The Role of Trade: South-South and Global Presentation by T. C. Venkat Subramanian Export-Import Bank of India New Delhi, November 13, 2003 IPC SEMINAR & MEETING EXIM BANK

Structure of Presentation  GLOBALISATION  ROLE OF INTERNATIONAL TRADE  THE GLOBAL TRADING SYSTEM  GLOBAL TRADE – AN OVERVIEW  GLOBAL TRADE – RECENT TRENDS  TRADE AND DEVELOPING COUNTRIES  SOUTH-SOUTH TRADE  INDIA’S EXTERNAL TRADE  ACHIEVING GLOBAL INTEGRATION  INDIA’S AGRICULTURE EXPORTS  WORLD AGRICULTURAL TRADE  AGRI TRADE LIBERALISATION  OUTLOOK & PROSPECTS

Globalisation  Globalisation – growing interdependence of countries resulting from increasing integration of trade, finance, people, and ideas in one global marketplace  Main elements of this integration –  International Trade  Cross-border Investment Flows  Globalization – has potential to advance development  Expediting economic growth  Creating jobs  Raising incomes  Challenge – equitable distribution of economic growth

Role of International Trade  International Trade – An indispensable engine of economic growth  Trade – Expands markets, facilitates competition, increases productivity & disseminates knowledge  Trade openness – Spurs economic growth and technological progress; Growth raises living standards  Countries that have grown fastest have done so with rapid increases in their participation in world trade  Trade liberalisation must be complemented by other policy measures

The Global Trading System  Global trading system – allows a country to increase the benefits of openness  Entails global trading system to have clear rules, flexibility, effective enforcement of rules  World Trade Organisation (WTO) – the only multilateral institution governing international trade  Provides institutional context for increased cooperation  Standardisation & harmonisation of domestic policy  Although increasing trend toward Regionalism, RTAs are no substitutes for multilateral trading system

Global Trade: An Overview  Between 1952 & 2000 merchandise trade increased by 6% p.a. vis -à-vis global output growth of 4% p.a.  Global trade grew more rapidly than world GDP in all but a few years of cyclical downturns  During the decade of the 1990s, growth rate of world trade was more than twice that of the GDP growth rate  The ratio of global trade in goods & services to global GDP increased from 8% in 1950 to 29.5% in 2000 Contd…

Global Trade: An Overview Source: World Economic Outlook, IMF  Volume of world trade in goods & services increased by 3.2% in 2002  Both exports & imports of developing countries outpaced those of advanced nations  Trade growth in 2003 likely to slow down marginally * Projections Contd…

Global Trade: Recent Trends  Merchandise exports (2002) – US$ 6424 bn – growth 4%  Service exports (2002) – US$ 1540 bn. (growth 5%)  Major players – US, UK, Germany & Japan  Merchandise trade recovered more strongly than output in 2002 Contd… Growth (percent) Source: International Trade Statistics, WTO

Global Trade: Recent Trends  Trade growth was strong in Asia and the transition economies  Recovery of global trade retarded by stagnation of Western Europe’s imports and contraction of Latin America’s imports Source: WTO Growth (%) Growth (%) Region Contd…

Trade & Developing Countries  Developing countries embrace globalization since it:  Expands the range of choices for consumers  Places downward pressure on prices  Raises real value of workers’ earnings  Developing countries – benefited from intensification of trade in manufactures & associated productivity gains  More than three-quarters of WTO members are developing nations  Export-led growth has a proven record of success, while its alternative – protectionism – has failed where it has been tried Contd…

Trade & Developing Countries  Reverse Linkages – increasing impact of developing nations on industrial countries  During 1990s, developing countries’ merchandise exports increased at an annual rate of 8.5% Merchandise exports, % of GDP Source: World Bank Contd…  Export-GDP ratios risen sharply within a decade in developing countries from less than 15% to 25% in 2002  Drastic changes in sectoral and regional composition of trade

Trade & Developing Countries  Change in composition of exports – major factor underpinning export growth  Manufactures grew to 80% of exports from South Asia  Growth fastest where share of manufactured products in total exports was already large Source: World Bank  Driving forces:  Policy reforms  Structural changes in global production process  Economic trends related to increases in real per capita incomes Contd…

South-South Trade: Snapshot  South-South merchandise exports expanded strongly in all developing regions between Contd… Source: WTO (Value in US$ billion)

South-South Trade  South-South trade promoted as: -  Means to reduce the dependence of developing countries on markets of developed countries  Enhance diversification of Southern exports beyond primary commodities  South-South trade rose from US$ 219 bn. in 1990 to US$ 640 bn. in 2001 – twice as fast as world trade (10% versus 5%)  Share of intra-developing country trade in world merchandise exports rose from 6.5% to 10.7% during this period  Primary reason – Positive growth performance of developing nations in the 1990s Contd…

