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India and Global Trade Challenges


Episode Summary

On this episode of Trade Knowledge Matters, Amar discusses with Anirudh Shingal, Professor, SP Jain Institute of Management & Research and Stuti Toshi, International Trade and Investment Lawyer, on India and its role/stance on existing global trade challenges. They discuss the potential opportunities for India at this juncture of global trade, India’s defensive stance with the WTO and much more. 


Full Transcript

00:12 – Amar Breckenridge (Host)
Welcome to this edition of the Trade Knowledge Matters podcast, our regular podcast, where we look at all things connected to international trade. And today we’re going to focus on India’s role in international trade and India’s approach to international trade policy. And today we’re going to focus on India’s role in international trade and India’s approach to international trade policy. Now we’re doing this at a time when the international trading system is in a state of flux due to a number of different factors that include technological change, geopolitical rivalries and global policy challenges, such as decarbonisation and sustainable development, that require various forms of government intervention. Now, India is an important actor in the international trading system. It’s a founding member of the GATT and then the WTO and been very active in the work of these organizations. Indian economists, most notably Jagdish Bhagwati, have played a central role in our understanding of how international trade works and how to think about international trade. And India is also one of the top five global exporters of services, if we set aside intra-EU trade, and it has particular strengths in digital trade and information technology the trade of the future, if you like. At the same time, we’ve observed that India has been a relatively reluctant participant in international trade rulemaking at the multilateral level and the regional level average tariff rate is around 18%, compared to about 7% for China. At the same time, it has recently become more active in negotiating regional trade agreements, most notably with the European Free Trade Association countries in a recently concluded agreement. In short, India matters to global trade and to discuss matters connecting India and global trade, I’m pleased to welcome to our podcast two eminent experts.

The first is Anirudh Shingal, who is a professor in finance and economics at the SP Jain Institute of Management and Research in Mumbai. He’s also, amongst other things, a program associate of the Global Governance Program at the European University Institute in Florence and a non-resident fellow at the World Trade Institute at the University of Bern. Anirudh has over 20 years of experience in the empirical analysis of trade and related matters, and he has over 100 publications, peer-reviewed journal articles, book chapters and reports for various international organizations. Also with me today Stuti Toshi, who is an international trade and investment lawyer currently working with PwC in India. She has almost seven years of professional experience, with expertise spanning various aspects of international trade and investment. She has provided advisory services to a variety of clients, including the government of India.

Stuti has a particular interest in the emerging aspects of international trade laws, such as its interaction with sustainable trade, digital trade and carbon taxes. Both of them speak in their individual capacity. So, Anirudh Stuti, it’s an honour to have you on this podcast. Welcome, and I might just start with an opening question to you, Anirudh, and then, after you, Stuti. As we saw, trade and the trading system are in a state of flux for a variety of reasons, including technological change, geopolitical tensions and the rise of what we might call non-trade concerns. Now, what challenges and opportunities does this current situation present? India, Anirudh.

03:39 – Anirudh Shingal (Guest)
Thank you so much, Amar. So let me just start by first thanking you for having me on board. I think it’s a good time to be talking about these issues, and they’re obviously both topical and relevant. So, coming to your question directly, I think you’re absolutely right. There are both challenges and opportunities for India.

Among the challenges, of course, most of these developments are making market access difficult by either excluding certain product, services or even markets, you know, from access, or by increasing the costs of participation in both trade and investment, and so they are doing this.

They’re making this difficult for firms all over the world, including for Indian firms, and Indian firms are grappling with business climate related constraints in India and some sort of non-tariff measures or non-tariff barriers abroad in international markets. So this is really compounding the problem for them, and that is obviously a challenge. In terms of opportunities, I think you know the decoupling from China you know if this is the term we use is also presenting India an opportunity to show itself as an alternative destination, and I think the good thing in that is that in the process, it can unleash the much required second generation reforms that India needs, and some of these reforms, for instance in the labor market are going to be difficult for reasons of political economy, otherwise. But if India wants to piggyback on, you know, presenting itself as an alternative destination to China, for instance, then you know it gets the momentum to do these kinds of things. So there are both challenges and opportunities from that perspective.

