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

The Role of Trade: The Role of Trade: South-South and South-South and

GlobalGlobal

Presentation byPresentation by

T. C. Venkat SubramanianT. C. Venkat Subramanian

Export-Import Bank of IndiaExport-Import Bank of IndiaNew Delhi, November 13, 2003 New Delhi, November 13, 2003

IPC SEMINAR IPC SEMINAR && MEETING MEETING

EXIM EXIM BANKBANK

Structure of PresentationStructure of Presentation GLOBALISATION GLOBALISATION

ROLE OF INTERNATIONAL TRADEROLE OF INTERNATIONAL TRADE

THE GLOBAL TRADING SYSTEMTHE GLOBAL TRADING SYSTEM

GLOBAL TRADE – AN OVERVIEWGLOBAL TRADE – AN OVERVIEW

GLOBAL TRADE – RECENT TRENDSGLOBAL TRADE – RECENT TRENDS

TRADE AND DEVELOPING COUNTRIESTRADE AND DEVELOPING COUNTRIES

SOUTH-SOUTH TRADESOUTH-SOUTH TRADE

INDIA’S EXTERNAL TRADEINDIA’S EXTERNAL TRADE

ACHIEVING GLOBAL INTEGRATIONACHIEVING GLOBAL INTEGRATION

INDIA’S AGRICULTURE EXPORTSINDIA’S AGRICULTURE EXPORTS

WORLD AGRICULTURAL TRADEWORLD AGRICULTURAL TRADE

AGRI TRADE LIBERALISATIONAGRI TRADE LIBERALISATION

OUTLOOK & PROSPECTSOUTLOOK & PROSPECTS

GlobalisationGlobalisation GlobalisationGlobalisation – growing interdependence of countries – growing interdependence of countries

resulting from increasing integration of trade, resulting from increasing integration of trade,

finance, people, and ideas in one global marketplacefinance, people, and ideas in one global marketplace

Main elements of this integration – Main elements of this integration – International Trade International Trade Cross-border Investment FlowsCross-border Investment Flows

Globalization – has potential to advance developmentGlobalization – has potential to advance development Expediting economic growth Expediting economic growth Creating jobs Creating jobs Raising incomesRaising incomes

Challenge – equitable distribution of economic Challenge – equitable distribution of economic

growthgrowth

Role of International TradeRole of International Trade International TradeInternational Trade – An indispensable engine of – An indispensable engine of

economic growtheconomic growth

Trade – Expands markets, facilitates competition, Trade – Expands markets, facilitates competition,

increases productivity & disseminates knowledgeincreases productivity & disseminates knowledge

Trade openness – Spurs economic growth and Trade openness – Spurs economic growth and

technological progress; Growth raises living technological progress; Growth raises living

standardsstandards

Countries that have grown fastest have done so Countries that have grown fastest have done so

with rapid increases in their participation in world with rapid increases in their participation in world

tradetrade

Trade liberalisation must be complemented by Trade liberalisation must be complemented by

other policy measuresother policy measures

The Global Trading The Global Trading

SystemSystem Global trading system – allows a country to Global trading system – allows a country to

increase the benefits of opennessincrease the benefits of openness

Entails global trading system to have clear rules, Entails global trading system to have clear rules,

flexibility, effective enforcement of rulesflexibility, effective enforcement of rules

World Trade Organisation (WTO)World Trade Organisation (WTO) – the only – the only

multilateral institution governing international multilateral institution governing international

tradetrade

Provides institutional context for increased cooperationProvides institutional context for increased cooperation

Standardisation & harmonisation of domestic policyStandardisation & harmonisation of domestic policy

Although increasing trend toward Regionalism, Although increasing trend toward Regionalism,

RTAs are no substitutes for multilateral trading RTAs are no substitutes for multilateral trading

systemsystem

Global Trade: An OverviewGlobal Trade: An Overview

Between 1952 & 2000 merchandise trade Between 1952 & 2000 merchandise trade

increased by 6% p.a. vis -à-vis global output increased by 6% p.a. vis -à-vis global output

growth of 4% p.a. growth of 4% p.a.

