Trade

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  • Prasad asked: What is the significance of TIR convention in facilitating cross border trade and for BBIN?

    Nihar Nayak replies: In June 2017, India became the 71st country to ratify the TIR (Transports Internationaux Routiers or International Road Transports) Convention, an international customs transit system under the auspices of the United Nations Economic Commission for Europe (UNECE).

    China Looks to Africa to Reduce Trade Dependence on the US

    China may or may not succeed in transforming Africa into a substitute market. If it does, the bilateral trade relationship is likely to become more unbalanced and tilted in its own favour leading to greater exploitation of Africa.

    September 18, 2018

    The Coming of the Petroyuan?

    China’s launch of a yuan-denominated oil futures exchange will provide it with the opportunity to create an Asian crude oil benchmark and give it more clout in crude pricing and for promoting the yuan as a truly global currency.

    February 22, 2018

    Muzaffar Hussain asked: Why is India not opening up trade through Ladakh area? Is their any security threat involved?

    Joe Thomas Karackattu replies: Ladakh has historically been a vital link between Tibet, Xinjiang and Central Asia. The connection between Leh and the towns of Yarkand, Kashgar and Khotan are well noted. This connection with Xinjiang was so active that there are people of Yarkandi descent who’ve settled in Ladakh over time. Exports of textiles, tea, spices and oils and import of bullion, silk and carpets was the main economic activity. Tibet was largely dependent on Ladakh for supplies of essential goods (food grains, saffron, shawls, etc). The annual turnover of Ladakh’s trade with Tibet during the Dogra rule is noted to run into several lakhs of rupees, only to be disrupted in 1950, and ultimately coming to a standstill in 1959.

    The decision to open up trade is conditional on both India and China pursuing a broader vision of regional development. There is the outstanding issue of Aksai Chin, which India considers as part of Ladakh. Apart from the settlement of political issues, the region needs an all-weather road network to Leh. The viable connections that could result in revival of economic activity for Ladakh include Demchok in southeastern Ladakh on the Indian side connecting to Tashigang in Tibet. There is also the Nubra Valley of Ladakh region which could be used for smooth conduct of Kailash and Mansarovar yatras (also tourism and employment generation for locals in Ladakh). India can gain reliable access to inner Asia, and even China has much to gain in terms of development of its relatively poorer western regions if these issues are pursued in an overall cooperative framework as opposed to a zero-sum game.

    Harsha AH asked: Even though Iran was willing to accept the payment for India’s oil imports in the Indian currency, why did India declined from doing so?

    Shebonti Ray Dadwal replies: According to reports, Iran is willing to accept payments in rupee for the crude it sells to India but the Reserve Bank of India (RBI) is opposing the idea. Iran's central bank had expressed their vote of confidence in the rupee during their meeting with RBI executives, where they said that they were ready to operate through a State Bank of India (SBI) branch in Mumbai where state oil firms can make rupee payments. But RBI is against this arrangement on the ground of high trade imbalance between the two countries. Iran imports goods from India worth only $1 billion against the huge amount New Delhi pays for its oil. Also, many Indian banks do business with the US and are wary of coming under the US sanctions.

    However, recently it appears that some smaller Indian national banks are being used to make payments to Iran, such as the UCO, Union Bank, etc. In mid-January 2012, a finance ministry team from India will be in Tehran for talks to resolve the payment issue, where some innovative ideas on how barter trade can be conducted on the lines of China-Iran and Iran-South Korea trade may be discussed.

    M.Vivek asked: What was the impact of China's labour unrest on trade relations with countries who's firms had to shut shop?

    Smita Purushottam replies: While it is not always possible to establish a direct relationship or causality between domestic labour unrest/ firm bankruptcy - and bilateral trade relations, hugely competitive Chinese exports can and have hurt importing countries’ economies by contributing to medium/long term redundancy among the latter’s firms. Paul Krugman, a Noble prize winning economist, has called for revaluing the Chinese currency in order to redress some of the imbalance.

    Recent waves of labour unrest in China, including strikes in foreign invested enterprises such as the Japanese Honda company and the Taiwanese Hon Hai enterprise (which also witnessed multiple suicides due to poor labour conditions), have contributed to a revision in wages in many parts of China, particularly in the coastal, more developed regions.

    However it may be premature to jump to conclusions regarding the impact of rising wages on China’s export juggernaut. In fact China’s exports and trade surplus have continued to rise at a very fast clip in July this year. The trade surplus dipped in August as imports rose by 35.2% over the year before, indicating improvement in domestic demand (domestic demand being generally expected to strengthen when the currency appreciates and domestic wages rise, and there has been marginal appreciation in both in China), but exports also rose, though at 34.4% - at a marginally lower rate than imports.

    Also, Michael Porter’s theory of competitive advantage should be kept in mind. He says that higher wages may simply reflect higher productivity, which translates into rising exports. This explains Germany’s success as an exporting country, despite its labour force being paid some of the highest wages on the planet. German products, which embody high technology, and which require an educated and well paid workforce to produce them, continue to command a high premium in export markets. If China is following a high-technology path leading to rising Chinese exports in this segment - trade frictions resulting from bankruptcies in importing countries need not be a phenomenon of the past. Today’s headlines in the Wall Street Journal - http://online.wsj.com/article/SB1000142405274870484710457553213155091774... - clearly indicate that China is competing with western firms in the high tech sector.

    Economist Intelligence Unit annual trade figures for China:

                                               2009 (Actual)      2010 (EIU estimate)
    Exports of goods fob (US$ bn)      1,203.8     1,506.1

    Imports of goods fob (US$ bn)       954.3     1,306.6

    Current-account balance (US$ bn)       297.1     272.5

    TOTAL                                    2158.1     2812.7

    Gopi Krishnan asked: Is the decision to stop subsidies on Petro-products a leverage to open up Indian markets? Won't this affect the common man adversely?

    Shebonti Rad Dadwal replies: There are several factors contributing to the decision to stop subsidies:

    1. Oil marketing firms were losing a lot of money as they had to market products at subsidized rates but had to buy crude at international rates.
    2. The decision to dismantle the administered pricing mechanism was taken a long time back -- 2001-02, but was only partially implemented at the time and then held in abeyance after international crude prices began escalating till 2007 since it was believed that the fallout would have adverse political implications for the government at the time, since elections were round the corner. Also opposition parties were opposed to a price hike.
    3. If India wants to implement reforms and attract investments in the oil sector, a subsidy regime is not conducive to the same.
    4. If market forces are to be allowed to play in the Indian oil sector, then it is necessary to provide the private sector a level playing field. Some private companies which had entered the retail sector had closed down their operations due to difficulty in making profits because of the subsidy regime. With the lowering/removal of subsidies, they can now start their operations again.
    5. In the short term, higher prices will affect the common man. However, in the long run, it will, or should, lead to more efficient functioning of the oil sector, it will prevent black marketeering, and it will force people to use energy more efficiently.
    6. To alleviate the burden on the common man caused by higher oil prices, government could restructure the tax regime on fuels. Taxes comprise some 51% of motor fuels price.

    Trade bloc: Can we trust China?

    Globalisation and regionalisation of trade and investment are drawing in all countries and becoming an irresistible trend in Asia. China is at the centre of this new structure. Since 1992 in particular, as investments in labour-intensive manufacturing from Taiwan, Hong Kong, the US, Japan, Europe and Southeast Asia have moved in a rising wave though the open Chinese door, steeply raising its trade profile.

    April 25, 2005

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