05:18 – Amar Breckenridge (Host)
Thank you, Stuti. Is there anything you’d like to add to that answer?

05:23 – Stuti Toshi (Guest)
Yes, thank you, first of all, Amar, for inviting me to the podcast, so it’s a very interesting place to be at and, at the same time, given my exposure to your previous podcast, I think it draws quite a bit of significant you know input vis-a-vis the relevant topic. So I would like to specifically add on to you know Anirudh’s points around opportunities, because what we also are witnessing is, you know, supply chain reorientations taking place. To some extent, india is in a strategically favourable position given the US-China trade war currently ongoing. So, in a way, we see that there are various avenues that India is tapping into, for instance, for attracting investments. For instance, with the currently concluded agreement with EFTA countries, tepa has been executed. So, based on various configurations, there are new opportunities we see that are emerging, even in new sectors. We see that there are avenues emerging In terms of the challenges, beyond what Anirudh pointed out, I also see that, with new domains, stepping in, determining how the domestic policy should look like is also very complicated.

So, for instance, if you look at e-commerce, right in 1998, the policy positions that were taken in the WTO were a factor of what the trade configurations looked like back then. But today, you know, given the increased relevance. Due to technological advancements and interplay of various other factors as well, the alignments vis-a-vis domestic policy have changed. So there are, I think we stand at a very interesting period of time, with the kind of geopolitical you know tensions that we are witnessing and the kind of non-trade concerns also emerging. So various countries, for instance, we see that Switzerland has neutralized tariffs, so non-tariff barriers, essentially, is what could be expected from that end. So, as such, india is reconfiguring its approach largely. This is also evidenced by orienting towards negotiating new free trade agreements, for instance, and also on the domestic forefront, considering revision of its model, bits, for instance. So new types of thought processes are seen as emerging.

07:59 – Amar Breckenridge (Host)
Thank you, and that, I think, sets the scene quite well for the next question. So both of you talked a lot about the scope for domestic reforms as a way of adjusting to the new settings in international trade. One of these new settings, as Anirudh pointed out, is the notion of decoupling from China, a broader buzzword that’s emerged as the concept of friendshoring, the idea that maybe international value chains can be aligned to partners who are perhaps less hostile geopolitically. So how does building on your theme of how domestic reform interacts with international opportunities, how should India position itself in that friendshoring world? What are some of the concrete steps it can take? Anirudh, I might start with you.

08:45 – Anirudh Shingal (Guest)
So you know, I think, friend or near-shoring, you know, repatriation of value chains these are relatively recent phenomena and which obviously, from an empirical perspective, makes it difficult to evaluate the extent to which these are affecting trade and value chains. But having said that, if you look at the little academic evidence that already exists, the evidence is mixed, including in last year’s World Trade Report, for instance. So I think it’s important to see what is going to be happening there eventually. But, that said, global companies are definitely considering a China plus one strategy and they’ve been sort of, you know, beginning to implement that since the onset of the COVID-19 pandemic in particular. And so you know there is going to be an eventual realignment of trade and investment amongst friends.

Now, as far as India is concerned, you know geopolitics has already decided who our friends are in that sense. But I think what’s going to also happen is that a lot of this is going to be decided also by our commercial interests. So I probably see a lot of this realignment happening in the case of India with countries which are already natural trading partners or important trading partners for India. So you know, the US countries in Europe, the GCC countries in Asia. So I think a lot of that realignment amongst friends is going to happen with those countries.

10:13 – Stuti Toshi (Guest)
Thank you. So, in terms of the definition, if I start off from, you know the point where you left it. At Amar, we noted that US Treasury Secretary, who set out Washington’s new approach to trade last year, defined friendshoring. She said friendshoring means that we have a group of countries that have strong adherence to a set of norms and values and we need to deepen our ties with those partners and to work together to make sure that we can supply our needs of critical materials. Now, I think, drawing from that definition and also contextualizing the same vis-a-vis how US thinks and extrapolating it vis-a-vis India’s positioning, we see that you know the recent discussions which were happening with Tesla, you know, exploring the Indian market, and today’s news being that Tesla is, you know, in talks with China.

