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IPC SEMINAR & MEETING The Role of Trade: South-South and Global EXIM BANK Presentation by T. C. Venkat Subramanian Export-Import Bank of India New Delhi, November 13, 2003 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 Contd… 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 1996 1997 1998 1999 2000 2001 2002 2003* Trade Growth in volume (%) 7.0 10.4 4.4 5.8 12.6 0.1 3.2 2.9 Advanced countries 6.1 10.6 4.2 5.5 12.0 -0.8 2.2 1.6 Developing countries 9.5 13.5 5.5 5.4 14.4 2.7 6.5 4.3 Advanced countries 6.4 6.0 8.1 11.9 -1.0 2.2 2.8 Developing countries 9.9 10.5 -0.8 2.4 16.1 6.0 5.1 Export volume growth (%) Imports volume growth (%) * Projections 9.4 1.6 Source: World Economic Outlook, IMF 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 Growth (percent) Source: International Trade Statistics, WTO Contd… Global Trade: Recent Trends Contd… 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 (%) 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 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 Source: World Bank trade Contd… Trade & Developing Countries Contd… 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 Driving forces: Policy reforms Structural changes in global production process Economic trends related to increases in real per capita incomes Source: World Bank South-South Trade: Snapshot South-South merchandise exports expanded strongly in all developing regions between 1990-2001 (Value in US$ billion) Source: WTO Contd… 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 percentage total intra-developing country imports Source: WTO Contd… South-South Trade Contd… 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. India’s External Trade Increasing importance of international trade for India Trade-GDP ratio increased from 13% in 1990-91 to over 22% in 2002-03 Unit value index of exports increased from 292.5 to 618.0 during the same period (1978-79=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 2002-03 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 1993-94 to over US$ 50 bn. in 2002-03 Imports during the same period increased from US$ 23 bn. to over US$ 60 bn. 70 60 61.3 US$ billion 49.7 50 36.7 40 30 20 28.7 23.3 31.8 39.2 33.5 41.5 35 50.4 51.4 52.2 42.4 44.6 33.2 43.8 36.8 26.3 22.2 Imports 10 Exports 0 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 Source: Ministry of Commerce & Industry Contd… India’s External Trade India’s export basket – 2000-01 to 2002-03 Contd… India’s External Trade Contd… Asia & Oceania – share of 43% in 2002-03 Western Europe & America – share of 48% 45.0 Percent 40.0 35.0 1998-99 30.0 1999-2000 25.0 2000-01 20.0 2001-02 15.0 2002-03 10.0 5.0 200 200 a a er ic fr ic 2 -0 0 -0 8 -9 3 1 9 m A er ic So ut h A A m C IS 199 a e es W or th N A si a an d O ce tE ur op an ia 0.0 Source: Ministry of Commerce & Industry Achieving Global Integration 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 India’s Agri Exports India's Exports of Agriculture & Allie d Porducts Ye ar Value (US$ bn) Grow th (%) 2000-01 2001-02 2002-03 Share (%) 5.92 5.63 13.29 5.89 -0.56 13.44 6.40 8.64 12.25 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. PROD UCT S TATE D urum Wheat Madhya Pradesh Mango Maharashtra Potato Punjab Medicinal Plants Uttaranchal Flow ers Tamil N adu Ginger Sikkim 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 Share of global agricultural and manufacturing exports by source and destination, 1980–2001 (%) D eveloping countries D eveloped Countries 1980–81 1990–91 2000–01 1980–81 1990–91 2000–01 Agriculture exports 35.9 32.9 36.9 64.1 67.1 63.1 To developing To industrialized Manufacturing exports To developing To industrialized 9.9 26 19.3 6.6 12.7 9.2 23.7 22.7 7.5 15.2 13.7 23.2 33.4 12.3 21.1 15.3 48.8 80.7 21.7 59 11.9 55.3 77.3 15.2 62.1 14.7 48.4 66.6 19 47.6 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 Contd… World Agriculture Trade Global GDP, Total Exports & Agricultural Export Growth Trend 25.0 Tot al Export s Agricult ure Export s GDP 20.0 15.0 Percentf 10.0 5.0 0.0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 -5.0 -10.0 Source: International Trade Statistics 2003, WTO Agri Trade Liberalisation Static Gains from Agriculture trade liberalisation Liberalizing region D ecomposition of static impacts Low & middle High Income Income Countries Countries All Countries Gains to low - and middle-income countries Agriculture and food 80 20 101 Manufacturing 33 25 58 114 44 159 Agriculture and food 23 64 91 Manufacturing 44 –3 41 All merchandise trade 67 63 132 103 84 193 77 22 181 107 98 291 All merchandise trade Gains to high-income countries Global gains Agriculture and food Manufacturing All merchandise trade Source: World Bank Contd… Agri Trade Liberalisation Dynamic Gains from Agriculture trade liberalisation Liberalizing region D ecomposition of dynamic impacts Low & middle High Income All Income Countries Countries Countries Gains to low - and middle-income countries Agriculture and food 167 75 240 95 9 108 265 85 349 Agriculture and food 19 100 117 Manufacturing 36 13 48 All merchandise trade 55 115 169 Agriculture and food 185 174 358 Manufacturing 131 22 All merchandise trade 321 199 156 518 Manufacturing All merchandise trade Gains to high-income countries Global gains Source: World Bank Contd… Agri Trade Liberalisation Long-term Impact of Full Trade Liberalisation Contd… 5 900 800 4 700 600 3 500 400 2 300 200 1 100 0 0 Low & Middle Income Countries High Income World Total Countries Low & Middle Income Countries High Income Countries World Total Source: World Bank Developing countries could reap income gains of over US$ 500 bn. from full trade liberalisation – a 5% boost in incomes Agri Trade Liberalisation Contd… 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 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 IPC SEMINAR & MEETING THANK YOU EXIM BANK
