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Ritika Passi, Purpose, Platform, and Power: Advancing Trade Under India’s G20 Presidency, December 2022, Observer Research Foundation and Global Trade Observer.
I. The Context
A NEW ERA OF multilateral trading system amidst uncertainty beckons.
Tensions within the multilateral trading system have long been apparent, not least because of stalled progress at the World Trade Organization (WTO) on multiple fronts, from agriculture subsidies and industrial tariffs to intellectual property protections. Consensus around “free trade” has always been met with government interventions on the ground; multilateral trading rules are coexisting with proliferating bilateral free-trade agreements and increasing regionalisation; and most trade agreements have national security exemptions. Hegemonic competition and the increasing use of trade restrictive behaviour in the name of ‘national security’—due to crisis, conflict, or climate—is contributing to the marginalisation of multilateral trade rules in inter-state relations. As countries now consider not only economic but also strategic costs and benefits, instances of unilateralism, protectionism, and potential fragmentation abound (see Box 1).
TO BE SURE, improving domestic capacities and strengthening ties with trusted trade partners are valid responses to address supply chain vulnerabilities, build economic resilience, and deliver inclusive development. However, trade must not be viewed through a zero-sum lens and trade interdependence as a source of insecurity, for two key reasons.
First, economic nationalism implicates the role of international trade—particularly through global value chains (GVCs)—in fostering development, responding to crisis, and implementing systemic transitions. Trade has long been recognised as a driver of growth and productivity, efficiency and innovation, jobs and incomes, as well as access to necessary technology. GVCs, which drive the majority of global trade, are known to deliver better income and productivity gains than traditional trade: a 1-percent increase in GVC participation can result in a per-capita increase of more than 1 percent compared to a 0.2-percent income gain from standard trade.[12],[13] Fundamentally, “an integrated economy has allowed a flow of goods, services, investment and ideas that has helped lift more than one billion people out of poverty since 1990.”[14] Moreover, given its linkages across economic sectors and markets—from agriculture to services, health to technology—trade is an inevitable vehicle to help realise green transitions as well as inclusive and sustainable development.
More immediately, as a 2022 World Bank report finds, countries more deeply embedded into GVCs recovered more quickly than others during crises: GVCs ensure that recovery in any part of the world is transmitted through the value chain during a global recession.[15] Just as the Covid-19 pandemic has highlighted the risks to countries reliant on trade for essential items such as food and medicines, it is equally true that a rules-based international trade remains crucial in implementing a comprehensive response to Covid-19 as well as future health emergencies. “[T]rade policy is vaccine policy,” as WTO’s director-general Ngozi Okonjo-Iweala said.[16] For instance, border agency cooperation has been identified as one of the most important trade facilitation measures during the pandemic that saved time and lives.[17] Increased trade facilitation could lift an additional 22 million people out of poverty by 2030 and improve incomes of the bottom 40 percent—an important benefit to counter the reverse in global poverty decline due to the pandemic. In the present backdrop of a “polycrisis”[18]—slow growth, an uneven recovery, fears of recession, debt risk and distress, record-high inflation, and supply chain disruptions—trade can contribute towards economic resilience through lowering prices and dampening inflation, alleviating public debt pressures, and diversifying sources, markets, and risks.
