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International Trade Problems and India: A Study

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INTERNATIONAL TRADE PROBLEMS AND INDIA -A STUDY

Author: SAKSHI R. PATIL

INTRODUCTION:

International Trade is the exchange of capital, goods, and services across international boundaries and territories. The trade-in some countries represents a significant share of the Gross Domestic Product (GDP). International trade helps in the expansion of the market across the globe and access the goods and services which are not available at the domestic level. With an increase in international trade, the market is more competitive.

Political economists Adam Smith and David Ricardo recognized the importance of international trade. The private banking system and the central banks of the trading nations play important role in the international trade transactions which are facilitated by international financial payments.

This article covers International trade problems, trade negotiations, and agreements, International trade restrictions, remedies, and international trade in India.

TRADE AGREEMENTS AND NEGOTIATION:

India is a party of many Regional Trade Agreements (RTAs) and Preferential Trade Agreements (PTAs). Also, India is a founding member of WTO. India has entered into RTAs with Asian countries like Japan, Malaysia, Thailand, and South Korea. Also, negotiate RTAs with Latin American countries like Chile and Southern Common Market. Some of the Major RTAs are[1]

  • South Asian Free Trade Agreement.
  • India-Korea Comprehensive Economic Partnership Agreement (India – Korea CEPA).
  • ASEAN-India Comprehensive Economic Co-operation Agreement (ASEAN – India CECA).
  • India-Japan Comprehensive Economic Partnership Agreement (India – Japan CEPA).
  • India-Malaysia CECA.
  • India-Sri Lanka Free Trade Agreement.
  • India-Singapore CEPA.
  • Indo-Nepal Treaty of Trade.
  • India-Bhutan Trade Agreement.
  • India-Afghanistan Preferential Trading Agreement.
  • Asia-Pacific Trade Agreement.
  • India-MERCOSUR PTA.
  • India-Chile PTA.

RTAs contain provisions on goods and services. Including the EU, India has announced the conclusion of four trade agreements in near the future.

Primarily, the department responsible for negotiating the trade agreements is the Department of Commerce in the Ministry of Commerce and Industry.

On average it takes 18-20 months to negotiate trade agreements in India.

TRADE AND INDIA:

Throughout history, traders all around the globe are in search of new markets and opportunities. With the beginning of the Industrial Revolution and colonization of India by the East India Company in the 19th century, India began its impoverishment with the large-scale destruction of artisanal jobs, especially in the textile industry. With the rise of Industrialisation in England, India faced extreme poverty.

At the end of the 19th and early 20th century, the economic writings of Indians provided the intellectual underpinning of Swadeshi and Khadi in the freedom struggle.

In order of value of total trade, India’s largest trading partners are  UAE, China, USA, Saudi Arabia, Switzerland, Singapore, Germany, Hong Kong, Indonesia, Russia, Japan, Israel, and its neighbors. Being the biggest exporter of pharmaceuticals and other goods, India is a mixed economy.

In 2019, India is currently the 9th largest good trading partner with $92.0 billion in total goods trade. With total goods export of $34.3 billion and total goods import of $57.7 billion, the US goods trade deficit with India was $23.4 billion in 2019[2].

The Foreign Trade (Development & Regulation) Act of 1992 (full text) and India’s Export-Import (EXIM) Policy governs the import and export system. Except for the items regulated by the EXIM policy or any other law currently in force, Import and Export of all goods are free.

The Following are two tables that show India’s top trading partners, including their share of export and import in India’s overall trade.

            Picture source: https://www.india-briefing.com/

Picture source: https://www.india-briefing.com/

TRADE AGREEMENTS RELEVANT FOR INDIA:

1. TRANS-PACIFIC PARTNERSHIP:

The Trans-Pacific Partnership is a trade agreement between the Pacific Rim countries. It includes twelve countries, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. The International Trade Commission report of 2016 finds that the U.s deficit with FTA partners increased by $141billion from 1989 -2015[3]. And with all non-FTA partners decreased by $46 billion (6 percent) since 2005 of U.S trade deficit.

In a study prepared for the U.S.-India Business Council (USIBC), C. Fred Bergsten of the Peterson Institute for International Economics argued strongly in favor of India trying to negotiate its entry into the TPP. They said in a speech, “India’s competitiveness problem is compounded by its absence from the world’s new megaregional trade agreements, especially the Trans-Pacific Partnership (TPP) but also the Transatlantic Trade and Investment Partnership (TTIP). If China and the rest of the Asia-Pacific Economic Cooperation (APEC) forum join a second stage of the TPP that continues to exclude India, India’s annual export losses will approach $50 billion. India is being left behind by the world trading system.