Global trade grew more rapidly than world GDP Global trade grew more rapidly than world GDP

in all but a few years of cyclical downturnsin all but a few years of cyclical downturns

During the decade of the 1990s, growth rate of During the decade of the 1990s, growth rate of

world trade was more than twice that of the world trade was more than twice that of the

GDP growth rate GDP growth rate

The ratio of global trade in goods & services to The ratio of global trade in goods & services to

global GDP increased from 8% in 1950 to 29.5% global GDP increased from 8% in 1950 to 29.5%

in 2000in 2000

Contd…Contd…

Global Trade: An OverviewGlobal Trade: An Overview

Source: World Economic Outlook, IMFSource: World Economic Outlook, IMF

Volume of world trade in goods & services Volume of world trade in goods & services increased by 3.2% in 2002increased by 3.2% in 2002

Both exports & imports of developing Both exports & imports of developing countries outpaced those of advanced nationscountries outpaced those of advanced nations

Trade growth in 2003 likely to slow down Trade growth in 2003 likely to slow down marginallymarginally

1996 1997 1998 1999 2000 2001 20022003*

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 9.4 6.0 8.1 11.9 -1.0 2.2 2.8

Developing countries 9.9 10.5 -0.8 2.4 16.1 1.6 6.0 5.1

Imports volume growth (%)

Export volume growth (%)

* Projections* Projections

Contd…Contd…

Global Trade: Recent Global Trade: Recent

TrendsTrends Merchandise exports (2002) – Merchandise exports (2002) – US$ 6424 bnUS$ 6424 bn – –

growth 4% growth 4% Service exports (2002) – Service exports (2002) – US$ 1540 bn.US$ 1540 bn.

(growth 5%) (growth 5%) Major players – US, UK, Germany & JapanMajor players – US, UK, Germany & Japan Merchandise trade recovered more strongly Merchandise trade recovered more strongly

than output in 2002than output in 2002

Contd…Contd…

Gro

wth

(p

erce

nt)

Gro

wth

(p

erce

nt)

Source: International Trade Statistics, WTOSource: International Trade Statistics, WTO

Global Trade: Recent Global Trade: Recent

TrendsTrends Trade growth was strong in Asia and the Trade growth was strong in Asia and the

transition economies transition economies Recovery of global trade retarded by Recovery of global trade retarded by

stagnation of Western Europe’s imports stagnation of Western Europe’s imports and contraction of Latin America’s and contraction of Latin America’s importsimports

Source: WTOSource: WTO Growth (%)Growth (%)

Reg

ion

Reg

ion

Contd…Contd…

Trade Trade & & Developing Developing CountriesCountries

Developing countries embrace globalization since Developing countries embrace globalization since

it:it: Expands the range of choices for consumers Expands the range of choices for consumers Places downward pressure on prices Places downward pressure on prices Raises real value of workers’ earningsRaises real value of workers’ earnings

Developing countries – benefited from Developing countries – benefited from

intensification of trade in manufactures & intensification of trade in manufactures &

associated productivity gainsassociated productivity gains

More than three-quarters of WTO members are More than three-quarters of WTO members are

developing nationsdeveloping nations

Export-led growth has a proven record of success, Export-led growth has a proven record of success,

while its alternative – protectionism – has failed while its alternative – protectionism – has failed

where it has been triedwhere it has been tried Contd…Contd…


Reverse Linkages – increasing impact of Reverse Linkages – increasing impact of

developing nations on industrial countries developing nations on industrial countries

During 1990s, developing countries’ During 1990s, developing countries’

merchandise exports increased at an annual merchandise exports increased at an annual

rate of 8.5%rate of 8.5%Merchandise exports, % of GDPMerchandise exports, % of GDP

Source: World BankSource: World BankContd…Contd…

Export-GDP ratios Export-GDP ratios

risen sharply within risen sharply within

a decade in a decade in

developing developing

countries from less countries from less

than 15% to 25% in than 15% to 25% in

2002 2002

Drastic changes in Drastic changes in

sectoral and sectoral and

regional regional

composition of trade composition of trade


Change in composition of exports – major Change in composition of exports – major factor underpinning export growthfactor underpinning export growth

Manufactures grew to 80% of exports from Manufactures grew to 80% of exports from South AsiaSouth Asia

Growth fastest where share of manufactured Growth fastest where share of manufactured products in total exports was already largeproducts in total exports was already large

Source: World BankSource: World Bank

Driving forces: Driving forces: Policy reformsPolicy reforms

Structural changes Structural changes

in global production in global production

process process

Economic trends Economic trends

related to increases related to increases

in real per capita in real per capita

incomesincomes

Contd…Contd…

South-South Trade: SnapshotSouth-South Trade: Snapshot South-South merchandise exports expanded South-South merchandise exports expanded

strongly in all developing regions between strongly in all developing regions between

