Date: 08/09/2022

Relevance: GS-2: Global Groupings and Agreements involving India and affecting India’s interests.

Key Phrases: Undermining Of The Multilateral Trade Order, Bilateral Trade And Investment Treaties, Alliance For Multilateralism, Shaper Of The Multilateralism, Strategic Economic Diversification

Why in News?

• The unilateral tariff imposition and other pre-pandemic trade restrictions have undermined the multilateral trade order, shifting the focus towards bilateral trade and investment treaties.

Global trade order before the pandemic:

• The year 2018 had been a watershed in the recent history of international trade.
• The United States unilaterally imposed tariffs on China on a range of goods in order to neutralise the impact of cheap Chinese imports that threatened “national security”.
• The objective was to restrict competition from “cheap metal that is subsidized by foreign countries” which led to a dumping allegation.
• China retaliated by imposing tariffs on 128 American products worth US$ 3 billion in exports to China in 2017.
• This eventually led to a full-fledged trade war between these two nations.
• Other trade conflicts, such as that between Japan and South Korea, were also spurred in the aftermath.
• As tariff impositions were product-specific and not country-specific, other countries eventually joined the row.
• India also, perhaps unwillingly, got included in this trade war, when the country imposed higher duties on 29 key US imports in retaliation.
• The international trade order, principally spearheaded by the WTO since 1995, was severely damaged by this chain of events.
• And then after the pandemic erupted by the end of 2019, the already dented international trade started experiencing more complex problems as lockdowns disrupted the global supply chain periodically.

What is the pattern of overall post-pandemic trade recovery across the world?

• Both merchandise and trade volumes showed a more resilient recovery in 2021, in comparison to the period after the 2008-09 Global Financial crisis.
• However, the revival is mainly driven by merchandise trade whilst services remain subdued.
• Overall trade recovery demonstrates divergence in different regions of the world.
• Whilst Asia has shown a path of recovery in both exports and imports, West Asia, South America, and Africa have the weakest recoveries in exports.
• On the import side, West Asia, the Commonwealth of Independent States (CIS) countries, and Africa are likely to have the slowest recoveries.
• Regions with more oil-reliant export bases went through drastic declines in both merchandise exports and imports during the 2020 pandemic-induced recession.
• South America’s comparatively better import recovery is partly the result of a low base effect, as some key economies were already in recession during 2019.
• Volumes in trade in goods and services showed a strong surge in the first half of 2021, but the growth rate started slowing down in the second half.
• Most of the least developed countries (LDCs) and developing countries also experienced a worsening trade deficit in 2021.
• This clearly shows the unevenness in global trade recovery.

The undermining role of WTO and emerging challenges to multilateralism:

• The gradual dismantling of the trade dispute settlement mechanism at the WTO.
• The blocking of the appointment of judges in the body by successive governments has made the appellate body defunct.
• Though big economies, including the US, have reiterated their commitment to the WTO, trade wars and unilateral decisions on tariff and non-tariff restrictive measures have undermined the role of the WTO in recent times.
• This was preceded by the deadlock in the Doha Round of negotiations due to a lack of consensus on issues related to agricultural subsidies and information technology products.

The shift from multilateralism to bilateralism in the uncertain global trade order:

• Before the pandemic, some of the mega Free Trade Agreements (FTAs) in news included the Trans-Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP).
• However, the withdrawal of the USA from TPP in 2017 and India from RCEP in 2019 drastically reduced the combined market size of both these FTAs.
• Therefore, after the pandemic, the focus has largely shifted toward bilateral trade and investment treaties.
• Meanwhile, there have been drastic geopolitical and subsequent economic shifts that occurred in the last two years.
• Worldwide inflation raised the fear of a probable recession, the ongoing Russia-Ukraine war is likely to result in new political and economic implications, China’s zero-tolerance policy towards COVID-19 already wreaked havoc on global supply chains and the country is also currently facing an economic slowdown.

What should be India’s role in the current geopolitical order?

1. Cooperation with like-minded countries:
   • The current crisis in multilateralism can be a remarkable opportunity for India, a country whose pluralism, democracy, and liberalism have often been underestimated by the West.
   • As some constituencies in the West seek a gradual decoupling from China, they would be well served to look toward India.
   • India can work closely with the Alliance for Multilateralism - an initiative launched by Germany and France - to shape both the alliance itself and the overall reform agenda.
   • Working together with a group of both developed and developing countries can further amplify India’s voice.
2. Focusing on the immediate own region:
   • Connecting the regional ambitions with the global is China’s Belt and Road Initiative (BRI).
   • India too has a potential route to escape an emerging Chinese sphere of influence when the key actors such as the United States, European Union, and Japan are diversifying away from China.
   • India can carve out an important niche for itself as a shaper of the multilateralism that upholds the liberal order by hedging and balancing, and working in coalitions with other countries also facing such dilemmas including in Europe.
3. Relying on the core values of multilateralism:
   • India today seems to be emphasising pragmatism rather than ideology.
   • It can do well to tap into some of the core values of democracy, pluralism, the rule of law, and freedom of speech that it stands for.
   • This attention to values can turn out to be especially important in the context of China’s rise.
4. Choosing the right economic strategies:
   • The people will not support the growing role of India internationally if the government fails to deliver jobs and better living standards.
   • If “self-reliance” under the Atmanirbhar Bharat Abhiyan turns out to be similar to the “self-sufficiency” of earlier decades, India risks undoing its hard-won gains of the last 30 years.
   • Between aggressive globalisation and market closure, India will have to find its “Suvarna madhyam” (golden mean) that will be based on strategic economic diversification within a small group of like-minded countries.
   • Internationally, too, an India rising on sustainable economic growth in cooperation with others who share its values of democracy, pluralism, liberalism, and more will have more bargaining capacity and persuasive power than an inward-looking India caught up in domestic political upheavals and slowing growth rates.
   • A strengthened and reformed multilateralism will need to have strong roots in the domestic politics of the countries that seek to uphold it.

Conclusion:

• Repercussions of the major international phenomena will be extremely uncertain and fluid.
• So, the immediate focus of developing countries and emerging economies, including India, should be to remain vigilant and flexible whilst at the same time protecting their trade interests.
• Safeguarding individual trade interests, in turn, will principally depend upon creating and implementing as many beneficial bilateral trade and investment agreements as possible.

Source: ORF-Online

Mains Question:

Q. The recent developments in the world have undermined the multilateral trade order, shifting the focus towards bilateral trade and investment treaties. In this context, analyze the role India can play in the current geopolitical order. (250 words).