CHAPTER 1 INTRODUCTION OF TRENDS IN GLOBAL TRADE

Our world has seen fundamental and pervasive change in the last 50 years. National economies are increasingly integrated in a global economic structure where all the elements needed to produce a final good or serviceproduction of inputs, design, assembly, management, marketing, savings for investment may be sourced from around the globe in a system held together by powerful communications and information technologies. The trend toward globalization has been driven in part by these new technologies, and in part by reduced barriers to international trade and investment flows. The result has been a steady increase in the importance of international trade in the global economy: in the last 50 years, while the global economy quintupled, world trade grew by a factor of 14. Another important trend is increasing inequity; the benefits of growth have been unevenly spread. Although average global income now exceeds $5,000 US per person a year, 1.3 billion people still survive on incomes of less than a dollar a day. The world's three richest people have a combined wealth greater than the GDPs of the 48 least developed countries. And the growing inequality between and within nations shows no signs of abating. In the last 50 years, the world has also seen enormous environmental change. Global carbon dioxide emissions have quadrupled, and the steady increase in nitrogen releases from cars and fertilizers is creating deserts of lifelessness in our oceans and lakes. One-quarter of the world's fish stocks are depleted, and another 44 per cent are being fished at their biological limits. In 30 years, if current trends continue, two-thirds of the world will live with "water stress"having less than 1,000 litres of water per person a year. Daily, 25,000 people die because of diseases caused by poor water management. A quarter of the world's mammal species are at significant risk of extinction. Such environmental damage has been driven at least in part by our increasing numbers population has increased about 2 times since 1950, to over 6 billion in 1999. The institutions for addressing such problems have also evolved. In the last 15 years alone 11 major multilateral environmental agreements have entered into force, dealing with such issues as ozone depletion, transport of hazardous waste, and migratory species. At the regional or bilateral level roughly a thousand more have entered into force, constituting an enormous and complex body of environmental law. At the national level, regulators have moved from blanket "command and control" solutions to a mixed bag of tools that includes marketbased incentives such as pollution charges and taxes. For select problems the result
Page | 1

has been marked by environmental improvement, but for many more the discouraging trends continue. We live in a world that is highly interconnected by a bewildering array of complex economic transactions, social and environmental problems, and international political collaborations and conflicts. Examples from global economics are found in the news every day. A decision by American policymakers to subsidize the production of ethanol, a form of gasoline containing an additive produced from corn, is seen by many as a key reason that grain prices are high around the world. The spectacular emergence of China as a major exporter of manufactured goods has affected wages in both rich and poor countries. As large corporations, such as Microsoft, Intel, Toyota, General Electric, and Siemens have expanded their investments in affiliates in many nations around the world, they have built global production networks that share technological knowledge across locations to produce increasingly complex goods that could be sold anywhere. Today, a major cultural product, such as a Hollywood movie or a jazz bands latest compact disk, is likely to employ creative personnel from around the world, with various components of the product recorded, mixed or edited in different locations. The importance of international connections in trade, investment, and skilled services cane illustrated by considering the apparently simple act of making and bringing to market an item of apparel, say a fashionable woolen mens suit. The initial task is to design the suit, a highly creative activity that generally takes place in the headquarters of a major fashion label, such as Armani or Hugo Boss. Beyond that, the firm must locate reliable suppliers of raw wool, which could be farmers in New Zealand, Argentina, Scotland, or elsewhere. The wool needs to be spun into yarn and then woven into finished fabrics, tasks that are likely to be done in low-wage economies with abundant labor, such as Vietnam or Bangladesh, both major centers of fabric

Page | 2

CHAPTER 2 ORIGIN OF GLOBAL TRADE

The modern system of international environmental management dates to the 1972 United Nations Conference on the Human Environment, held in Stockholm. Several international environmental agreements, in particular some on marine pollution, predate the Stockholm Conference but this first major environmental event triggered a flurry of activity at national and international levels, as countries and other international organizations responded to the emerging challenges of environmental management at all levels. The Stockholm Conference also pioneered new forms of public participation in a United Nations conference, establishing links between the formal process and the informal parallel NGO process. The Stockholm Conference led to the establishment of the United Nations Environment Programme, headquartered in Nairobi, Kenya. UNEP was to act as a catalyst for the environment in the United Nations system, but its means were modest compared with the dimensions of its task. Over the years, however, UNEP has launched a significant number of international agreements, and today has administrative responsibility for seven major conventions as well as many regional agreements. It has also acted as the environmental conscience of the United Nations system. It soon became obvious that the Stockholm Conference's focus on the environment without due concern for development was not enough for the long-term advancement of the international environmental agenda. In 1985 the United Nations established the World Commission on Environment and Development, which issued its report, Our common future, in 1987. This report first articulated the concept of sustainable development systematically (see Box 2-1). This in turn became the basis for a major review of all international environmental activities in the United Nations through the United Nations Conference on Environment and Development, held in 1992 in Rio de Janeiro, Brazil. UNCED articulated an ambitious program of sustainable development, contained in the final Conference document, known as Agenda 21. The Rio Conference helped establish the United Nations Commission on Sustainable Development and reaffirmed the role of the Global Environment Facility, thus widening the organizational basis for the environment and sustainable development within the United Nations system. UNCED was the fulcrum on which states were able to conclude the Framework Convention on Climate Change and the Convention on Biological Diversity, after
Page | 3

