Global trade is passing through an unpredictable phase in its long cherished journey.
The free movement of goods and services to meet the genuine gap in domestic availability cannot be ensured: Sushim Banerjee
By Sushim Banerjee
Global trade is passing through an unpredictable phase in its long cherished journey. In March 2018, the unilateral announcement by the US about imposing an uniform 25% duty on all imports of steel and 10% on imports of aluminium under security violations, primarily targeting China, shot a death knell to rule-based multilateral trade propounded by WTO.
The origin of the bickering dated a few years ago when it was found that vulnerability of the US manufacturing was fast approaching the danger limits on account of massive flow of cheap imports from China, whose trade surplus with the US already reached a menacingly high level. The Trans-Pacific-Partnership treaty was becoming another soft option of opening up the US borders, the largest market among the participating countries, and therefore withdrawal of the US was another attempt to revitalise the domestic economy.
It is an undisputable truth that proliferation of regional treaties weakened the base for multilateral trade, although in WTO parlance, the same was hailed as strengthening the global trade between like-minded nations. The Regional Cooperation of Economic Partnership (RCEP), the ASEAN version of regional trade extended to cover the Asia Pacific along with Japan, South Korea and China, was another example of a different rule-based 14 or 15 countries’ cooperative venture signed in November’20 and India opted out of it.
India had undergone one of the stiffest challenges in trade treaties by signing FTAs with South Korea and Japan. Indian steel industry literally bled when imports of HRC, plates, CRC, GP from these two countries, enjoying a progressively declining tariff rate, flooded the domestic market.
The rule-based model of WTO saved the industry from the enormous level of injury suffered by getting anti-dumping and safeguard duties imposed. The same applied to the cheap imports from China. Under the Comprehensive Economic Partnership Agreement between India and South Korea, while Indian imports from Korea doubled to $16 billion in FY19, the exports from India only increased marginally. This is the story for the last 10 years and puts capabilities of Indian industry and service sectors in poor light. There are views on the missed opportunities by India by being out of RCEP. There are even arguments in favour of enhancing the regional local content under rules of origin of the traded products. However, the concern of the domestic industry was well articulated by the decision of the government based on the FTA experience.
China has called upon its coal importers to ban all imports from Australia. This has led to a firming up of domestic coal prices in China, while Australia is looking for alternate buyers. This is the price the country is paying for supporting a US enquiry on the origin of Covid in China. Is RCEP going to take note of all these trading issues?
China’s Belt and Road Initiative project across a number of countries is not progressing much as some of the countries have realised it as an attempt by China to control and manage the infrastructure assets and are therefore refusing to accept the credit offers from China either as loan or aid. This has left China, it is argued, to adopt alternative channels like RCEP to take control of the partner countries looking for easy finance.
In the midst of all these, the relevance of WTO in navigating the global trade is being seriously debated. A bold and comprehensive reform in WTO working and approach is suggested to regain its premier role. Recent events, however, are not encouraging. The US has already delayed the selection of chairman of the Dispute Settlement Body in WTO. This is the body that gave credence to the special and differential treatment to the developing economies, who questioned the decisions of the stronger partner in many trade cases.
The retaliatory tariff measures adopted by EU (the country-wise quota and tariff rules) to restrict imports more than the average level of last three years further confined the borders of multilateral trade.
Long back the United Nation Organisation (UNO), formed for the purpose of strengthening international cooperation among the nations, is hardly recommended currently to mediate in any of the regional conflicts. WTO not being able to select a new president for the last few months, is currently engaged in taking opinions from the members about the way forward for WTO in the post Covid scenario.
Thus although the Goods Trade Barometer’s current reading of more than 100 marks shows resilience in trade amid the Covid concerns, the global trade continues to be uncertain. The free movement of goods and services to meet the genuine gap in domestic availability cannot be ensured. On the other hand, the capacity building in domestic manufacturing is frowned upon on grounds of inward looking and protectionist policies, hampering the cause of bilateral trade. There is a need for intense circumspection before we sign any comprehensive trade agreement that may run counter to our own policy of reviving Indian manufacturing sector to reach the international standard.
(The author is Former DG, Institute for Steel Development and Growth. Views expressed are personal.)