1990-2001 1990-2001

Contd…Contd…Source: WTOSource: WTO

(Value in US$ billion)(Value in US$ billion)

South-South TradeSouth-South Trade South-South trade promoted as: -South-South trade promoted as: -

Means to reduce the dependence of Means to reduce the dependence of developing countries on markets of developed developing countries on markets of developed countries countries

Enhance diversification of Southern exports Enhance diversification of Southern exports beyond primary commoditiesbeyond primary commodities

South-South trade rose from US$ 219 bn. in South-South trade rose from US$ 219 bn. in

1990 to US$ 640 bn. in 2001 – twice as fast as 1990 to US$ 640 bn. in 2001 – twice as fast as

world trade (10% versus 5%)world trade (10% versus 5%)

Share of intra-developing country trade in Share of intra-developing country trade in

world merchandise exports rose from 6.5% to world merchandise exports rose from 6.5% to

10.7% during this period10.7% during this period

Primary reason – Positive growth performance Primary reason – Positive growth performance

of developing nations in the 1990sof developing nations in the 1990sContd…Contd…

South-South TradeSouth-South Trade Share of developing country exports to Share of developing country exports to

other developing countries rose from other developing countries rose from

28% to 37% of their total exports 28% to 37% of their total exports

during the same periodduring the same period

The figures in case of imports were The figures in case of imports were

31% & 41% 31% & 41%

Much of the expansion in South-South Much of the expansion in South-South

trade took place in developing Asia trade took place in developing Asia

This high share reflects the relatively This high share reflects the relatively

large size of the developing markets in large size of the developing markets in

AsiaAsiaContd…Contd…

South-South TradeSouth-South Trade Share of developing Asia in intra-Share of developing Asia in intra-

developing country exports rose from developing country exports rose from

60% in 1990 to 66% in 200160% in 1990 to 66% in 2001

Developing Asia accounted for more than Developing Asia accounted for more than

two-thirds of total intra-developing two-thirds of total intra-developing

country importscountry imports

Contd…Contd…

perc

enta

gepe

rcen

tage

Source: WTOSource: WTO

South-South TradeSouth-South Trade

Trade in manufactured goods – most dynamic Trade in manufactured goods – most dynamic

component of intra-developing country component of intra-developing country

merchandise exports – expanded by 12% merchandise exports – expanded by 12%

annually during 1990sannually during 1990s

Agricultural trade expanded at only half that Agricultural trade expanded at only half that

rate; mining products (mainly fuels) averaged rate; mining products (mainly fuels) averaged

9%9%

Impediments still exist – high levels of tariff Impediments still exist – high levels of tariff

protection & non-tariff barriersprotection & non-tariff barriers

Persistence of these barriers suggests the Persistence of these barriers suggests the

potential for further trade liberalization and potential for further trade liberalization and

consequent expansion of South-South trade.consequent expansion of South-South trade.

Contd…Contd…

Increasing importance of international trade for Increasing importance of international trade for

IndiaIndia

Trade-GDP ratio increased from 13% in 1990-91 to Trade-GDP ratio increased from 13% in 1990-91 to

over 22% in 2002-03over 22% in 2002-03

Unit value index of exports increased from 292.5 to Unit value index of exports increased from 292.5 to

618.0 during the same period (1978-79=100)618.0 during the same period (1978-79=100)

Share in world merchandise exports increased from Share in world merchandise exports increased from

0.6% in 1995 to 0.8% in 20020.6% in 1995 to 0.8% in 2002

Share in world services trade increased to 1.3%Share in world services trade increased to 1.3%

Exports in 2002-03 amounted to US$ 52.2 bn. while Exports in 2002-03 amounted to US$ 52.2 bn. while

imports stood at US$ 61.3 bn. (growth of 19.2 % imports stood at US$ 61.3 bn. (growth of 19.2 %

each)each)

Contd…Contd…

India’s External TradeIndia’s External Trade

India’s External TradeIndia’s External Trade India’s exports increased from less than India’s exports increased from less than

US$ 25 bn. in 1993-94 to over US$ 50 bn. in US$ 25 bn. in 1993-94 to over US$ 50 bn. in

2002-032002-03

Imports during the same period increased Imports during the same period increased

from US$ 23 bn. to over US$ 60 bn.from US$ 23 bn. to over US$ 60 bn.

