detail - Auslandsbüro Indien
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From Mr. Peter Rimmele’s Introductory Remarks:
- The world remains in the tight grip of a global pandemic; the changes in work, production and consumption patterns were both sudden as well as drastic.
- The COVID-19 pandemic has severely impacted all communities and individuals. Our countries have tried relentlessly to protect lives and preserve livelihoods.
- The rapid spread of the virus across borders has exposed the weaknesses of globalisation and morphed a global health crisis into a global economic shock.
- Many have dropped their guard and now, the virus has reappeared more virulently than before in India as also in many other countries of the world.
- A growing number of people around the world are getting vaccinated, providing us with a ray of hope to arrive at the post-pandemic time era we are all eagerly waiting for.
- We need to develop and exchange ideas and solutions in order to emerge into the future, well equipped to positively reshape this approaching post-Covid world, while avoiding errors of the past.
- In recent months, the criticism towards multilateralism and the desire for isolationism has gained momentum. This will never represent a real solution when it comes to free trade and economic development.
- Young people, are among the most affected by the socio-economic impact of the pandemic.
- All decision-makers must work towards ensuring that the voices of the youth are being heard and accorded due importance, as they are an essential part of the solutions for a healthier, safer and multilateral post-Covid world.
From Prof. Dr. Heribert Dieter’s Key Note Address:
Prof. Dieter spoke on four broad areas:
a) Origin and Benefits of Free Trade
b) Drawbacks of Free Trade
c) How China upsets the apple cart of World Trade
d) The way forward.
The Origin of Free Trade:
- Trade discriminations of the 1930s contributed to increased political tensions. Between 1929 and 1933, global trade collapsed by two thirds.
- International Trade needs rules to prevent abuse. The characteristics of multilateral trading system are: a) No discrimination in favour of domestic products over foreign products and; b) to put automatic mechanisms in place to reduce trade barriers. This is an important clause of GATT that evolved as part of the post war trading regime.
- India was negatively impacted by Britain in the 19th century under Britain’s colonial regime.
- WTO was formed in the year 1995 and China was admitted to WTO in 2001.
Benefits Derived from Free Trade
- Global merchandise trade increased from 16.6% of GDP in 1960 to 44% in 2019.
- During the global financial crisis of 2007-2008, global trade got reduced by a mere 5%, validating the importance of free trade.
- The international division of labour helped in integrating societies with global supply chains. Combined with trade liberalisation, it has resulted in increased prosperity and enabled us to fight poverty all over the world.
- Since 1991, India has implemented a policy of reducing tariffs. Trade liberalisation contributed to a rising GDP in India. The per capita GDP has quadrupled since 1991. The population during this period has grown from 900 million then to 1.35 billion now.
- The wages in China have quadrupled since 2000. Deng Xiaoping's reforms of 1979 had two dimensions:
o He broke Mao Zedong's past and permitted private enterprise to contribute to economic activity
o He opened China for international trade. Till 1979, China's rulers had a perception of international trade that differed sharply from other nations.
- South Korea was an extremely poor country in 1953. From 1910 to 1945, it was a Japanese colony. Today, it’s per capita GDP is 31,000 USD which is close to that of Japan.
Drawbacks of Free Trade:
- For the OECD countries, there has been a decline in the standard of living for some and it is one of the reasons why globalisation is unpopular.
- The statutory provision that global minimum wage must be observed in OECD countries is unfair as nations with lower productivity will be excluded from trade and they will not enjoy the benefits of globalisation.
- We need rules to prevent exposure to dangerous and harmful products and ensure fair competition.
- Trade agreements have opaque rules. India negotiated its terms to join RCEP - the ASEAN inspired Free Trade Agreement (FTA) but then decided not to join.
- Pascal Lamy, former Director General of WTO in 2018 said "The state- led Chinese economy is the biggest issue for world trade.” It was a major beneficiary of free trade and at the same time, a major source of the negative effects. The solution obviously cannot come from Beijing.
Covid Impacting Free Trade
- Import of medical supplies is an issue. Two thirds of critical medicines for treating blood clots in the US are coming from China. Global supply chains broke down, especially in the automotive industry. Car producers in Japan and South Korea had to shut down their factories because of the dependence on China.
- Supply chains must be made crisis-proof. Europe will now produce more and it will impact international division of labour.
China’s Present Stand
- Xi Jinping prefers a closed China than open China and it is returning to an inward looking economic development.
- There is no evidence that Xi Jinping or Communist Party of China will liberalise their economy. On the contrary, all new credits are extended to public sector and not to the private sector. They are tightening their controls over private sector.
- Last November, China announced its new economic strategy called Dual Circulation policy. They will produce for the domestic market rather than the world market. The rest of the world is slowly realising that China has given up on globalisation. The days of making lot of money in and from China are nearly over.
The Plight of WTO
- Ngozi Okonjo-Iweala, Director General of WTO has no or very limited powers. WTO is a member driven organisation. All 164 countries are important and all have a veto. China self- classifies itself as a developing economy and enjoys certain privileges.
- WTO needs to be modernised but no country is eager to modernise it. China is the biggest problem for WTO.
- We need to create Free Trade Agreements (FTAs) that exclude People's Republic of China. Because China has a very non-transparent system of providing subsidies to companies. It distorts competition.
Globalisation and India:
- The post pandemic phase will not see the end of globalisation but we will see a modification of globalisation, primarily due to the geopolitical conflict with China, rather than due to the Coronavirus.
- India was embracing trade liberalisation until Prime Minister Modi somewhat altered the policy last year.
- India is engaging more with QUAD countries. India may be eager to join trade agreements with Europe and OECD countries.
- India could be the winner of this new form of globalization but its success is not guaranteed.
Conclusions and Way Forward:
- The conflict between China and rest of the world will shape international economic relations for years to come.
- We will see the emergence of a new bipolarity. There will be a return to two distinct economic spheres as in the cold war.
- New governance structures are needed. We must have plurilateral agreements between like-minded countries under the roof of WTO. We should have a coalition of like-minded countries that can do trade with each other; China should be out of that.
- European Union, US and India should join CPTPP; UK has applied in Feb 2021 to become a member of this.
- India has ample youth potential whilst China is an aging population. India could be the big winner of this geopolitical conflict but India must open up more rather than having a closed-door policy.