Trade, Investment and Economic Cooperation

Trade and Investment Prospects of the IOR-ARC in the New Millennium: New Economic Frontiers of the Region

 

Since its inception in 1997 the Indian Ocean Rim Association (IOR-ARC) underwent comprehensive changes in terms of trade, investment, diplomatic engagements, people-to-people contact and cultural exchanges. against this backdrop, it was considered imperative to undertake this study in continuation of the RIS’ ongoing research programme on Indian Ocean Rim Association for Regional Cooperation (IOR-ARC). The study came up with 10-point recommendations for promoting economic integration that range from trade facilitation, harmonising regulations, global value chains, sectoral cooperation, etc., among others which was subsequently referred to the Trade and Investment committee of IOR-ARC to examine feasibility of their implementation.

 

Regional Cooperation for Infrastructure Development: Towards an Institutional Framework for Investment in the IOR-ARC

 

IOR-ARC represents a heterogeneous group of countries that are characterised by varying levels of access to infrastructure and its use for promotion of regional trade and investment. In view of this unequal and asymmetric stock of physical infrastructure in the member countries, this study was undertaken by RIS with funding from the Council of Ministers of IOR-ARC. The study was based on the premise that infrastructure development is pivotal to strengthen the ongoing regional process of economic integration. While doing so, emphasis was given to the role and importance of infrastructure investments. The objectives of the study was: (a) to assess and analyse the role of infrastructure in regional integration, (b) to examine policies of the member countries on infrastructure development, and (c) to devise a regional institutional framework for infrastructure development in IOR-ARC with respect to identification of priority sectors, project conception and design, sources and modes of project financing,and implementation and governance issues. Based on best practices in the EU, Asia and Latin America, the study delineates a pyramidal institutional structure for infrastructure development in the IOR-ARC with special emphasis on smooth flows of investments into the priority infrastructure sectors.

 

Economic Aspects of Fisheries: A Framework for Regional Cooperation in the IOR-ARC

 

Fishery is a major economic sector for the member countries of the IOR-ARC providing income and livelihood security to millions in the region. It has been identified as one of the priority sectors for regional cooperation in the IOR-ARC Charter. Against this backdrop, this RIS study, the first of its kind for the IOR-ARC, aims to contribute to the existing understanding in the region on the economic aspects of fisheries and integrate the role of fisheries to livelihood, nutrition and the economies of the member countries at large. The study involves four major components: (a) analysis of secondary data on fisheries to identify trends and patterns in regional fisheries production, consumption and trade, (b) examining the issues of livelihood, nutrition and food security, (c) examine and suggest policies with respect to sustainable fishing, harmonisation of rules and regulations on licensing, participation of foreign fishers, overfishing, etc., and (d) present a framework for regional cooperation among the Member countries to optimise conservation of aqua species and livelihood security of people in the region.

 

Prospect of Promoting Regional Value Chain in South Asia

 

In South Asia, regional value chain has been weak though several regional countries are engaged in Global Value Chain (GVC) in number of sectors. India is already into GVC in the production and export activities in textiles and apparel and auto component sectors. Some of the local firms in Bangladesh and Sri Lanka are into the Global Production Network (GPN) in apparel sector. Similarly, Nepal and Pakistan are also into other GVC sectors. The region has the potential to integrate itself with several GVCs, particularly competitive sectors like textiles and apparels, leather, food processing, automobiles, pharmaceuticals and traditional medicines, cement, IT software, etc. Some of these sectors have received attention from certain national governments in liberalising sectoral policies to facilitate the RVC process. For the main study, several country studies were launched, covering numerous sectors including various dimensions of RVC to present potentials of the RVC in South Asia. The sectors considered under the RIS study are:(a) readymade garments (b) automobile (c) processed food (d) parts and components and (e) leather. For understanding importance of the sectors in RVC, we launched similar sectoral studies in India and several other countries in South Asia. The study was conducted with support of lead institutes from Bangladesh, Sri Lanka, Pakistan and India. It follows from the outcome of the study that the regional economies are already engaged in global value chain in diversified sectors. However, scale of operation in most of these sectors has been low and final assembling of product is taking place in other regions of the world. South Asia has strong potential to promote RVC activities in several sectors. The study is sponsored by ADB,and the draft report is submitted.