We see that, like Anirudh, you said that the French sets are, you know, defined. I would say that it’s a bit more evolving. And the second point that you raised was commercial interest, right. So I see that that somehow ends up holding a stronger ground when it comes to a country or how companies at least, think. So friendshoring might be real in some sense, but I also feel that, beyond it, other factors also start playing a role, for instance EU’s to some extent new policy orientation. I see it more closer to on-shoring and you know for in other cases we see major supply chain disruptions, you know realigning more towards re-shoring or rather near-shoring.

So, depending on the context that is being analyzed, it inter place. Even the way India thinks, I believe, it depends on multiple factors which come at play in that particular situation in question. So India’s orientation like, if you look at, then again, the example that I pointed out in the previous case vis-a-vis EFTA countries, is something that was, in a way, quite out of the blue. It wasn’t really expected to pan out the way. It did right, but then again it was the investment forefront that was essentially being tapped into. So you know, I believe, that supply chain orientation plays a huge role in determining who you become friends with and who you disorient from. And interesting research was done by Capgemini Research Institute in 2002, where you know they pointed out that one of the greatest risks that they see is supply chain disruption and I think in the fifth number was sustained geopolitical turmoil. To some extent, some people in the recent context point that geopolitical turmoil is the super meaning factor, but then again it essentially comes down to the needs of businesses and how they perceive the risk in question.

13:21 – Amar Breckenridge (Host)
Okay, thank you for that. So let’s move a bit now to focus on India’s position in multilateral trade rules and the WTO. So India’s long been a very important player at the WTO. You could argue that over the last 15 to 20 years it’s pretty much had a make or break, say, in the way ministerial conferences and negotiations pan out. How far do you think and, stuti, I’ll start with you because you’d already mentioned the way in which India’s position on e-commerce aligned with the broad trade configuration how far do you think that the positions India has taken at the WTO are consistent with India’s actual position in international trade and interest in international trade, and what might explain the underlying drivers of these positions India has adopted at the WTO? Starting with you, Stuti.

14:13 – Stuti Toshi (Guest)
Thank you, Amar. So my first thought around your question is how do you perceive India’s position in international trade generally? Right, because on one end, you see that you know in certain, at least one consistent position at least that I draw from is basically supporting multilaterally agreed outcomes. Now this position is reinstated in multiple forefronts vis-a-vis how India has positioned itself, be it in MC-13 or be it in previous ministerial conferences as well. So, for instance, vis-a-vis appellate body members’ reappointment right, or be it in the e-commerce negotiations, at the moment, where India is favouring revitalisation of the working party under the work programme on e-commerce, india is consistently pushing back and stating that let’s go back to what the multilaterally agreed norms are and the areas where we agreed to talk about, be it the fact that Doha issues are still not brought in front of the table at the moment, which should be the case.

So I believe that there is a historically consistent position which India reinstates and this also aligns a bit towards the interests of the developing world and the least developed world.

This is evidenced in the fisheries subsidies negotiations as well, where, you know, at the moment opposing fishing beyond EEZs is being exclusive economic zones is being sought, not only vis-a-vis developed countries, but also vis-a-vis some of the other countries which have massively subsidized their fishing fleet, and if we contextualize this further vis-a-vis you know the second part of your question about you know how India is now negotiating free trade agreements it could be noted that it’s clearly evident that COVID had some lessons for everyone.

So I believe that post-COVID, where resilience of supply chains was tested substantially and the need for resilient supply chain with diversified suppliers was felt as being quite crucial, this has resulted in the renewed policy stance vis-a-vis negotiating FTAs. At the same time, previous FTAs can be noted, for instance, vis-a-vis Korea, resulting in substantial trade deficits, or with, say, for instance, under SAFTA, with almost no positive outcomes, be it appeal at body crisis or by you know, no legislative reforms coming forward. It seems that a culmination of these factors results in where India decides to stand today and in terms of its overall positions. There seems to be a bit of consistency historically.

17:11 – Amar Breckenridge (Host)
Anirudh, would you like to add to that?