South-South Trade  Share of developing country exports to other developing countries rose from 28% to 37% of their total exports during the same period  The figures in case of imports were 31% & 41%  Much of the expansion in South-South trade took place in developing Asia  This high share reflects the relatively large size of the developing markets in Asia Contd…

South-South Trade  Share of developing Asia in intra-developing country exports rose from 60% in 1990 to 66% in 2001  Developing Asia accounted for more than two-thirds of total intra-developing country imports Contd… percentage Source: WTO

South-South Trade  Trade in manufactured goods – most dynamic component of intra-developing country merchandise exports – expanded by 12% annually during 1990s  Agricultural trade expanded at only half that rate; mining products (mainly fuels) averaged 9%  Impediments still exist – high levels of tariff protection & non-tariff barriers  Persistence of these barriers suggests the potential for further trade liberalization and consequent expansion of South-South trade. Contd…

 Increasing importance of international trade for India  Trade-GDP ratio increased from 13% in to over 22% in  Unit value index of exports increased from to during the same period ( =100)  Share in world merchandise exports increased from 0.6% in 1995 to 0.8% in 2002  Share in world services trade increased to 1.3%  Exports in amounted to US$ 52.2 bn. while imports stood at US$ 61.3 bn. (growth of 19.2 % each) Contd… India’s External Trade

 India’s exports increased from less than US$ 25 bn. in to over US$ 50 bn. in  Imports during the same period increased from US$ 23 bn. to over US$ 60 bn. Contd… Source: Ministry of Commerce & Industry

 India’s export basket – to Contd… India’s External Trade Source: Ministry of Commerce & Industry

 Asia & Oceania – share of 43% in  Western Europe & America – share of 48% Contd… India’s External Trade Source: Ministry of Commerce & Industry

 The study outlines an analytical approach for achieving a significant increase in India's exports  Focuses on Africa, Latin America & China which together imported about US$ 760 bn. in 2001 (about 12% of global imports)  Estimates that India could aim to achieve cumulative exports of US$ 24 bn. to these regions by 2007 – up from US$ 4.7 bn. in 2001; Agriculture to account for US$ 7 bn. of this incremental export  Free Trade Agreement (FTA) with Thailand – significant step towards global integration  Reported FTA with China would further reinforce this Achieving Global Integration

India’s Agri Exports  India’s share in global agriculture exports – 1.1%  Marine products have led the way in India’s agri exports  Value addition in India is low at 7% as against 23% in China, 45% in Philippines and 188% in U.K. respectively (Source: CII-McKinsey)  The emerging WTO regime offers considerable scope for export of Indian agricultural products to the global markets Contd…

India’s Agri Exports AGRI EXPORT ZONES  AEZ – centered around a cluster approach  Identifying the potential products,  Geographical region in which these are grown  Adopting an end to end approach of integrating the entire process right from the stage of production till it reaches the market  52 AEZs already notified; e.g.

World Agriculture Trade  About 73% of poor in developing countries live in rural areas – rural development central to alleviating poverty  During the 1990s 56% of the growth of developing country (DC) agri trade accounted for by sales to other DCs  DCs lost export market share during the 1980s, but reversed that trend in the 1990s  International markets important to sustained income growth in DCs  High border protection in rich countries frustrates development  Evolving structure of agri trade: toward nontraditional products with lower rates of protection Contd…

World Agriculture Trade  DCs maintained, but did not expand, their one-third share of world agricultural trade over the last two decades  Steady decline in DC’s share of agricultural exports to industrial countries over the period was counterbalanced by an increase in their share of exports to other DCs Share of global agricultural and manufacturing exports by source and destination, 1980–2001 (%) Contd…

Global GDP, Total Exports & Agricultural Export Growth Trend Source: International Trade Statistics 2003, WTO World Agriculture Trade

Agri Trade Liberalisation  Static Gains from Agriculture trade liberalisation Source: World Bank Contd…

Agri Trade Liberalisation  Dynamic Gains from Agriculture trade liberalisation Source: World Bank Contd…

Long-term Impact of Full Trade Liberalisation  Developing countries could reap income gains of over US$ 500 bn. from full trade liberalisation – a 5% boost in incomes Low & Middle Income Countries High Income Countries World TotalHigh Income Countries World Total Source: World Bank US$ bn. Additional income in 2015 compared with baseline % of baseline income in 2015 Contd… Agri Trade Liberalisation

 Reduction of trade barriers in agriculture & food yield US$ 193 billion in 2015  More than 50% of these gains in agriculture and food are reaped by developing countries  Reform of agriculture & food in rich countries would lead to a gain of US$ 20 billion for developing countries as a whole  South-South trade to become a strategic necessity for the countries of the South  For India, broad-basing the market canvas becomes imperative Contd… Agri Trade Liberalisation

Outlook & Prospects  Medium-term outlook for developing country exports is encouraging  Agriculture & processed foods – the future stars Change in export volumes in 2015 relative to baseline (US$ billion – 1997) Source: World Bank

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