 

Issues before IBSA

 

India, Brazil and South Africa (IBSA) Summit is expected to be hosted by India in the forthcoming year. RIS proposes to undertake four major studies cross-cutting different sectors focusing on trade and investment linkages among IBSA countries and their linkages with the rest of the South; overview of IBSA experiences at various global negotiations in the realm of trade, intellectual property and traditional knowledge system; protection of biodiversity; social sector experiences and lessons; and finally study of potential for cooperation in the fields of science and technology among IBSA countries. Some of these would have serious implications for access to medicine in the country and in other developing countries.

 

India-China Bilateral Trade Relationship

 

The study finds several important results, that have significant policy implications. India’s bilateral export is less diversified than its imports from China and this is partly due to India’s inability to materialise its existing export potential in diversified sectors, mostly in manufacturing exports. Several export products of India, having global competitiveness, have been unsuccessful to achieve market access in China despite having strong ‘trade creating’ effects. India bilateral trade deficit can be pruned significantly by suspending wistful uncompetitive imports from China. India can meet large Chinese global import demand in several sectors. In that case, India needs to make tailor-made export-oriented production to access Chinese market in five resource-based and technology-intensive sectors. In the trade policy liberalisation, India has made significant headway in liberalising its manufacturing sectors where India is becoming more liberal than China in the manufacturing sector, which is considered stronghold of China. Econometric models suggest that yuan depreciation has significant effects on India’s exports in terms of making market access in third countries. Rapprochement with China would benefit India from the RCEP process to the extent of $ 75.4 billion per annum though the RCEP is likely to gain to the extent of $ 502.8 billion perannum.The study was funded by the Reserve Bank of India. The final study was accepted by RBI and is posted on its website

 

Expanding Trade and Investment Linkages between India and Africa: Towards a New Strategic Economic Partnership

 

India emerged as a vibrant economy before the onset of global financial crisis and the onset of global recession had an adverse effect on the growth prospects of the Indian economy by constraining its export sector. After a prolonged period of slumps in the global economy, several African countries have gradually returned to comfort zone in recent years. In this context, multi-layered engagement of India with these vibrant trading partners may facilitate speedy recovery of Indian trade. It may be recalled that the regionalism has been taking the driving seat following failure of the multilateralism to steer the global trading system. India’s renewed focus on regionalism has contributed to its rising share of hightech products in exports, leading to change in the composition of its exports, moving gradually awayfrom primary and resource-based exports to more technology-intensive sectors. Simultaneously, India is looking for alternative arrangements to diversify its growing export sector through the regional process.Indian exports are becoming more technology intensive through regionalism than the normal process of trade. Such structural change in the export sector has picked up fast through the regional process during the past decade. These developments suggest that India’s future engagement with regionalism could be worthwhile but with a selected set of RTAs. Since African economies are emerging and recovering speedily from recession, India’s engagement with these economies could lend support to its efforts to achieve early recovery from the present global impasse. The study is to focus on normalisation of trade engagement of African states with India by reducing trade gaps at the bilateral level; examining trade opportunities existing in the region; exploring the nature of protectionism in African countries; identifying and prioritising selected countries and RTAs for improving India’s market access in the continent, among others. Economic Interest of India to Consider Joining Trans Pacific Partnership Agreement in the presence of RCEP and TIPP India has been pursuing the policy of regionalism since the 1970s although country’s support for multilateralism has been undisputed. During the past four decades, India has been engaged with number of regional trading arrangements which are at different stages of negotiations, but efficacy of these regional groupings is under scrutiny for minimising the risk of over exposure of the external sector. The 21st century mega RTAs like TPP, TTIP and RCEP are likely to dominate the global trading system in future and the TPP has already subsumed seven Members of the RCEP and a few of them have shown interest to join the caucus. The TPP is the 21st century RTA which has a stringent agenda of undertaking sweeping reforms in the Member countries. India is already a Member of the RCEP and many countries from the grouping including India, China, South Korea, Thailand, Indonesia, etc., are yet to join the TPP. Joining of China in the TPP is a most important consideration for the grouping since the hidden objective of the TPP is to limit the expansion of Chinese trade and political influence in the Global economy. In this situation India joining the TPP means critical for the country as it has to undertake enormous countrywide reforms to be part of the grouping. At the same time, India has to take the risk of losing large trade opportunities if not joining the mega regional caucus. Timing of joining and loss of trade opportunities are empirical questions which the study would examine for complementing the policy making process.