17:13 – Anirudh Shingal (Guest)
Yes, Amar. So I think you know. What I’d like to say is that you know I find India’s stance at the WTO to be quite defensive, and you know this has been the case traditionally, and in fact India has acquired the image of sort of image of blocking reforms at the WTO right, which is not a really nice image to have. I think partly this reflects the duality that exists within India, and this duality also manifests itself at the global stage, and so let me just explain that a bit. So when I’m talking about this duality, what I’m talking about is the tussle that India has between being a large, $5 trillion economy with a skilled, english-speaking labor force versus being a country where agriculture and food security are still important, and I think it is difficult, and from that perspective India also is almost like a messiah for the developing world. So I think it’s important. I think we’ve come to a stage where, as a country, we need to decide which side we are on. We can’t be sailing in both boats at the same time. So we are either a five trillion dollar economy wanting to become a global superpower, or we are a country where sort of traditional historical things are still more important and very strongly feel that you know, not being part of the e-commerce negotiations or the investment facilitation talks or the domestic services regulation joint services initiative at the WTO, these are things you know where India has definitely hurt itself. These are things you know where India has definitely hurt itself and you know these are major areas which are going to be affecting Indian businesses going ahead. So you know, if you’re not a part of the negotiations, you deny yourself an opportunity to try and influence things in your favor or to chalk the way things are going to be done eventually. Right, and that’s the whole point of a multilateral exercise or a plurilateral exercise at the WTO.

So, having said that, self-reliance may seem consistent with the current climate of economic nationalism everywhere.

If India continues to roll back on tariff liberalisation, for instance, you know I think we are going to be losing out on very significant gains from trade which we could have otherwise capitalized on.

And even if you look at India’s PTA strategy right, including the recent TEPA with the EFTA countries, right, our agreements are really not very deep, they’re not very comprehensive, there are significant carve-outs, there are exemptions, there are long transition periods, there are low utilization rates. So I think even that strategy hasn’t really worked well for India, and you know there have been a lot of claims about our looking east policy, our agreements with Asia and with Japan, with Singapore, etc. Leading to enhanced trade deficits. But the real issue is that there’s really not ever been a systematic or a rigorous analysis of data on utilization rates or preferences. So, without you know, absent those, you know these are just statements and you know I have actually been saying this for a long time, that you know there is a lot of data available and it’s time that this data is rigorously examined to actually answer the kind of questions that are worth asking.

20:34 – Amar Breckenridge (Host)
Thank you both for your answers on that. Now, changing tack a bit, one of the big issues confronting trade policy practitioners is the interaction between trade and sustainability, and that can be examined under a number of different angles biodiversity to climate change and that interaction has prompted countries to take a number of different measures, including unilateral trade measures and regulatory measures that have extraterritorial reach. Now, how, and one example. A couple of examples of that include the carbon border adjustment mechanism being implemented in the EU and being contemplated in the UK, and there are other measures related to deforestation and so forth that also have these extraterritorial impacts. What should India’s position be on matters of trade and sustainability in the International Forum and the rise of these unilateral measures? And I might start with the lawyer in our midst, Stuti. It’s always good to start off on a legal footing, so over to you.

21:44 – Stuti Toshi (Guest)
Thank you, Amar. So, interestingly, the legal part is what I wanted to not address, but given that you have given a bit more of the context, I would say that, yes, there are significant challenges, and trade and sustainability intersecting is becoming more and more crucial, right? So new types of measures are stepping in. But is it possible for these measures to be effectuated while you know, keeping the covered agreements of the WTO in light? I think the idea should be that you do not undermine your commitments therein. So some of the measures, at least that you discussed briefly, and for some we are yet to see the architecture, like the UK CBAM, even though there are, you know, in the consultation document, there are certain hints about how it would be shaped like. But yet, at least on the EU CBAM forefront, we see that there are quite a bit of deficiencies vis-a-vis the commitments that EU has undertaken, commitments that EU has undertaken.

So countries like India, then again you know, have to respond to such measures, given that EU is also a significant market for India, at least in terms of how iron and steel sector industry players are involved, or aluminium sector industry players are involved At the WTO level, while you know, while in different committees, the objections are being raised.

At the same time, outside as well, india is in talks is what we gather from news reports that, be it in the FTA negotiations or be it in the Trade and Technology Council, these discussions are at least being initiated that how do we address this in such a way that does not undermine the market access and obligations looked at together, but at the same time, if you look at how India is considering the relevance of sustainability domestically here as well, you know measures like carbon credit trading system are being envisaged, where you know the idea is to also respond to the crisis envisaged, where you know the idea is to also respond to the crisis.