From joining an expanded TTP or participating in the comprehensive Free Trade Area of the Asia Pacific that APEC is considering, India could enjoy export gains of more than 60 percent increase than any other country. By participating in various plurilateral negotiations taking place at WTO, India could increase its exports.

-Reducing or eliminating tariffs on qualifying products among member countries,

-regulating the role of state-owned enterprises, and

-achieving regulatory coherence on an unprecedented scale among its members.

 Above are the three ways in which TPP seeks to influence International trade.

2. ASIA PACIFIC COOPERATION:

It is a forum that promotes free trade throughout the Asia Pacific region. Total Twenty countries are part of the APEC. Though India is not a member of the APEC, a report of the Asia Policy Society Institute illustrates the benefits and possible obstacles for the membership. India’s membership in APEC would benefit the Government development programs and also prepare Indian entrepreneurs and businesses for the changing global economy. By having access to the country’s labor supply and investment opportunity, APEC itself would also benefit from India’s participation in the forum.

3. REGIONAL COMPREHENSIVE ECONOMIC PARTNERSHIP (RCEP):

The RCEP is the FTA between ASEAN and its FTA partners. With 30 percent of global GDP and 25 percent of world exports, the sixteen participating countries account for almost half of the world’s population.[4] It is an agreement that seeks to achieve high-quality, mutually beneficial economic partnership agreements for trade in goods and services, intellectual property, competition, and dispute settlement.

Appearing with extreme caution, India is participating in the NCEP negotiations as it can be valid to say why India is with such cautious behavior.

Thus, Trade has contributed to global prosperity and increased the standard of livelihood, and due to globalization; the opportunity in the trade sector is increasing rapidly. The Trade policies around the globe must be in sync. Taking advantage of delays in the TPP and TTIP, India should focus on setting its domestic sector in order and register as a major trade nation. With an increase in the world’s standards due to industrial step up, there will be limits to government terms to improve infrastructure.

INDIA’S TRADE STATISTICS:

The Effectively Applied Tariff Weighted Average (customs duty) for India is 4.88% and the Most Favoured Nation (MFN) Weighted Average tariff is 6% with a total export of 322,291,568.43 in thousands of US$ and total imports of 617,945,603.08 in thousands of US$ leading to a negative trade balance of -295,654,034.65 in thousands of US$, The trade growth is 0.87% compared to a world growth of 3.50%.India services export is 204,955,578,850 in BoP, current US$ and services import is 124,181,614,510 in Bop, current US$. India’s exports of goods and services as a percentage of GDP is 19.74% and imports of goods and services as a percentage of GDP is 23.64%, GDP of India is 2,718,732,231,300 in current US$.[5]

Graph below shows the statistic data of,

INDIA COUNTRY GROWTH v/s WORLD GROWTH v/s GDP GROWTH

Graph source: https://wits.worldbank.org/CountryProfile/en/IND#

RECENT TRADE POLICY-INDIA:

Foreign Trade Policy (FTP) is the new trade policy announced in 2015 by the Ministry of Commerce and Industry which enhanced the scope of Merchandise Exports from India Scheme (MEIS) and Service Exports from India Scheme (SEIS). This policy seeks to increase the share of global trade from 2.1 percent to 3.5 percent and double exports i.e. $900 billion by 2020[6]. It also integrates the “Make in India” and “Digital India initiatives”.

India’s major schemes like Make in India, the Smart City Project, Skill India Program, and Digital India require direct foreign investment and rebooting of the Manufacturing sector of India. Attracting more foreign direct investments (FDI) than China ($56.6 billion) and the United States ($59.6 billion) which triple the field of FDI, India reaches an estimated $63 billion[7].

DOMESTIC TRADE POLICY:

Estimating the gross domestic product rate at 7% for 2019/2020, with the International Monetary Fund (IMF), economic growth remains sustained in India. The domestic industry with special emphasis on the manufacturing sector is preparing for greater opportunities in the global value chain. Policies like “Make in India”, “Skill India”, “Digital India” will collectively establish connections between trade policing and these policies will contribute to making  India’s export base diversified and will result in global competitiveness.

In April 2020, the Foreign Trade policy (FTP) was extended to March 31, 2021. In August 2019, aiming to provide incentives and guidelines to increase export in the next five financial years new FTP  is to be introduced by the Ministry of Commerce. However, India is a part of many World Trade Organization (WTO) disputes. A few of them mentioned below;

  • Disputes against India

1. Initiated by European Union (EU), dispute on certain goods in the information and communication technology sector on tariff treatment. EU request consultations on April 02, 2019

2. Initiated by Guatemala, Australia, and Brazil, dispute on measures concerning sugar and sugarcane. On 28 October 2019, a panel was formed in these disputes.

