Subdued growth in world economy in the recent period has a profound adverse impact on the world trade. The world trade volume that was projected to grow by 3.7% in the current year, is now seen to be growing at a mere 2.5% and the experience of Q3 does not auger for a better prediction for the year.
There are two other features of world trade which have interesting implications for India. Preferential tariff constitutes only 15% of the total trade and a large component of trade is transacted at most favoured nation (MFN) tariff rate, which is almost similar to the average prevailing rate much below the bound rate for almost all the countries.
This brings us to the issue of preferential tariff agreement of 3.1% under CEPA (against ruling tariff of 7.5%) between India and South Korea and Japan on CR products leading to a sudden surge of imports to India. There is already a demand from the domestic steel producers to get this preferential tariff on steel products, which is proving detrimental to the interest of Indian steel producers to be reviewed and removed. A few statistics in this regard is relevant. As per WTO trade data, around 400 preferential agreements are currently in vogue among the WTO member countries and each country on an average has signed 13 of such bilateral trade treaties.
One of the primary reasons of a plethora of bilateral agreements being signed in the recent period is the significant reduction in tariff measures by WTO members as a part of their compliance commitment at the time of joining WTO and the corresponding fast paced rise in non-tariff barriers in the realm of health, safety, quality of environment, industrial benchmarks, investment regulations, extraction of natural resources etc. These are the areas where WTO could not have a straight-jacket mechanism and uniform procedures to settle disputes. By entering into bilateral treaties, the concerned countries are able to work out a plausible method to deal with the subject within a broad framework of mutually agreed framework. What began as a few big success stories like NAFTA, EU, MENA AND ASEAN have now percolated down to two-way trade between two trading partners with a seemingly political affinity.
There is no denying that it has upset the tone and spirit of GATT whose cardinal principle lay on multilateral trade and the latest trend of bilateralism has been termed by WTO as policy fragmentation and is looked down as a convenient measure to tackle non-tariff barriers, which would continue to be applicable to other countries outside the treaty.
Another feature of global trade relates to significantly increasing trend in import intensity of exports. It would be interesting to analyse how much quantity of semi-finished steel, HR Coils have been imported to India to make exportable long products, CR, GP and API Pipes. During April-Aug?12, India has imported 0.3 million tonne (mt) of semis, 1mt of HR Coils/sheets and 0.6mt of plates and exported 0.17mt of bars and rods, 0.21mt of CRcoils and 0.1 mt of pipes (nearly 40% of which are of API grade). This component of imports required for export of finished products (like under duty free advance licensing scheme in India) brings out an interesting phenomenon while compiling data for fighting antidumping and countervailing cases as cheaper imports help to contain cost of exports, but causes injury to the domestic producers from both volume and price considerations, if these are not used for exports.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal