This year is shaping up to be a pivotal year for world trade. If Indians thought their country had plenty at stake in the recent WTO ministerial meet in Bali, they haven’t seen anything yet. The mix of opportunities and threats that will present themselves in 2014 will challenge all but the most far-sighted government officials and business people in India and abroad. Let’s start with the threats first and then turn to the opportunity.
Something appears to be changing firm overseas sourcing and expansion decisions. Leaving aside the wild gyrations during the global economic crisis, for many years world trade grew at twice the rate of world income. For many developing countries, in particular in Asia, this generated plenty of export-led growth, helping to raise living standards through more jobs and higher wages.
During the past two years, however, world export growth only grew in line with world income. This means we’re not seeing a reversal of globalisation, rather a plateau in overall export-to-GDP levels. To be frank, no one is sure why export growth has slowed down. Some point to stagnation in Europe holding back trade, but at the same time exports from Asia to North America have picked up, limiting the blow.
Others worry that for a variety of reasons — including growing protectionism — firms are re-evaluating their exposure to international supply chains. For example, clothing retailers in the west don’t like the bad publicity they’ve garnered from sourcing from Bangladesh, where factory fires and poor working conditions get written up badly by the press. Other firms worry about rising wages in East Asia, theft of intellectual property rights, and quality assurance. Maybe outsourcing was oversold and as reality bites international firms adjust.
While few firms are completely repatriating production home, many are shortening supply chains. That means Caribbean, central American, eastern Europe, Mexican, and Turkish firms are benefiting at the expense of Asian-based rivals, the former being closer to the large spending markets of Europe and North America. Overall, then, the world trade pie isn’t growing as much as it used to and Asian nations are getting a smaller slice of that pie.
Within the Asia-Pacific region an entirely different, policy-driven divisive factor is at work. In 2014, 12 governments in the region are expected to sign the trans-Pacific partnership (TPP). This trade deal is driven by the US and reflects Washington DC’s frustration with the slow pace of negotiations at the World Trade Organization (WTO). Excluded nations, which include China and India, won’t share the benefits of the TPP, which the Americans hope will become the template for subsequent deals.
Now it’s not clear ultimately what the terms of the TPP deal are. The endgame in this negotiation is expected in the first half of 2014 and, if previous form is anything to go by, there will be a fair share of drama. Hints of this came at the latest negotiating round in Singapore in December, when the Japanese resisted American pressure to dramatically open up their agriculture markets. Still, the TPP negotiations will draw a huge amount of attention in 2014 and policymakers in New Delhi will have to sit by and watch. This situation would be intolerable were it not for one looming opportunity.
That opportunity is to build on the successful global trade deal hammered out recently in Bali and craft a work programme for the WTO that starts to address to long-standing concerns of WTO members as well as newer commercial developments. Of the latter, the rise of internet-based commerce is of direct interest to India’s competitive IT providers. Plus the WTO could be used to monitor developments in the mega-regional trade deals, like the TPP. India could be at the vanguard of reviving the WTO’s standing, shedding its decades-long reputation as an ineffective naysayer who gets marginalised time and again. Other nations would have to play ball as well — so the onus is not just on New Delhi.
The alternative to a weak WTO is trade deal-making between a charmed circle of nations. India’s enormous population gives it moral clout in global counsels but she isn’t a giant yet in world trade. Don’t forget that India’s total exports are two-thirds of that of tiny Belgium. There’s no guarantee that India will be admitted to the charmed circle of major regional trade deals. Rather than get left out in the cold, in 2014 India could join forces with other nations to restore the centrality of the WTO in the global trading system.
(The writer is a regular edit page columnist)
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