3. Initiated by Japan, dispute on tariff treatment on certain goods. On 10th May 2019, consultations were requested by Japan.

4. Initiated by Chinese Taipei, dispute on certain goods in the information and communication technology sector on tariff treatment. On September 02, 2019, Chinese Taipei requested consultation.

5. Certain disputes initiated on export measures by the US. On November 19, India notified its decision to appeal the panel report.

  • Disputes brought by India

1. Origin-based dispute in the renewable energy market of seven US states. The US notified it decided to appeal the panel report on August 15, 2019.

2. Dispute on measures imposed by the US to allegedly adjust import of steel and aluminium.

3. Dispute on the imposition of countervailing duties against certain hot-rolled carbon steel flat products from India by the US.

4. Challenged by Japan on certain measures implemented by India on import of iron and steel products in 2017. India notified the decision to appeal in December 2018.

India has recently opted out of Regional Comprehensive Economic Partnership (RCEP), as it did not address India’s outstanding issues and concerns.

RCEP has negotiation between the ten governments of the South-East Asian Nations and their five partners.

TRADE RESTRICTIONS:

Targeting Iraq, Iran, Somalia, and North Korea, India has economic sanctions. These sanctions include the prohibition of the import and export of arms and related materials from Iraq and Iran. With the permission of the Department of Defence Production and on obtaining the ‘No Objection certificate the export of arms-related material is permitted to the Government of Iraq.

There is also a prohibition for trade with the Islamic State in Iraq and the Levant (ISIL), the Al-Nusra Front, and other individuals or groups associated with Al Qaida directly or indirectly. The trade includes trade in oil, refined oil products, items of cultural, scientific, or religious importance, modular refineries, and other thirty-eight materials.

REMEDIES:

India is one of the active users of trade remedy measures.WTO rules on trade remedies are implemented in India.

Sections 9A, 9B & 9C of the Customs Tariff Act, 1975  are the provisions relating to Anti-Dumping investigations which are read with Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of Injury) Rules 1995.

Measures relating to Subsidies and Countervailing are imposed under Section 9 of the Customer Tariff Act,1975 which are read with Customs Tariff (Identification, Assessment and Collection of Countervailing Duty on Subsidized Articles and for Determination of Injury) Rules 1995.

Section 8A, 8B & 8C of Customs Tariff Act, 1975 are the provisions related to the safeguard measures which are read with the Customs Tariff (Identification and Assessment of Safeguard Duty) Rules 1997.

The Director-General (Safeguards) of the Directorate General of Trade Remedies (DGTR)under the Ministry of Commerce is responsible for conducting safeguard investigations.

CONCLUSION:

With the growth in globalization, international trade is one of the important sectors to be seen to improve the Indian trade sectors on a global level. At both the domestic and international levels, Indian policymakers need to focus on making trade policy more coherent. Prioritizing for growth, the employment sector, and reduction of poverty, well-thought engagement of India in international trade policies like WTO and FTA must be shaped. An urgent need for reforms and enhance our trade and institutions to participate in negotiations and policymaking in order to analyze the back and forth of global competitiveness. Economic nationalism with higher ambition is the need.

References:

[1] Trade Agreements- International trade in goods and services in India: overview available at https://uk.practicallaw.thomsonreuters.com

[2] Office of the United States Trade Representative-available at https://ustr.gov/countries-regions/south-central-asia

[3] “Trans-Pacific Partnership Agreement: Likely Impact on the U.S. Economy and on Specific Industry Sectors,” United States International Trade Commission, May 2016, https://www.usitc.gov/publications/332/pub4607.pdf; and Public Citizen, “New ITC Report Finds Disturbing Trends in U.S. Economy After Implementation of Free Trade Agreements,” June 30, 2016, http://www.citizen.org/documents/ITC-Report-FTAs.pdf.

[4]  “Regional Comprehensive Economic Partnership,” Department of Foreign Affairs and Trade, Australian Government, http://dfat.gov.au/trade/agreements/rcep/Pages/regional-comprehensive-economic-partnership.aspx.

[5] https://wits.worldbank.org/CountryProfile/en/IND#

[6] Press Trust of India, “Narendra Modi Govt Unveils its First Trade Policy, Targets Doubling of Exports at $900 Bn,” Financial Express, April 1, 2015, http://www.financialexpress.com/economy/narendra-modi-govt-unveils-its-first-trade-policy-targets-900-bn-in-exports/59535/.

[7]  “The fDi Report 2016: Global Greenfield Investment Trends,” fDi Intelligence,2016,    http://forms.fdiintelligence.com/report2016/files/The_fDi_Report_2016.pdf.

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