14/05/2019 - Indian Economy

May 14, 2019
3 months

Considering the occurrence of trade wars in the global economy, India needs to realign its trade policy with regional trade formations. Discuss (200 Words)

Refer - Business Standard

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IAS Parliament 3 months


·        The renewed US-China trade war and related uncertainty is likely to have a negative impact far beyond the US-China bilateral trade on global growth.

·        The WTO, in its revised estimates last month, has already trimmed world trade growth forecast for 2019 to 2.6 per cent from the earlier forecasted 3.7 per cent.

·        In India, withdrawal of the generalized system of preferences (GSP) by the US,  end of sanction waivers for crude oil imports from Iran, and severe criticism of India's protectionist tariff regime

·        So, there is an urgency, therefore, for India to re-visit its trade policy.

·        India's exports continue to be predominantly low skill and labour intensive commodities. India's export basket has not, therefore, evolved in line with the pattern of dynamic GVC-led trade.

·        At present, GVCs are undergoing a transformation with greater domestic content and regional consolidation, particularly in East Asia and in sectors like automotives, computers and electronics.

·        It becomes imperative, therefore, that India seek a trade strategy towards greater integration with East Asia. Regional comprehensive Economic Partnership (RCEP) offers India this opportunity.

·        Unfortunately, India's perception of the RCEP is limited by its bilateral trade deficit with the largest economy in the trade formation — China.

·        For fear of being overwhelmed by Chinese goods under a preferential arrangement, India's stance in the RCEP negotiations has been mainly defensive in seeking differential and lower levels of preferential market access for its non-FTA partners such as China and Australia/New Zealand.

·        However, the RCEP is not merely about trading with China, which is in any case inevitable, given that China is the largest trading partner for almost all nations in the world.

·        Chinese goods will, therefore, find access, maybe even preferential access, to the Indian market through some or the other trading partner

·        The RCEP has to be seen as a mega regional trade agreement, which is a means to both trade liberalisation and integration with regional value chains or GVCs through East Asia.

·        India's trade strategy to work through multilateralism may once have been an option, but today when the WTO is struggling to remain relevant, mega regional PTAs have become dominant trade vehicles.

·        With agreement on major trade disciplines across their large membership, mega regionals play a facilitating role in making possible efficient multiple border crossings for goods that are fundamental to GVCs.

·        The RCEP is a trade light mega regional agreement, which is as yet working on liberalisation of trade in goods and services unlike the CPTPP that, with its WTO plus provisions ( To describe the commitments made by the acceding members with their contents and levels of obligations exceeding those required by WTO agreements), is far more ambitious in its coverage.

·        As RCEP negotiations await completion of electoral processes and government formation in some member countries, Indian trade diplomacy should set to work on a framework for such a deal.

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