IMF and World Bank studies reveal adverse effects of unilateralism, protectionism, and fragmentation on investment, GDP, employment, real income, and poverty levels (see Figure 1). Emerging markets and developing economies inevitably will be more severely affected. Protectionist measures have raised wheat prices by 9 percent, according to the World Bank, for instance. Reshoring attempts by high-income economies and China would result in a fall in real incomes by 1.5 percent, driving an additional 52 million people into extreme poverty by 2030. Africa, South Asia, and West Asia and North Africa will be the strongest hit regions. Critically, benefits of trade diversion for some will be outweighed by significant, permanent declines in output for the vast majority. On the other hand, adopting policies that are more GVC-friendly and support greater integration can help lift 21.5 million people out of extreme poverty in the same period. South Asia would stand to benefit the most in terms of poverty eradication.[19]
Figure 1: Consequences of Geoeconomic Fragmentation
A second reason to view trade interdependence more favourably is that big-power competition obscures a larger picture. A greater trade volume is today at risk from harmful trade policies than liberalising steps, but it is equally true that large economies tend to hit other large economies more (see Figure 2), and the US, followed by EU-27, are responsible for the bulk of harmful trade measures at present.[21] Covid-19 led to the steepest decline in international trade on record—but also the fastest recovery. As the World Bank further notes, trade rebounded faster and stronger than any other component of global output.[22] The year 2021 saw a record US$28.5 trillion worth of trade occurring, a 13-percent increase from pre-pandemic levels in 2019.[23]
Moreover, trade-led growth remains an unfinished story for the developing world. Southeast Asia, South Asia and Central Asia, and sub-Saharan Africa are forecasted to lead trade volume growth in the next five years, with India, the Philippines, and Vietnam potentially leading trade growth in the near future.[24] Another case in point: South-South trade continues to increase, and is currently 42-percent higher than pre-pandemic levels.[25] Furthermore, participation of the global South in regional and global value chains is still occurring: while the contributions of past drivers of GVC participation, such as China, have plateaued, those of other developing countries are increasing, such as Bangladesh (textiles) and Vietnam (electronics). The average year-on-year growth of GVC participation of G20 developing countries, excluding China, stands at 9.88 percent between 1990-2018, based on OECD source data.[26]
Figure 2: Power Competition and Trade Restrictions
An appetite for international trade remains. The nature of trade is evolving towards high-tech goods, services and digitalisation: these invariably need a conducive cross-border ecosystem. “Trade-plus issues” are becoming increasingly important to collectively regulate, such as labour and environmental standards. Multiple and overlapping crises require trade as part of the solution: “If the problem has a trade dimension, then the solution must also have a trade dimension,” noted UNCTAD Secretary-General Rebeca Grynspan.[28] Unilateralism, protectionism, and fragmentation in the multilateral trading system bode ill for addressing current challenges and pursuing much-needed trade action in the coming years. The imperative is to (re)introduce some measure of predictability, stability, and trust in the system for mutual benefit.
INTERNATIONAL TRADE FACES barriers that are just as much political as technical, as outlined in the preceding section. The G20’s systemic relevance undergirds its political and peer-learning functions, which it can and must bring to bear with respect to introducing greater predictability, stability, and trust in the multilateral trading system.
The G20 is a forum of the world’s largest economies comprising industrialised countries and emerging markets that together account for 85 percent of global GDP, 75 percent of global trade, and 60 percent of the world’s population (see Figure 3).
Figure 3. G20: An Economic Heavyweight
The sheer weight of its collective membership, the absence of a functioning 21st-century multilateral grouping that adequately represents the shift eastward and southward in the global economy through its membership, as well as its robust response to the 2008 global financial crisis have traditionally lent the G20 a degree of legitimacy as the economic steering committee of the world. Coupled with the extent of specialised government-level and civil-society engagement under the G20 Sherpa and Finance tracks, as well as the knowledge and resource backing by multilateral organisations—such as WTO, UNCTAD, OECD, WB, and IMF—the G20 can command significant political momentum. In particular, the G20 can be a lynchpin multilateral platform for—at the very least—propelling political direction and support on key priorities as well as promoting peer learning and sharing that can together contribute towards shared understanding and coordinated actions.
The multilateral trading system needs this very political capital. Leaders’ communiqués/declarations and G20 presidency annex documents reveal why: G20’s track record on trade is mixed, with growing political differences impacting the quality of consensus and output, while recording piecemeal, issue-specific progress.
A gradual increase in depth, engagement, and focus in the initial years, peaking at the G20 summit in China in 2016, has subsequently succumbed to a relative de-emphasis in recent years as political differences have grown. Boilerplate statements and weak language have defined trade-related consensus; trade-related commitments have declined; and compliance remains the lowest as compared to other policy areas. Initial leaders’ summits placed a strong emphasis on resisting protectionism and keeping markets open in the aftermath of the global financial crisis, as well as the successful completion of the Doha round of trade negotiations, along with pledging progress at successive rounds of WTO Ministerial Conferences. Mention of ‘protectionism’ in the final leaders’ declaration disappeared 2018 onwards, although reference to it reappeared in the 2021 and 2022 summit documents under Italian[29] and Indonesian[30] presidencies in the garb of “trade tensions,” “distortions,” and “supply chain disruptions.”
With the death knell sounding on the languishing Doha round, WTO reform has become a focal topic of conversation, especially in the wake of the stalled dispute resolution mechanism. Traditional issue areas—trade facilitation, aid for trade, GVCs, and the role of trade in generating employment—have given way to emerging opportunities and challenges, such as excess capacities, increasing participation of micro, small, and medium enterprises (MSMEs) and women in GVCs, trade in services, supply chain security, and respective linkages between trade and digitalisation, health, and environment. Post-Covid, there is an emphasis on inclusive, sustainable, and resilient trade. The cross-cutting nature of trade is again recognised in the outcome documents under the Indonesian presidency, as well as, importantly, fostering domestic capabilities. (See Figure 4 for a more detailed timeline.)
