The year 2021 was an eventful one for global trade, with the world economy still struggling to bounce back from the effects of COVID-19. Several key developments took place on both the multilateral and bilateral fronts, including progress on multilateral negotiations, the conclusion of several FTAs as well as important trade policy measures adopted by countries. In this article, we look back and reflect on the key trends and developments in international trade in 2021 and their implications for India and the world. In addition, the article also attempts to identify possible trends in international trade that are likely to play out in 2022 and what businesses may expect going forward.
II. World Trade Organization
A. Key events
The WTO’s 12th Ministerial Conference, which was scheduled to take place from 30 November to 3 December 2021 in Geneva, Switzerland, was postponed indefinitely following the outbreak of the Omicron variant of COVID-19, leaving the fate of certain issues, including the draft text on fishery subsidies which was to be discussed at the event, uncertain. While during the year negotiations on issues such as trade and environment,services and domestic regulation made considerable headway, some other critical areas such as the waiver of intellectual property rights for COVID-19 vaccines lagged . Outside the WTO, governments also made significant progress on the contentious issue of digital services taxes. They agreed to withdraw their respective digital services taxes and retaliatory measures in line with implementing the Organisation for Economic Co-operation and Development, two-pillar solution at the global level..
On the other hand, , the WTO Appellate Body continued to remain non-functional with respect to dispute settlement for yet another year. The year witnessed 8 cases being appealed “into the void” and 7 cases where parties agreed in advance to utilize the multi-party interim appeal arrangement in the event of an appeal. However, with the United States of America (“US”) notifying its decision not to appeal in the case of US — Ripe Olives from Spain (wherein the WTO panel decided against the US), and instead of accepting the adoption of the panel report therein, there were hopes among the WTO membership that the multilateral trading system may yet be revived.
On the negotiating front, while India has been very keen to finalize negotiations over fishery subsidies, it is clear that apprehensions regarding flexibilities for developing countries remain. Whether these will be addressed appropriately remains to be seen. Similarly, India has been one of the strongest proponents of the IP waiver for vaccines, and the issue will continue to be discussed until 2022. The continued lag in the WTO’s negotiating wing may require India to recalibrate its approach to address issues of concern at the bilateral or regional levels.
The continued suspension of the Appellate Body leaves it unclear as to how enforcement of the WTO dispute settlement system will play out. If India were to prevail in some of the Steel and Aluminium tariff disputes against the US, it is unlikely that India will be able to enforce compliance if the US appeals it to the void. Similarly, in some other disputes where India is defending its measures, including the information technology goods dispute, the complainants are unlikely to be able to enforce compliance if they were to prevail, but India chooses to appeal to the void. That said, the possibility of countries adopting unilateral retaliatory measures cannot be completely ruled out.
III. Free Trade Agreements (FTAs)
A. Recent Trends
The year 2021 continued following the recent trend of large powers such as the US and the United Kingdom (“UK”) preferring bilateral trade agreements compared to entering into more significant block agreements, while China requested to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) 2022. Approximately 45 FTAs entered into force in 2021, a majority of these being with the UK as one party. India was no exception to this trend, concluding the India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement (CECPA) in February 2021 and announcing a slew of negotiations for potential FTAs or “early harvest” deals with the UK, Australia, Canada, United Arab Emirates (“UAE”), and Israel.
While India has set ambitious goals for its FTA negotiations in the next few years, key issues would need to be resolved for such negotiations to be ultimately successful, particularly with more considerable powers such as the European Union (“EU”) and the UK. India remains conservative on various critical issues, including data protection and intellectual property, issues on which its trading partners are likely to seek commitments.
Further, an increasing trend seen in the newly concluded FTAs in 2021 was that several of these contained more detailed chapters covering issues that have not been traditionally viewed as “trade issues” such as labour, gender, and environment. For instance, the UK-Australia – FTA made commitments related to trade and gender. There will be an expectation, therefore, that India is open to discussing such traditional “non-trade issues” with its potential trading partners in 2022.
IV. Domestic Trade Policy Measures
A. Recent Trends
The year 2021 also witnessed a host of initiatives being promulgated by nations to address non-trade concerns using trade measures. For example, the Carbon Border Adjustment Mechanism (CBAM) was introduced by the EU to effectively place a “carbon price” on goods imported from countries that are considered to have less stringent carbon pricing arrangements than the EU. Similarly, the US introduced the Uyghur Forced Labor Prevention Act in effort to prevent the importation into the US, of goods produced in whole or in part with forced labor in China. The EU also introduced its proposed Anti-Coercion instrument, empowering the EU Commission to apply trade, investment or other restrictions towards any non-EU country unduly interfering in the policy choices of the EU or its Member States.
Nations also continued to focus on addressing supply chain issues by strengthening their domestic manufacturing capacities across critical sectors such as semiconductors. India was no exception to this trend, having expanded the coverage of its “production linked incentive schemes” or “PLI Schemes” to many more sectors, including electronic products, telecom, food processing, white goods (ACs & LEDs), Solar PV modules, automobiles & auto components, textiles, speciality steel, and semiconductors in 2021.
On the trade remedial front, trade remedies continued to be widely used across the globe in 2021. As has historically been the case, the majority of new investigations concerned metal products, such as steel, while chemical products accounted for the second-largest share of initiations. In light of supply chain issues, the year 2021 also saw the increase in the utilization of duty suspension provisions in the EU, a tool that had seldom been utilized in the past. Following suit, India too introduced similar provisions in its trade remedial rules. India also remained a prolific user of trade remedial actions, having initiated 15 new original anti-dumping investigations in 2021, along with 20 sunset and mid-term review investigations, although there were multiple instances where the Indian Government eventually chose not to levy the duties recommended by the Directorate General of Trade Remedies, seemingly on account of public interest concerns. India also continued to propose mandatory conformity with Bureau of Indian Standards for a host of products and implemented the same for toys.