If you look at, you know, the intricacies of carbon credit trading system, to some extent, ets-like structure is being thought about, but then again, there are major differences as well. And in terms of now stepping back and looking at the impact of EU CBAM, we see that additional costs up to 30% or so of tariff equivalents could be faced by, you know, exporters from India. So it’s important for countries like India to respond to the crisis, and at both levels, then again.

24:25 – Amar Breckenridge (Host)
Thank you, Anirudh.

24:26 – Anirudh Shingal (Guest)
So I think about trade and sustainable development. I think this is a very nuanced subject. So, you know, traditionally India has been not in favor of including non-faith concerns either at the WTO or in its preferential trade agreements right. But I think in the current state of affairs, this is something they can’t wish away now, right? So with the CBAM, the deforestation regulation and the environmental subsidies, you know this is something which is interlinked now and India can’t wish it away.

So I think I would suggest that, and I would actually want that our approach to this be measured and cautious. I think we need very careful empirical analysis of where exactly we’re going to be hurt the most and then, you know, examine ways in which we can minimize the adverse impacts. Of course, it’s very tempting to retaliate in ad hoc ways and across the board, but one must appreciate and understand that in a world of regional and global value chains, any kind of retaliation is also going to hurt your own exporting firms, right? So I think that’s not first best. I think a more sensible approach would be to understand the importance of climate change and the role that trade plays in this over a period of time and then to set out policies that make our own domestic producers less carbon intensive, to begin with. I think in the more immediate term also, government policy would need to help SMEs, and MSMEs in particular, to meet the compliant costs of environmental regulations in the rest of the world.

26:07 – Amar Breckenridge (Host)
So this is what I think also invite a consideration of policy instruments like subsidies, which are required to address some of the market failures that hinder industrial transformation. Now, India has been a long-standing advocate for policy space and industrial subsidies, notably a strong critic of the WTO’s agreement on subsidies and countervening measures rightly or wrongly, but it’s long advocated for the policy space. Now, as it happens, there is now a global subsidy race, motivated by a number of factors, but including decarbonisation, that made industrial countries who have long been sceptical about subsidies now embracing subsidies with renewed vigour and enthusiasm. What implications does this have for India and its trade policy positioning in a world where you do face these, if you like, competition between major players and industrial subsidies, Anirudh, starting with you?

27:07 – Anirudh Shingal (Guest)
So you’re right, Amar, you’ve hit the nail on the head. So industrial policy is back and back with a vengeance. I think, if you think about environmental subsidies in particular, potentially there could be two kinds of responses. One is there is a race to the top, in a sense right. So there is an ape-thy-neighbor subsidy policy, if you will, but that has implications, because you know that has implications in terms of public finance and macroeconomics. So that is one way of going ahead, but that’s not really positive. The other is you start resorting to countervailing duties right now. That again is second best, because you’re making the environment more protectionist and once again, as I said, in a world of integrated value chains, that’s really not an obvious outcome. I think a lot depends on the fact that you know the appellate body, mess at the WTO, the fact that dispute settlement is in abeyance in a sense, the fact that the subsidies and countervailing measures agreement is a tad outdated these are things that are going to affect the way things are, and so there is no deterrent as such. Right, you know, national security, green transition these have now turned out to be sort of quote unquote, legitimate ways of imposing new measures, and so I think a couple of things I can say. Here is one court, legitimate ways of imposing new measures, and so I think, a couple of things I can say. Here is one there’s probably a need to update the subsidies and countervailing measures agreement at the WTO.

The definition of subsidy, what constitutes a subsidy, different ways in which it can impact domestic producers I think there needs to be a relook there.

Of course, the moment the dispute settlement, fracas is solved, and, you know, I think that is going to empower a lot of the non-subsidizing countries to possibly not retaliate but at least complain against the major subsidizers at the WTO.

