Showing posts from 2015

What WTO can learn from COP

Negotiation technique matters especially when consensus is the key. COP came up with a solid document at the end of recently completed summit at Paris. WTO came up with a limp document at the recently concluded Nairobi meet. Both summits mandated consensus approach. WTO ministers at Nairobi quibbled over things, the country reps met in suspicious groupings, and tried to outsmart each other.  On the other hand, COP summit had groups engaging in fruitful discussions and finally came up with decently good promises from each participating members. COP might have fallen short in the eyes of some climate pundits, but it was satisfactory to all the participants. WTO outcome was one more inconclusive document, reiterating nonsense, and was yet not satisfactory to many, including India, for various reasons.  COP used negotiation method of 'Indaba' used by native African tribes like Zulu and Xhosa. More about how this method apparently helped here .  WTO is fast moving towards irr

Global Value Chains and India: Policy perspectives and challenges

(This post originally appeared in the World Trade Centre Bangalore newsletter) The engraving on the back of my phone reads: 'Designed in California; Assembled in China'. It skips the in betweens, as to where the components and sub-assemblies came from. If they indeed decide to do the full list, it might fill the entire back case. On an iPhone, which is designed by Apple in California, the component sourcing will take us through ASEAN, Japan and many other countries. Some of the software and technology that goes into it might again come from US, Germany and other countries. Though the iPhone is finally assembled in China, the value addition by Chinese is less than 10% for each phone shipped out of that country. The value addition is different for other brands of smartphones, depending on sourcing patterns. This is an example of Global Value Chain (GVC) at work, smartphone GVC in this case. GVCs have changed the way one thinks about international trade and related policy

How TPP affects India's exports - or doesn't

Trans-Pacific Partnership  (TPP) was finalised recently between the 12 pacific rim countries.  Donald Trump hates it and calls the deal terrible. Paul Krugman doesn't like it very much and calls himself a 'lukewarm opponent' of the deal. These two exist at either ends on the scale of knowledge of international economics. And both oppose the deal. Hillary Clinton falls somewhere in between, she opposes too. Everyone, except Obama and the trade ministers who agreed for the deal seem to be opposing. Even the so called industrial lobbies, pharma, tobacco and such, who hoped to get a secret sweet deal for themselves, are opposing. I am yet to see a trade-deal that was opposed by so many and is still going ahead. Funnily enough, I see that some in India are rueing that they are left out. Probably that explains as to why Indian trade minister insists that " we are not left out ". One wonders how.  TPP is not another ordinary deal. It tries to push the envelop o

The case for a weaker rupee

I believe there is a good case for a weaker Rupee. It is not about just following the fashion. China has devalued its currency recently, and before that Japan had done so, and there were doubts that Euro's quantitive easing was a proxy for weakening Euro. The method adopted to devalue the currencies might be different; direct intervention, bond buying or quantitive easing, but the end effect is a weak currency. India needs to evaluate the options now.  India's merchandise trade deficit has hovered constant around 180 billion dollars for around four years now. The gap is filled partly by earnings from services sector and partly through the foreign inflows. A bare reading of only current account deficit indicates that we have room for a devalued currency. If we are targeting to have better export performance, we need to go with a weaker Rupee. There might be a lag, but it should work, given international experience. Krugman has written an article in NYT  here . He talks

ITA-II agreement at WTO and India: Some points

The Information Technology Agreement - II (ITA-II) is now tentatively finalised at WTO. India has decided to stay away, blaming the earlier version ITA-I for the sorry state of IT related hardware manufacturing in India today, and believing that India needs to retain duties on IT products in order to bring the Indian IT manufacturing industry to speed. This agreement is mainly a tariff reduction agreement that would bring the import duties on agreed products to zero thus (probably) helping trade.  ITA-I was finalised in 1997, around 18 years ago and included products that are no longer in practical existence, and excluded products that have since been invented. Also, due to faster product life cycles of IT hardware the rate of obsolescence is high. A revision was necessary to that extent.  There were differences over items in the list, as expected, and the negotiators were able to navigate around to reach consensus among interested parties. 51 countries that agreed to go ahe

Export Import Bank debate in the US

Ex-Im Bank of the USA  is a federal government backed institution which specialises in trade finance. It is similar in functions to I ndia's Exim bank  except that Indian Exim bank doesn't get into trade insurance, which is handled by another body called Export Credit Guarantee corporation of India . In fact, India's Exim bank copies most of the functions of US Ex-Im bank given that US institution predates Indian one by more than five decades.  US Ex-Im bank is under threat of being de-authorized , unless the US congress re-authorizes it shortly.  The bank's critics, mainly the republicans, bank on the argument that such subsidising banks lead to market distortion and help private sector players, and therefore, they are a form of corporate welfare scheme. They choose the winners in the private sector by choosing whom to help by providing easy access to credit for international trade. It is nothing but crony capitalism in another form, subsidising the rich. 

The frigidity of Indian Exports

The trade figures for May 2015 are here . The trade decreased, both in terms of exports and imports.   Exports were down by around 20% this month over last year, and imports were down by around 16%.  We exported around 22 Billion USD of merchandise in May and imported around 32 Billion USD worth of goods. At this rate, we would be lucky to touch the figure of USD 300 Billion of exports by the end of year.  On services front, the net services earning stood at around 5.6 Billion USD. A new foreign trade policy was released last month, with a stated aim of doubling the exports in next five years. The last sentence of the above paragraph is in contrast to all other sentences. Therein lies the problem in making policies that target the outcomes that rely on multiple underlying factors. We can't just double exports without addressing the fundamentals that lead to better export performance.  Now, there are reasons as to why the figures are not encouraging. Oil prices are low. Th

The ITA II at WTO and India's stand

Way back in 2012, I had written about how India is wrong in opposing ITA 2 agreement at WTO blindly. You can find it here . ITA 2 is the Information Technology agreement - Version 2, that is currently being negotiated at WTO. The agreement is solely a tariff cutting mechanism in the trade of IT hardware products. India was a signatory to the first version, and rightly or wrongly blames it for the poor state of electronic hardware manufacturing industry in India today. India has strongly opposed any expansion of product coverage under the deal. You may read the news reports  here and here . The premise is, if we cut the import duties on electronic goods, our domestic electronic manufacturing would suffer as it would then be easier to import than to produce locally. In the light of time that has elapsed since the last post,  I thought I should revisit the issue. Meanwhile, Krugman has opposed USA's trade deals , the transpacific and transatlantic deals that are under di

RCEP and India - Are we missing something?

Regional Comprehensive Economic Partnership (RCEP) is a Free Trade Agreement between ASEAN countries plus three (China, Japan, South Korea) and three more (India, Australia, New Zealand). The contours of this FTA is under discussion and negotiations are on. More at wikilink .  India is already into trade agreements with most of the participating countries in RCEP. The traditional discourse in the media focuses on how our 'Look East Policy' needs this FTA. Also, RCEP is supposed to work as a common framework which will remove some of the confusion that arises out of multiple FTAs in this region with India, each having its own scope, its own rules of origins and such. In addition, we are not part of the other two big trade negotiations, viz., the trans-atlantic and trans-pacific agreements, currently underway.  There are some points that I thought the greater debate in Indian media (if ever there was one on such topics) is missing, and which can be discussed in a post l