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Ranabir Ray Choudhury

WITH THE Severe Acute Respiratory Syndrome (SARS) clouding the planet's horizon as of now, fears are being expressed worldwide that the prospects of the international economy will be hard hit during 2003.

More specifically, any major epidemic disrupts normal activity of a nation (or region), and such disruption cannot but affect adversely all finely-tuned plans for economic growth. And where economic growth is affected, trade is also hit because export and import are totally dependent on the state of economic activity.

Indeed, the emergence of SARS at this point of time is quite unfortunate because of the salutary effect of the quick `military' resolution of the Gulf conflict on the international economy. Large parts of the Iraqi economy have been devastated, and it has been estimated that the bill to reconstruct it will run into billions of dollars.

This means that the export figures of a large number of economies will receive a boost from the Iraqi transactions which, when integrated into the larger picture, will certainly lead to an increase in international trade compared to the pre-Gulf conflict scenario.

Clearly, this salutary development will now be tempered by the impact of SARS, the extent of the impact not being known at this point of time because the picture with regard to the spread of SARS is not yet clear.

It is against this broad canvas that the WTO's recent survey of the state of international trade has to be seen. Indeed, the survey has taken note of the influences stated above, the message being that there is not much to be elated about given current trends.

To quote the WTO itself: "Considerable uncertainty clouds trade growth prospects for 2003. Early indications suggest that at less than 3 per cent, growth in trade volume for 2003 will be little or no better than 2002. This is well below half the average rate of trade growth achieved in the 1990s (6.7 per cent).

"The downside risks on predictions for 2003 are large, bearing in mind continued sluggishness in the world economy, the conflict in Iraq, and the possibility of the continuing spread of the Severe Acute Respiratory Syndrome." How have the different sectors and regions been hit? As far as specific sectors are concerned, the WTO figures indicate that, "measured in value terms, merchandise exports rose by four per cent to $6,240 billion, nearly offsetting the decline of the preceding year (2001). Commercial services trade expanded a little faster than merchandise trade, reaching a new record level of $1,540 billion."

The report said that the rise in commercial services trade took place "despite the lingering fear of terrorism and higher fuel prices which limited growth in international travel and transportation services". But the increase in trade in "other services" more than made up for this limitation.

The report also said that "the weakness of fixed investment expenditure contributed significantly to the sluggish overall growth in the industrial countries".

As far as regions are concerned, the report said that the trade performance "largely mirrored the pattern of economic growth", the driving forces behind the pick-up in trade being the Asian and `transition' economies.

As regards the latter, according to the report, "most of the strength was contributed by Russian demand although import strength was broadbased with more than half of all transition economies experiencing double-digit growth".

Across the Atlantic, North America's imports recovered "in line with stronger domestic demand although exports decreased in 2002".

The report said that "trade remained stagnant in western Europe and Japan. And it contracted in Latin America as a result of economic turmoil in a number of countries in the region".

More specifically, the report said that `developing Asia's' merchandise trade grew by about 12.5 per cent (volume), driving the continent's exports and imports to expand by double digits.

From the Indian perspective, the interesting part is that the WTO has drawn attention to Japan's measely three per cent merchandise export growth rate (value) and a contraction in imports as also to the more than 20 per cent increase in China's merchandise exports and imports and India double-digit growth rate.

The point was made that China has now become the fifth largest trading country in the world after dislodging the UK from that position.

Attention has also been drawn to the structural shifts in US trade vis-a-vis China, which leaves behind integrally the days when it was being argued vehemently in Washington whether it would be wise to open the economy's doors to a Communist China with a none too good human rights record.

The WTO trade report says that US imports from Asia in 2002 rose largely because of higher shipments from China (up by 22 per cent).

In fact, the report says that "the steep decline of US exports and imports from Japan, Hong Kong and Singapore point to structural shifts in the US trade with Asian countries," adding that "for the first time, China replaced Japan as the principal Asian supplier of merchandise to the United States". Indeed, the US bilateral trade deficit with China rose to around $103 billion, the largest with any country.

Developing Asia's 12.5 per cent jump in imports (following a contraction in the previous year- 2001) was due to two specific factors, according to the WTO. The first was the `surge' of FDI inflows into China following its accession to the WTO regime, which resulted in a jump in that economy's "real imports by nearly a quarter".

The second reason was the recovery of imports in the "developing East Asian IT traders" of nearly nine per cent following a decline of 8.5 per cent in the preceding year.The report draws attention to the changing scenario vis-a-vis Hong Kong and Singapore, particularly to whether their less dynamic performance is just a passing phase or whether it is a harbinger of a new economic arrangement in East Asia because of altering economic parameters.

According to the report, two reasons are responsible for the uncharacteristic performance of the two economies. First, both Singapore and Hong Kong "have become high-income economies which have lost their competitive edge in many of their traditional exports of manufactured goods and have therefore shifted their economic development strategies to the services sector".

Second, the standing of these economies within the services sector, as `regional distribution/transit centres', is being `challenged' by their neighbours.

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