And of course, you know, in the interim we perhaps need some sort of better rules for low income countries to safeguard themselves from the adverse effects of subsidies, right, so I’m just thinking of alternative ways. You know, one thing that a lot of the international organizations are talking about and they’ve actually sort of implemented is a lot of transparency. So you know, you know trying to build databases so that countries know what other countries are doing, because there is some recent work by the GTA which seems to suggest that a set of subsidies by a country are followed by within six months by a similar set of subsidies by another set of countries. So there is clearly a path dependence to this. So, knowing you know, I think more transparency also helps from that perspective, but only to a certain extent, because beyond that we need to come up, we have to find a device, ways to minimize the adverse effects of trade distorting subsidies for the low-income countries that are typically not in a situation or in a position from a macroeconomics perspective to do the same thing.

30:12 – Amar Breckenridge (Host)
Thank you, and Stuti. Would you have anything to add to that?

30:15 – Stuti Toshi (Guest)
Yes, thank you.

I think I’ll take the cue from a slightly differentiated point of view, which was, you know, the proposal that was put out by European Union on industrial policy and linking it with, you know, the traditional subsidies. I think the idea behind subsidization, as is agreed under the current SEM agreement, is a bit straitjacketed. And, yes, I agree with the point of view that you also account for the different methodologies that have now come into picture, especially in light of the Airbus Boeing dispute that we saw, where it essentially leads to a subsidies war. And we’re witnessing such realities at the moment, you know, with the global subsidy race essentially ongoing. So how does India contextualize this? So, on one forefront, there is the defensive part and on the other, there is the offensive part, right. So on the defensive forefront, we see that, first of all, understanding the intricacies of the proposals regarding industrial policy that are put out by European Union. There, the examination results in looking at how the domestic policy stance is, and there the question becomes that, okay, does the central government have the mandate to even, you know, take up obligations on industrial policy, given that the subject as such is something that is in the concurrent list? And if I give you a bit more of the context, about how India’s domestic structure is like. There are three lists which decide which government has the jurisdiction over that subject matter. So it could be the central government, it could be the state government or it could be both. So industrial policy is one of those subjects which falls in the concurrent list, meaning that both the central government and the state government have the authority to adjudicate upon it or basically to legislate on it essentially. So then again, if central government ends up taking commitments on such an area, which you know is not exclusively within its domain, then tomorrow state governments will not have the bandwidth to say, for instance, incentivize, provide incentives for certain types of factories.

So then again, the question becomes that you know these oppositions that India laid out to that particular proposal. They stem from how the domestic architecture is shaped like and going back to implications as such, you know, on the offensive forefront, we see that we have tools right to counteract against subsidization speed through anti-dumping instruments or be it through countervailing duties. So strengthening these tools, I believe, just like the EU had thought about a few years ago, could be something that India could also consider, to understand how the subsidization is evolving and, as such, strengthening the tools to be able to counteract against the subsidization is evolving and, as such, strengthening the tools to be able to counteract against such subsidization. So, essentially, the Directorate General of Trade Remedies, I believe, needs to do a rethink to be better prepared for addressing such subsidies, and it has major implications for India. Essentially, I mean in terms of the subsidies war, the race that, sorry, you pointed out too.

On the offensive forefront, I also see that there are certain measures which are being taken, for instance, through various new schemes, like the production linked incentive, the fourth phase of it, you know. So there are incentivizations which are being introduced, fit, you know. So there are incentivizations which are being introduced. So I see it as the participation in a smarter way, with an understanding of the wto covered agreements and india’s obligations there under. So I think they’re both on the offensive side and on the defensive side.

34:06 – Amar Breckenridge (Host)
India is playing a role and it has major implications for India. Thank you both for your contributions to those to that question and to the other questions we are now reaching the end of our podcast, so I think it’s been very valuable in highlighting the range of issues that confront India’s trade policy and I think particularly the interaction between the international facing side of policymaking and the domestic agenda. There’s a lot more we could talk about, but I think we’ve established a suitable basis for reflection. So I’d like to thank you both, anirudh and Stuti, for your participation To our listeners. Thank you for joining in. Remember to review, rate, share the podcast and to stay tuned for the next edition. Thank you and talk to you again.

34:50 – Anirudh Shingal (Guest)
Thanks a lot again, amar, for having me on board, and I look forward to hearing and seeing what our listeners have to say.