The introduction of measures such as the CBAM will put added pressure on Indian businesses to either adopt their own methods to address emissions or be at a disadvantage in trade with the EU. The possibility of other nations adopting similar laws necessitates that India addresses these issues on a policy level. With a non-functional Appellate Body, even if some of these measures may be inconsistent with WTO rules, the possibility of an effective remedy at the WTO is significantly reduced.
With increased incentives for domestic manufacturing by countries, countries including India will likely continue to adopt more protectionist policies, including trade-remedial measures. Equally, with the increase in incentives by countries to specific sectors, exports of goods that benefit from such incentives are also likely to face counter-measures from the destination countries. However, as industries across the globe continue to grapple with supply chain issues, it is equally possible that trade-remedial and other protectionist measures are targeted and short-termed depending upon the needs of each country. Further, it is expected that India will continue to grant tariff and other concessions to certain strategic sectors, such as steel, to address continuing supply chain issues.
V. Outlook for 2022: What can we expect for India?
The Indian Government has announced an ambitious goal of export shipment target of US$450-$500 billion by FY22, against US$291 billion in FY21, and it appears to have started 2022 with a fervour towards reaching that goal. In January 2022, it was announced that the US and India had come to an arrangement for the import of mangoes and pomegranates from India, with India making reciprocal commitments on other agricultural products from the US, such as pork. While a good start, several pending issues between India and the US may need to be ironed out in 2022, including the contentious position with respect to tariffs on aluminium and steel (which the US has managed to resolve with the EU in 2021) as well as market access for medical equipment, dairy and poultry products, and duty on motorbikes before further trade concessions can be negotiated.
On the FTA front, the India-UK FTA negotiations were formally launched in January 2022 , and India has also announced that it expects to conclude an FTA with the UAE as early as March 2022 and complete the India – Australia FTA by the end of 2022. Crucially, India has made it clear that sensitive dairy and agriculture items will be kept out of the purview of such negotiations. To prevent the possible misuse of FTA provisions and specifically curb the transhipment of Chinese goods through key transit hubs such as Dubai, India has stated that it will also insist on stricter rules of origin in its FTAs. With little change in India’s political economy and concerns around the agriculture and MSME sector, it remains to be seen whether these negotiations will actually fructify into agreements.
On the manufacturing front, India is expected to continue its focus on self-reliance and “vocal for local” in key sectors. Industries in critical sectors such as steel are lobbying for lower customs duties on raw materials, restoring countervailing duties on stainless steel products from China, further anti-dumping investigations on certain steel products and bringing down dependency on coking coal to develop mines in Jharkhand and simplification of existing PLI Schemes. India is also set to engage in talks with Taiwan for setting up a semiconductor manufacturing hub in an Indian city. It is likely that any substantial concessions on such sectors by India will not be granted in its upcoming FTAs.
At the same time, India may expect increased pressure to address its existing non-tariff barriers, including the slew of mandatory BIS certifications, by its trading partners. Several nations have already raised concerns over such non-tariff barriers at the WTO and are likely to continue doing so in 2022.
India’s tussle with China is also expected to continue into 2022, with India having made several efforts to reduce its dependence on Chinese goods ranging from anti-dumping duties, restrictions on public procurement as well as cancelling railway projects entered into with Chinese companies, instructing BSNL not to use gear from Huawei, and the Government’s mandate to have the ‘Country of Origin’ tag on products in order to identify Chinese goods. The Indian Government in January 2022 also ordered multi-agency probes against the Indian operations of Chinese smartphone companies on accusations of evasion of duties and unfair trade practices.
VI. Outlook for 2022: What can we expect for the globe?
While the world moves towards economic recovery, nations are likely to continue with an approach on self-reliance worldwide.
For instance, the EU is expected to issue an International Procurement Instrument, which would enable the EU to limit, on a case-by-case basis, access to its public procurement market by companies from third countries which restrict access to their markets by EU companies. Similarly, it is also going to crack down on foreign subsidies. Similarly, the US is expected to crack down further on its generalized system of preferences.
Globally, China will continue to serve as a critical challenge to major economies as China’s deal with the US expires and the EU works to pursue “a fairer and rules-based economic relationship” with China.
On the multilateral front, several nations have expressed their desire to pursue reform of the WTO, and to restore the Appellate Body. However, with the US continuing to block appointments and with MC12 indefinitely postponed, it remains to be seen what progress will be made on this in the coming year.
To summarize, despite nations’ focusing on economic recovery, global trade will continue to face protectionist measures as countries make efforts towards reaching self-sufficiency in critical sectors. That said, there will be pockets of liberalization that may result from specific needs of countries due to demand-supply gaps and supply chain concerns or bilateral trade agreements. Businesses, therefore, will continue to operate under challenging environments and will have to keep their eyes open on business opportunities as the global economy readjusts itself in a post-covid world.
While India remains steadfast in its aim towards self-reliance and building up robust manufacturing capabilities, its aspirations regarding export promotion and concluding multiple FTAs may require it to recalibrate its approach to trade. Particularly, with the multilateral trading system remaining in limbo, India would need to develop its own independent and coherent policy positions with respect to issues towards which it has previously remained ambivalent. “Trade-adjacent” issues such as sustainability and the environment, good labour practices, social diversity, etc., will now become decisive factors in successful bilateral negotiations. Without the WTO, definitively dictating the way forward on these issues and without built-in flexibilities for India as a developing country, a more proactive approach will be required from India in order to align with the expectations of its trading partners, to meet its lofty export goals and enter the “new order” of world trade.
Disclaimer: The views are the authors’ personal and do not necessarily reflect those of the firm
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