Contd…Contd…

43.8

51.4

42.4

61.3

28.7

36.739.2 41.5

49.7 50.4

23.3 26.3

36.833.231.8 33.5

44.6

35

52.2

22.2

0

10

20

30

40

50

60

70

1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03

Imports Exports

US$ billion

Source: Ministry of Commerce & IndustrySource: Ministry of Commerce & Industry

0.00

2.00

4.00

6.00

8.00

10.00

12.00U

S$ b

n.

2000-01 20001-02 2002-03

India’s export basket – 2000-01 to India’s export basket – 2000-01 to

2002-032002-03

Contd…Contd…



Asia & Oceania – share of 43% in 2002-03Asia & Oceania – share of 43% in 2002-03

Western Europe & America – share of 48%Western Europe & America – share of 48%

Contd…Contd…



0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

Per

cent

1998-99

1999-2000

2000-01

2001-02

2002-03

The study outlines an analytical approach for The study outlines an analytical approach for

achieving a significant increase in India's exportsachieving a significant increase in India's exports

Focuses on Africa, Latin America & China which Focuses on Africa, Latin America & China which

together imported about US$ 760 bn. in 2001 together imported about US$ 760 bn. in 2001

(about 12% of global imports)(about 12% of global imports)

Estimates that India could aim to achieve Estimates that India could aim to achieve

cumulative exports of US$ 24 bn. to these regions cumulative exports of US$ 24 bn. to these regions

by 2007 – up from US$ 4.7 bn. in 2001; Agriculture by 2007 – up from US$ 4.7 bn. in 2001; Agriculture

to account for US$ 7 bn. of this incremental exportto account for US$ 7 bn. of this incremental export

Free Trade Agreement (FTA) with Thailand – Free Trade Agreement (FTA) with Thailand –

significant step towards global integrationsignificant step towards global integration

Reported FTA with China would further reinforce Reported FTA with China would further reinforce

thisthis

Achieving Global Achieving Global IntegrationIntegration

India’s Agri ExportsIndia’s Agri Exports

India’s share in global agriculture exports – 1.1% India’s share in global agriculture exports – 1.1%

Marine products have led the way in India’s agri Marine products have led the way in India’s agri

exportsexports

Value addition in India is low at 7% as against 23% in Value addition in India is low at 7% as against 23% in

China, 45% in Philippines and 188% in U.K. respectively China, 45% in Philippines and 188% in U.K. respectively

((Source: CII-McKinseySource: CII-McKinsey))

The emerging WTO regime offers considerable scope for The emerging WTO regime offers considerable scope for

export of Indian agricultural products to the global export of Indian agricultural products to the global

marketsmarkets

Year Value (US$ bn) Growth (%) Share (%)

2000-01 5.92 5.63 13.29

2001-02 5.89 -0.56 13.44

2002-03 6.40 8.64 12.25

India's Exports of Agriculture & Allied Porducts

Contd…Contd…

India’s Agri ExportsIndia’s Agri ExportsAGRI EXPORT ZONESAGRI EXPORT ZONES AEZ – centered around a cluster approach AEZ – centered around a cluster approach

Identifying the potential products, Identifying the potential products, Geographical region in which these are grownGeographical region in which these are grown Adopting an end to end approach of integrating Adopting an end to end approach of integrating

the entire process right from the stage of the entire process right from the stage of production till it reaches the marketproduction till it reaches the market

52 AEZs already notified; e.g.52 AEZs already notified; e.g.

PRODUCT STATE

Durum Wheat Madhya Pradesh

Mango Maharashtra

Potato Punjab

Medicinal Plants Uttaranchal

Flowers Tamil Nadu

Ginger Sikkim

World Agriculture TradeWorld Agriculture Trade About 73% of poor in developing countries live in rural About 73% of poor in developing countries live in rural

areas – rural development central to alleviating povertyareas – rural development central to alleviating poverty

During the 1990s 56% of the growth of developing During the 1990s 56% of the growth of developing

country (DC) agri trade accounted for by sales to other country (DC) agri trade accounted for by sales to other