Source: G20 Information Centre[31]
The G20 can once again inspire confidence.[32] The forum came into its own as a crisis institution to address the global financial upheaval, and can again seize the opportunity of a high-level platform in this time of polycrisis to have a frank dialogue on the need to prevent greater uncertainty in the multilateral trading system, to rationalise trade behaviour that avoids negative-sum outcomes, and to introduce measures that reduce risk in the system. This is outside of any and all continued conversation on specific trade or trade-related issues that enhance scope and quality of participation in global trade and distribution of its benefits.
Two objectives should guide the Trade and Investment Working Group’s agenda in the coming year: 1) building resilience without endangering prosperity; and 2) continuing targeted engagement on contemporary trade issues that support inclusive development. The Chair of G20 can guide work in three directions: using the vast network at the forum’s disposal to share learnings and incubate solutions to build broad consensus on the multilateral trading system; advance possible, timely trade commitments; and table its own developmental experience for peer learning.
INDIA BRINGS TO THE TABLE convening ability, voice to represent concerns of emerging markets and developing countries, and its own interests and evolving domestic trade landscape. These three factors lend India power to promote consensus on the operating conditions of international trade, advance concrete trade commitments for collective consideration, and offer lessons from its own domestic experience.
India has overtaken the United Kingdom (UK) to become the fifth-largest economy in the world, and it remains the fastest-growing large economy amid looming recession in other regions. Given its credentials as an emerging market and a “pillar for global economic revival” (jn the words of Piyush Goyal, India’s Commerce and Industry Minister[33]), its regional positioning, and emerging global leadership, it finds itself in diplomatic favour as a desired political, economic, and strategic partner, across both advanced economies and developing countries. Its own pursuit of ties with powers and regions under a multi-alignment strategy credits India with a strong degree of convening power that will prove useful in the current vitiated international climate. At the same time, however, such “bridging role”[34] may paradoxically limit India’s inclination to raise controversial issues before multilateral fora.
Yet, the fact that it has been “reach[ing] out in as many directions as possible [to] maximise its gains”[35] —and thus pursuing partnerships outside of rigid geopolitical binaries—means that India can confidently lay claim to being a voice of the developing world and raise shared interests and common priorities. Championing the agency of the global South is critical to ensure that competition between major powers does not dictate growth and development outcomes for the rest of the world. As pointed out in Section 1 of this paper, this is true in the area of trade of well. India can utilise the opportunity of consecutive presidencies[36] of emerging markets and developing countries between 2022 and 2025 to develop a continuing trade agenda; the India-Brazil-South Africa (IBSA) grouping could prove particularly useful.
Its own experience with embracing international trade will help in setting an agenda, particularly in the context of the debate between localisation and globalisation against the backdrop of economic security considerations: India’s global leadership opportunity aligns better today than at any other point in the past with its own domestic agenda of growth through strengthened and a more competitive domestic capacity and diversified global economic linkages for enhanced access and scale.[37]
India’s share of global trade remains weak at less than 2 percent of global merchandise exports, and less than 3 percent of global merchandise imports, even as the size of its economy grows.[38] India’s global trade participation through GVCs is also lower than that of smaller economies like South Korea and Malaysia. It has set for itself a short-term target of US$2 trillion worth of goods and services by 2030 and a 3-percent share in global exports, and a long-term goal of becoming a US$30-trillion economy with a share of 10 percent in global exports by 2047, and among the top three in global services trade. An enabling rules-based multilateral trading system has been key in India’s growth story thus far and it is in its own interest to build consensus for a more predictable and stable multilateral trading system.
Importantly, its G20 presidency provides India with an external stimulus to align its foreign trade policy with its external trade positioning[39] so as to strengthen its credibility as a trusted trade partner, and thus its legitimacy in leading trade conversations at the global stage. In fact, the release of India’s latest Foreign Trade Policy has been postponed to the start of the next financial year and providing time to ensure that objectives laid out under the policy are compatible, coherent, and in compliance with the global trading system.[40]
India can use its G20 presidency to advance discussions and targeted interventions in areas of common interest to developing countries as well as forward-looking trade areas that necessitate ongoing conversation. It should promote problem-solving under the Trade and Investment Working Group (TIIWG), and showcase “India solutions” where possible. More broadly, India should build consensus on the need to navigate a new era of multilateral trade that continues to contribute much-needed benefits of international trade.
