Get ready for post-glob­al­i­sa­tion era

Trade, cli­mate change and the role of mul­ti­lat­eral development banks are crit­i­cal ar­eas

Down to Earth - - COVER STORY -

HE ELEC­TION of Don­ald Trump as US Pres­i­dent, com­ing after the Brexit vote, is widely seen as a thumbs down for glob­al­i­sa­tion. Here­with some com­ments on im­pli­ca­tions for trade pol­icy, cli­mate change and the role of mul­ti­lat­eral development banks.

Trade pol­icy MONTEK SINGH AHLUWALIA

The most im­me­di­ate worry re­lates to global trade. A slow­down is al­ready un­der way and pes­simists worry that if the threat to raise tar­iffs, which was men­tioned in the cam­paign, is im­ple­mented, it may trig­ger a Smoot-Haw­ley-type process, pre­cip­i­tat­ing a se­vere down­turn as hap­pened in the in­ter-war years of the last cen­tury. Things may not turn out as bad, but a fresh pro­tec­tion­ist turn in the US will have a neg­a­tive ef­fect on the global econ­omy which will af­fect us as well.

In­dus­tri­alised coun­tries have turned against glob­al­i­sa­tion be­cause of the per­cep­tion that it has hol­lowed out man­u­fac­tur­ing and shifted jobs to de­vel­op­ing coun­tries. The per­cep­tion is ex­ag­ger­ated: some jobs may have been off­shored, but other jobs have been cre­ated, and more could be cre­ated if in­dus­tri­alised coun­tries were to un­der­take the re­forms to restart growth and re-skill their labour. From our per­spec­tive, the key is­sue is whether we should re­main open or re­spond by turn­ing in­ward.

There are good rea­sons for us not to turn in­ward. The US, Europe and Ja­pan are likely to have a con­tin­u­ing com­par­a­tive ad­van­tage in the development of new tech­nol­ogy, but to sell the prod­ucts em­body­ing th­ese tech­nolo­gies in world mar­kets, each in­dus­tri­alised coun­try has to be as com­pet­i­tive as pos­si­ble and it helps them to ex­ploit the lower man­u­fac­tur­ing costs in de­vel­op­ing coun­tries. There is much talk of robo­ti­fi­ca­tion and 3D print­ing re­duc­ing labour costs in in­dus­tri­alised coun­tries and thereby shrink­ing global value chains (gvcs). The tech­nol­ogy has in­deed ad­vanced im­pres­sively, but it is not clear that it would be suf­fi­ciently cost­ef­fec­tive to off­set the lower costs of skilled labour in de­vel­op­ing coun­tries.

If gvcs are here to stay, even if they ex­pand less ag­gres­sively, it fol­lows that we need to po­si­tion our­selves to de­rive full ben­e­fit from them. Scep­tics will be quick to point out that we have not ben­e­fited as much as other de­vel­op­ing coun­tries from the growth of gvcs in the pre­vi­ous decade, but this is largely be­cause we have not im­ple­mented poli­cies that would make us com­pet­i­tive. The pol­icy les­son for us is to fo­cus on over­com­ing th­ese dis­ad­van­tages rather than turn­ing our back to con­tin­ued open­ness. This is strength­ened by the fact that Asia is the part of the world most likely to ex­pe­ri­ence rapid growth, and this re­gion is likely to re­main open and pur­sue trade in­te­gra­tion. We should plan to be part of the Asian growth story and en­cour­age deeper trade in­te­gra­tion with the other fast-grow­ing Asian coun­tries, in­clud­ing China. Early con­clu­sion of the Re­gional Com­pre­hen­sive Eco­nomic Part­ner­ship (rcep) agree­ment would send the right sig­nal at this time. Un­for­tu­nately, the In­dian in­dus­try has been luke­warm about our re­gional in­te­gra­tion ef­forts, and some parts of it have even op­posed the steps taken. In­dus­try needs to re­con­sider its po­si­tion in terms of what is in its longer term in­ter­est. They should work harder to per­suade the gov­ern­ment to re­move im­ped­i­ments to our com­pet­i­tive­ness, rather than ar­gue for higher tar­iffs on the as­sump­tion that th­ese im­ped­i­ments are here to stay.

We also need to re­think our strat­egy in the wto. Trade ne­go­tia­tors have to fight hard to pro­tect na­tional in­ter­ests, but suc­cess­ful ne­go­ti­a­tions are also a mat­ter of give and take. Un­less in­dus­tri­alised coun­tries can present the out­comes to their do­mes­tic con­stituen­cies as pro­vid­ing a gain from their per­spec­tive, they will marginalise the wto and push for pluri­lat­eral ne­go­ti­a­tions out­side it. This is what led to the Trans-Pa­cific Part­ner­ship and the Transat­lantic Trade and In­vest­ment Part­ner­ship, but as th­ese agree­ments ap­pear to be stalled, there is a win­dow for show­ing progress in the wto. We should re­view our po­si­tion on on­go­ing wto mat­ters, such as trade fa­cil­i­ta­tion, gov­ern­ment pro­cure­ment, the In­for­ma­tion Tech­nol­ogy Agree­ment II and the Trade in Ser­vices Agree­ment. We of­ten act in the wto on the

A fresh pro­tec­tion­ist turn in the US will have a neg­a­tive ef­fect on the global econ­omy which will af­fect us as well. But there are good rea­sons for us not to turn in­wards

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