The Hindu Business Line : Dwindling global trade

India’s exports in October 2008, valued at $12.8 billion, were 12.1 per cent lower than the $14.6 billion exported during October 2007, though the value of exports for the period April-October 2008 registered a growth of 23.7 per cent in dollar terms over the same period last year. This compares poorly with the 29.02 per cent export growth experienced in 2007-08 over 2006-07; in fact, India’s exports to certain important non-OECD regions such as WANA (West Asia and North Africa), North-East Asia and Asean grew at rates much higher than this average rate.

Credit crisis impact

This slowdown in India’s trade performance is in line with the global trend. In 2007, growth in world merchandise trade slipped to 6 per cent in real terms, down from 8.5 per cent in 2006, according to recent statistics published by the WTO.

The financial crisis has contributed directly in terms of dwindling trade finance availability which in turn affected trade flows, since more than 90 per cent of trade transactions involve some form of credit (in particular, short-term), insurance or guarantee; the market currently estimates the liquidity gap in trade finance at about $25 billion.

The weakening consumer demand in developed countries since the onset of the sub-prime crisis, realignments in exchange rates and fluctuations in the prices for commodities such as oil and gas, has introduced additional uncertainties into the global markets.

Most developed countries are already officially in recession or are on the verge of one; this is also true for the newly developed and the emerging economies across the world.

Given this situation, it is a cause for serious concern that the pace of trade negotiations is faltering both at the bilateral-regional and multilateral levels. It is now apparent that the India-Asean FTA in goods, proposed to be signed at the 14th Asean Summit, which is now indefinitely postponed, following the sacking of the Prime Minister of Thailand, Mr Somchai Wongsawat, by the Constitutional Court on Tuesday, will miss yet another deadline and is on-hold for a further ‘indeterminate’ span.

On the multilateral front, despite the repeated meetings of WTO members at ministerial levels, the conclusion of the Doha Round seems to lie in a distant horizon. And this, when the informal trade between India and her South Asian neighbours continues to flourish.

Protectionist lobbies

All this does not merely add to the disenchantment of the business communities in all the partner countries vis-À-vis the relevance of trade negotiations, but also means that the world is losing out on an important growth engine to jumpstart the moribund global economies.

In fact, there is a clear and present danger that political imperatives in leading world economies would push them towards adopting populist protectionist measures which would further destabilise and distort the global trading regime, and also weaken the fragile trust among the trade negotiators. So what can nation states do to reverse the rapidly deteriorating situation? There seems to exist a case for strong and determined unilateral action, especially by those economies whose future growth prospects critically hinge on the deepening of the global economic and trade interdependence.

It is perhaps time for emerging developing countries such as India and China to take the leadership in ensuring that world markets in goods, services and finance remain open.

And a small proof of seriousness of their intent would be in resisting the calls from protectionist lobbies at home.

(The author is Senior Fellow with ICRIER. The views are personal. blfeedback@thehindu.co.in)