II. Key Interventions
Trade policy uncertainty is on the rise. Viewing international trade through a zero-sum prism due to economic security considerations limits the full benefits of trade undergirded by a predictable and stable multilateral trading system, especially in today’s era of overlapping crises. A continuing appetite for international trade needs to be recognised. Given its weight, the G20 remains a lynchpin global economic governance platform to deliver on the same: it can propel political direction and support on key trade priorities through dialogue and peer learning that can together contribute towards shared understanding and coordinated action. As Chair of the G20, India can promote a constructive trade agenda given its economic rise, convening power, and own trade interests.
This section proposes three different types of potential interventions that can be taken forward under India’s presidency: those that advance a predictable, stable, and trusted multilateral trading system premised on mutual benefit; possible trade commitments; and interventions that draw from India’s own experience. These recommendations address key themes of inclusivity, resilience, security, sustainability, and digitisation.
“India solutions”
[1] Alan Hervé, “European unilateralism as a tool for regulating international trade: a necessary evil in a collapsing multilateral system,” Fondation Robert Schuman, March 28, 2022.
[2] “What are the sanctions on Russia and are they hurting its economy?,” BBC, September 30, 2022.
[3] “Press Release: Council agrees on the Carbon Border Adjustment Mechanism (CBAM),” European Council, March 15, 2022.
[4] Anne O. Krueger, “Interview of Ngozi Okonjo-Iweala: The Trade Agenda Today,” Project Syndicate, September 30, 2022.
[5] Jagdish Bhagwati used the term to describe “the unilateral reduction of others’ (not one’s own, as under conventional “unilateralism”) trade barriers under the threat of sanctions, as in the use of Section 301 provisions of US trade legislation.” See: “Introduction: The Unilateral Freeing of Trade Versus Reciprocity” in Going Alone: The Case for Relaxed Reciprocity in Freeing Trade (MIT Press: Cambridge, Spring 2002). The term here is being used not only in the context of trade barriers and sanctions, but broadly trade-restricting behaviour for advantage at the expense of trade gains for the targeted country or to coerce change in others’ trading behaviour.
[6] Dan Ikenson, “U.S. And China Regard Trade Rules As Impediments To Their Hegemonic Priorities,” Forbes, October 26, 2022.
[7] Alvaro Espita, Nadia Rocha, and Michele Ruta, “How export restrictions are impacting global food prices,” Word Bank blogs, July 6, 2022.
[8] Global Dynamics, Global Trade Alert.
[9] G20 Trade Policy Factbook 2022, Global Trade Alert, November 14, 2022.
[10] Jayant Sinha and Samir Saran, “Gated globalisation and fragmented supply chains,” ORF, April 27, 2020.
[11] Daniel Ikenson, “Strategic reglobalization: Great power rivalry comes for the multilateral trading system,” Hinrich Foundation, October 26, 2022.
[12] “Standard” or “traditional” trade, i.e., goods and services that are produced in one country and absorbed in a destination country. GVC trade comprises exports of goods and services that are produced in more than one country.
[13] World Development Report 2020: Trading for Development in the Age of Global Value Chains (World Bank, 2020).
[14] World Bank and World Trade Organization, The Role of Trade in Ending Poverty (WTO: Geneva, 2015).
[15] Paul Brenton, Michael J. Ferrantino, and Maryla Maliszewska, Reshaping Global Value Chains in Light of Covid-19: Implications for Trade and Poverty Reduction in Developing Countries (World Bank Group: 2022).
[16] Janet Bush, Michael Chui, and Acha Leke, “Forward Thinking on trade, vaccines, and sustainable and inclusive growth with WTO Director-General Ngozi Okonjo-Iweala,” McKinsey & Company, May 18, 2022.
[17] Bill Gain, “Trade facilitation: Critical to COVID-19 recovery,” World Bank blogs, November 2, 2021.
[18] Polycrisis”: a series of multiple and overlapping political and economic crises. According to historian Adam Tooze, we are facing multiple, reinforcing crises that are more dangerous put together than the sum of their parts.