DCsDCs

DCs lost export market share during the 1980s, but DCs lost export market share during the 1980s, but

reversed that trend in the 1990sreversed that trend in the 1990s

International markets important to sustained income International markets important to sustained income

growth in DCsgrowth in DCs

High border protection in rich countries frustrates High border protection in rich countries frustrates

developmentdevelopment

Evolving structure of agri trade: toward nontraditional Evolving structure of agri trade: toward nontraditional

products with lower rates of protectionproducts with lower rates of protection

Contd…Contd…

World Agriculture TradeWorld Agriculture Trade

DCs maintained, but did not expand, their one-third share DCs maintained, but did not expand, their one-third share

of world agricultural trade over the last two decadesof world agricultural trade over the last two decades

Steady decline in DC’s share of agricultural exports to Steady decline in DC’s share of agricultural exports to

industrial countries over the period was counterbalanced industrial countries over the period was counterbalanced

by an increase in their share of exports to other DCsby an increase in their share of exports to other DCs

Share of global agricultural and manufacturing Share of global agricultural and manufacturing

exports by source and destination, 1980–2001 (%)exports by source and destination, 1980–2001 (%)

Contd…Contd…

1980–81 1990–91 2000–01 1980–81 1990–91 2000–01Agriculture exports 35.9 32.9 36.9 64.1 67.1 63.1

To developing 9.9 9.2 13.7 15.3 11.9 14.7

To industrialized 26 23.7 23.2 48.8 55.3 48.4

Manufacturing exports 19.3 22.7 33.4 80.7 77.3 66.6

To developing 6.6 7.5 12.3 21.7 15.2 19

To industrialized 12.7 15.2 21.1 59 62.1 47.6

Developing countries Developed Countries

Global GDP, Total Exports & Agricultural Export Growth TrendGlobal GDP, Total Exports & Agricultural Export Growth Trend

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Per

centf

Total Exports Agriculture Exports GDP

Source: International Trade Statistics 2003, WTO

World Agriculture World Agriculture TradeTrade

Agri Trade LiberalisationAgri Trade Liberalisation

Static Gains from Agriculture trade Static Gains from Agriculture trade

liberalisationliberalisation


Low & middle

Income Countries

High Income

Countries

All

Countries

Agriculture and food 80 20 101

Manufacturing 33 25 58

All merchandise trade 114 44 159


Manufacturing 44 –3 41





Decomposition of static impacts

Liberalizing region

Gains to low- and middle-income countries

Gains to high-income countries

Global gains


Dynamic Gains from Agriculture trade Dynamic Gains from Agriculture trade

liberalisationliberalisation


Low & middle

Income Countries

High Income

Countries

All

Countries










Decomposition of dynamic impacts

Gains to low- and middle-income countries

Gains to high-income countries

Global gains

Liberalizing region

Long-term Impact of Full Trade LiberalisationLong-term Impact of Full Trade Liberalisation

Developing countries could reap income gains of Developing countries could reap income gains of

over US$ 500 bn. from full trade liberalisation – a over US$ 500 bn. from full trade liberalisation – a

5% boost in incomes5% boost in incomes

900

800

700

600

500

400

300

200

100

0

5

4

3

2

1

0

Low & Middle Income Countries

Low & Middle Income Countries

High Income Countries

World Total High Income Countries

World Total

Source: World Bank Source: World Bank

US$

bn.

Add

iti o

nal i

ncom

e in

201

5 co

mpa

red

wit

h ba

seli n

e

% o

f b

a sel

ine

inco

me

in 2

015

Contd…Contd…


Reduction of trade barriers in agriculture Reduction of trade barriers in agriculture

& food yield US$ 193 billion in 2015& food yield US$ 193 billion in 2015

More than 50% of these gains in More than 50% of these gains in

agriculture and food are reaped by agriculture and food are reaped by

developing countriesdeveloping countries

Reform of agriculture & food in rich Reform of agriculture & food in rich

countries would lead to a gain of US$ 20 countries would lead to a gain of US$ 20

billion for developing countries as a wholebillion for developing countries as a whole

South-South trade to become a strategic South-South trade to become a strategic

necessity for the countries of the South necessity for the countries of the South

For India, broad-basing the market canvas For India, broad-basing the market canvas

becomes imperativebecomes imperative

Contd…Contd…


Outlook Outlook && Prospects Prospects Medium-term outlook for developing Medium-term outlook for developing

country exports is encouragingcountry exports is encouraging

Agriculture & processed foods – the Agriculture & processed foods – the

future starsfuture starsChange in export volumes in 2015 relative to baseline (US$ billion – 1997)

Source: World BankSource: World Bank

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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