 

Chinese Trade Engagement with South Asia: Implications for the Regional Economies

 

South Asia has emerged as a vibrant region in the world economy during the past decade, with external sector as the driver of growth for most of the regional economies. This has attracted the global interest for trade and investment with the region including China among others. As an immediate neighbouring country, Chinese engagement with South Asia has been impressive during the last decade. China is deeply engaged with the South Asian regional economies, particularly more with exports than imports, leading to widening of trade gap with many economies. With many of them, China has emerged as the most important partner in recent years. Empirical evidences suggest that large number of products, exported by China to India, are not competitive as compared to many other competitive foreign suppliers in the domestic economy, because of numerous trade strategies adopted by Chinese exporters supported by their state. Chinese exports and imports are more becoming more technology intensive in nature. China is seizing the export opportunities, which are created for the regional economies and losses of such trade opportunities meant for the South Asian regional economies are putting pressure on intra-regional trade to grow. China’s aggressive exports to the region is a natural phenomenon as the country has entered into the bracket of upper middle income group, reaching the threshold of losing global competitiveness in diversified sectors on the face of rising domestic wage rates and depletion of domestic reserve of natural resources. The study would examine empirically these broad issues in the context of China’s growing economic engagement with the South Asian region.

 

Expanding Investment Cooperation in South Asia: Feasibility OFDI from the Region

 

The South Asian region has strong potential to grow, but it has been unable to optimise its growth potential due to its inability to attract sizable FDI. The region is not only a recipient of FDI but also engaged in OFDI. Mobilisation of FDI within the region may help the region in its endeavour to move from shallow to deep integration in a reasonable timeframe. There is a need for a comprehensive regional approach toward balanced flow of FDI in the region considering the investment potential in the region for industrial restructuring. Recent studies show that the region has large potential in Regional Value Chain (RVC) in diversified sectors. Building new institutional set up, particularly South Asia Investment Area could promote production integration. Intra-regional investment (IRI) flow has been very low as compared to several other regional groupings in Asia. The study is to examine the reasons for the low FDI flows to the region; to estimate levels of IRI for number of comparable RTAs over a period of time;to explore the reasons for low Indian OFDI to the region and suggest measures to improve investment climate in the region.

Empirical Assessment of Trade Effects of Non-Tariff Measures: A Cross-Country

 

Analysis With gradual lowering of tariffs, non-tariff measures (NTMs) are perceived to be the most formidable impediments to global trade in the future. At the same time, NTMs, which were traditionally considered as non-tariff barriers, are increasingly being accepted as trade-promoting measures from the angle of its disciplining effects on streamlining trade procedures and minimising distortions in market access. This study will attempt to analyse recent data on NTMs and methodology concerning impact assessment,and empirically examine the impact of NTMs on trade across different country categories and measures.

 

Diversifying Technology-intensive Export Products through the Regional Process

 

Trends in global trade indicate that there has been proliferation of trade in technology-intensive manufacturing products. RIS has initiated a study to identify the globally dynamic products of trade, with high and medium technology intensity. India has been diversifying into technology intensive products with a fair amount of success with export of high technology and medium technology product growing faster than the total exports of India. Further, diversifying India’s exports to include more technology-intensive product groups is of vital importance. Export potential in medium and high technology-intensive products varies across different RTAs. Initial empirical evidence suggests that Indian can diversify its exports of technology-intensive products to RTAs. The European Union (EU), North American Free Trade Agreement (NAFTA), RCEP, Asia-Pacfic Trade Agreement (APTA), South African Development Community (SADC), East African Community (EAC), Economic Community of Western African States (ECOWAS), Economic Community of Central African States (ECCAS), Association of South East Asian Nations (ASEAN), South Asian Association for Regional Cooperation (SAARC), Indian Ocean Rim Association for Regional Cooperation (IOR-ARC), Common Market for Eastern and Southern Africa (COMESA), etc., could be some important export destinations with sizeable trade opportunities.