[19]IMF’s latest Regional Outlook for Asia and the Pacific outlines how increasing uncertainty in trade policy reduces investment by about 2.5%; GDP by 0.4%, and employment by 1%. Regional Economic Outlook for Asia and Pacific (IMF: October 2022); Maksym Chepeliev, Maryla Maliszewska, Israel Osorio-Rodarte, Maria Filipa Seara e Pereira and Dominique van der Mensbrugghe, “Pandemic, Climate Mitigation, and Re-shoring: Impacts of a Changing Global Economy on Trade, Incomes, and Poverty,” Policy Research Working Paper 9955, World Bank; Brenton, Ferrantino, and Maliszewska, Reshaping Global Value Chains.
[20] Diego Cerdeiro, Siddharth Kothari and Chris Redl, “Asia and the World Face Growing Risks from Economic Fragmentation,” IMF blog, October 27, 2022.
[21] G20 Trade Policy Factbook 2022.
[22] Paul Brenton, Michael J. Ferrantino, and Maryla Maliszewska, Reshaping Global Value Chains in Light of Covid-19: Implications for Trade and Poverty Reduction in Developing Countries (World Bank Group: 2022).
[23] Global Trade Update, UNCTAD, February 2022.
[24] DHL Trade Growth Atlas 2022.
[25] Global Trade Update, UNCTAD, July 2022.
[26] ADB et al., Global Value Chain Development Report 2021: Beyond Production (ADB: November 2021).
[27] G20 Trade Factbook 2022, p. 14.
[28] “Tackling food and energy crises: How trade and logistics can help,” UNCTAD, October 13, 2022.
[29] G20 Rome Leaders’ Declaration, G20 Information Centre, University of Toronto.
[30] G20 Bali Leaders’ Declaration, G20 Information Centre, University of Toronto.
[31] G20 Information Centre, University of Toronto.
[32] As noted by economics and politics writer Kevin Carmichael, one of G20’s greatest strengths is to inspire confidence. “The G20 showed in Brisbane that it is back, but for how long?,” Centre for International Governance Initiative, November 17, 2014.
[33] “India would be an “island of stability” amongst global uncertainties, says Piyush Goyal,” Financial Express, September 30, 2022.
[34] As identified by Indian Minster of Foreign Affairs, S. Jaishankar in the panel discussion “The G20 Imperative” hosted by ORF, Reliance Foundation, and UN India, September 23, 2022, New York.
[35] S. Jaishankar, The India Way: Strategies for an Uncertain World (HarperCollins India: 2020).
[36] The launch of the four-year G20 Research Forum at the Bali T20 Sumit, which will focus on development issues in support of the upcoming G20 presidencies of IBSA countries, is another platform to cooperate.
[37] Note PM Modi’s speech to Heads of Indian Missions Abroad that emphasised realising “Making in India for the world.” “Our endeavour is to create demand for high-value added products of India across the world: PM,” narendramodi.in, August 6, 2021.
[38] Indian Ministry of Commerce & Industry and WTO data, as presented in “India’s International Trade and Investment,” EXIM Bank of India, June 2022.
[39] See, for example: Mihir Sharma, “India Can’t Afford to Lose the World’s Trust on Trade,” Bloomberg, June 2, 2022.
[40] For instance, liberalising FDI policies and higher import tariffs work at cross-purpose. See Ram Singh and Surendar Singh, “The Policy and Operational Challenges in Formulating India’s New Foreign Trade Policy,” ORF Issue Brief No. 497, October 2021.
[41] Initiative on Model Provisions for Trade in Times of Crisis and Pandemic in Regional and other Trade Agreements, UNESCAP.
[42] “Prime Minister’s address at Global Summit on Supply Chain Resilience,” narendramodi.in, October 31, 2021.
[43] Deepak Mishra, “How countries, including India, can reduce dependence on Chinese imports,” Economic Times, November 3, 2022.
[44] See, for instance: Tom Seymour and Richard Oldfield, “Localisation is the new globalisation,” PwC, February 1, 2021.
[45] “Think-20 Task Force 1 Session at the 2022 World Trade Organization Public Forum [1] ‘Greening Global Value Chains,’” G20 Indonesia, September 30, 2022.
[46] For details, see: David Thomas, “What you need to know about the African Continental Free Trade Area,” African Business, February 10, 2022.
[47] Tim McDonnell, “Rich countries can’t fix supply chains without fixing climate finance,” Quartz, October 18, 2021.
[48] Ritesh Jain, “ONDC can be a game-changer for MSMEs,” Business Standard, October 9, 2022.
[49] Michael Tanchum, “The India-Middle East Food Corridor: How the UAE, Israel, and India are forging a new inter-regional supply chain,” Middle East Institute, July 27, 2022.
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