected to enhance FDI flows, expand global value chains and stimulate trade. It can also lower the cost of capital by decreasing uncertainty in the investment environment, especially in developing markets.  Given this importance of investments to spurring global growth, the G20 needs to perhaps build a debate around effectiveness of the Bilateral Investment Treaty and the Broad Based Trade and Investment Treaty.

What are the steps India is taking to get aligned to the evolving global trade equations?  What are India’s expectations from its trading partners to be placed on a level playing field? What steps can the B20/G20 take to create an environment of more inclusive global economic growth?

India is slowly but surely aligning itself to the rapidly evolving global trade landscape. With exports recording a declining trend for a consecutive 18 months, the government is beginning to look at international trade differently. India has agreed to provide a similar rate cut to all member countries with limited deviations in the 16-member Regional Comprehensive Economic Partnership agreement (RCEP) trade bloc. This issue has been a matter of debate for long. The Government is taking steps to ensure that the logjam in RCEP is broken.

Similarly, in February this year India became the 76th WTO member to ratify the TFA which aims to expedite movement, release and clearance of goods.  Many of these provisions, the Government of India believes, are aligned to the Make in India initiative. Provisions related to customs cooperation to tackle money laundering, return of rejected goods, and informing traders when their goods are detained, are amongst those suggested by India.

India has signed a number of Free Trade Agreements, many of which are tipped in the partner’s favor. The country is today faced with a trade imbalance with a number of nations. In certain cases, multinational companies have gone to international courts seeking compensation from India, for having changed certain taxation laws. These developments have prompted the government to renegotiate some of the bilateral trade agreements.

While India’s experience with multilateral trade has not been very favorable, the TFA implementation is likely to bring in some positive results. Increased transparency in trade processes and sharing of global best practices are only some of these. More importantly, with the TFA coming into force, WTO member countries would be bound to simplify trade procedures and help promote cross border trade, bring greater predictability for traders and help improve overall trade and investment climate. It is also expected that domestic manufacturers, especially small and medium enterprises, will be able to integrate better into regional and global value chains.

As the Indian Government takes steps to attract investments and follow an open door trade policy, a focus on Indian companies is also necessary. Indian companies, especially small and medium enterprises, should be able to reap the benefits of distributed production processes by integrating into global value chain (GVC). I would urge the G20 countries to work towards a system that integrates SMEs into the value chains.

Many developing and least developed countries are losing their share in global exports because of highly fluctuating international standards environment. The G20 would do well to consider building a mechanism to transfer knowledge and expertise to help developing countries in reforming their individual domestic standards ecosystem.

Given that services account for more than 50% of India’s GDP, the Government is pushing for a Services TFA at the WTO. The TFA in services would focus on issues like liberalized visa regime, long-term visas for business community and freer movement of professionals for the greater benefit of both India and the world.  India can leverage trade in services to reduce the goods trade deficit that it currently clocks.

Services sector is not only central India’s economic growth but to that of many developing economies. With increasing restrictions on movement of persons, countries are finding it difficult to export services. Specific protectionism in the services sector is as much a concern as protectionism in goods trade and requires deliberations at the B20 meet.

A large number of countries a likely to gain by implementing the B20 recommendations. Yet, the question remains, whether the developed nations see themselves winning with their implementation? Will they continue to pursue inward-looking trade policies or are they poll rhetoric that will naturally get diluted later? Should the G20 consider having a task force that would work towards enhancing the free flow of capital, goods, technologies and people amongst economies? When the business community from the G20 countries meets early September this year, we hope to be able to find answers to some of these questions very pertinent to the evolution of global trade.

The views expressed are personal.

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