short and very intense negotiations. UNCED also pioneered innovative ways for the public to participate in intergovernmental processes. International environmental regimes involve complex interactions between the parties, their subnational jurisdictions, their citizens and, sometimes, other stakeholders. In practice it often takes several rounds of negotiation before an effective regime emerges. Even then, implementing an MEA at the national level and monitoring its progress at the international level are not simple matters. Among other things they require continual adjustment of the regime the result of intensive further research on the environmental problem, and on the regime's effectivenessand of public debate on the results of the research. International environmental regimes are based on consent. Only the PIC Convention has an elaborate dispute settlement structure, reflecting the fact that it is designed primarily to manage trade in certain hazardous substances rather than protect a specific environmental resource. It is widely recognized that coercion is not a sound basis for environmental policy. Therefore, just as countries use criminal penalties to enforce environmental laws only in cases of extreme disregard, so too do international environmental regimes use coercive dispute settlement only on rare occasions. Most of these cases tend to be disputes over shared waters in regional or bilateral agreements. Transparency and participation are arguably the most important implementation tools of international environmental regimes but implementation may need the help of an arm's-length agency. Since NGOs can go where governments sometimes fear to tread, they can be critical of countries' internal implementation of MEAs and exert pressure on their own governments for good faith compliance. Scientifically based assessments of environmental developments provide the foundation for most of these agreements, and all of this activity depends on a free flow of information and ready access to decision-making in the regime Although the crisis had its origins primarily in the United States (US), developing countries have been hit especially hard. The World Bank estimates that the economic downturn will add an additional 53 million people to the ranks of those living on less than USD 1.25 a day and 64 million to those living on less than USD 2 a day (World Bank 2009b). Exports from the developing world were projected to fall by 33% in 2009, as the foreign demand that had underpinned the growth of many countries evaporates. Sadly, it is the less successful developing country exporters, the very countries that were largely left out of the export boom of the past three decades, that fared the
Page | 4

worst. Londons Centre for Economic Policy Research demonstrates that although China, India and Brazil saw exports decline by between 19% and 33% in the second half of 2008, countries not belonging to the top 20 developing country exporters (for those where data are available) saw exports fall by even more (Hufbauer and Stephenson 2009). Ecuador and Zambia, for instance, saw exports drop by over 50%. In volume terms too, including for manufactures, these generally poorer countries are doing worse than the 20 most successful developing country exporters. And people in those countries are likely to be particularly vulnerable to still-high food prices and declining remittances from abroad. At the time of writing in October 2009 there was an increasing sense that a catastrophic collapse of the global financial system had been averted, although some experts remain wary of a double-dip recession. In its World Economic Outlook, released in October 2009, the International Monetary Fund (IMF) revised its growth estimates for 2010 upwards from April 2009. Rich country output should increase by 1.7% for advanced countries in 2010, according to the IMF. The figure for emerging market and developing countries was 5.5%, for a global average of 3.2%. However, the IMF warned that much of this growth was the result of government spending and emphasized risks arising from high government debt (IMF 2009). The context for global trade in 2009 was dominated by the worlds most severe financial and economic crisis since the 1930s. Global economic output shrank for the first time since the Second World War. Growth in the developing world as a whole remained positive but was far below the levels seen in recent years.

Page | 5

CHAPTER 3 TRENDS IN GLOBAL TRADE IN INDIA

Introduction India's trade has generally grown at a faster rate compared to the growth of GDP over the past two decades. With the liberalization since 1991 in particular, the importance of international trade in Indias economy has grown considerably. As a result the ratio of international trade to GDP has gone up from 14 per cent in 1980 to nearly 20 per cent towards the end of the decade of 1990s. Given the trends of globalization and liberalization, the openness of Indian economy is expected to grow further in the coming two decades. The more exact magnitude of India's trade in 2020 and its proportion to India's national income would be determined by a variety of factors. Many of these factors are in the nature of external shocks and are beyond the control of national policy making. One illustration is the recent surge in the crude oil prices in the international market to unprecedented levels that have impacted the countrys imports in a significant manner. In addition, the implementation of various WTO agreements are likely to affect the India's trade. India's trade is also likely to be affected by various bilateral/ regional preferential trade arrangements that have been concluded and those that might take shape in the coming years.

This paper attempts to provide a mapping of different factors that are likely to shape the patterns and magnitudes of India's imports and exports over the coming two decades. These factors are classified into three, namely: 1) factors affecting the demand for India's exports of goods and services; 2) factors affecting the supply of India's exports of goods and services; and 3) factors affecting the demand for India's imports. The supply of imports may be assumed to be elastic and hence is not discussed. The structure of the paper is as follows. Section 1 maps out various factors affecting demand for Indias exports, Section 2, factors affecting supply of Indias exports. Section 3 lists the factors that are likely to affect demand for Indias imports. Section 4 briefly summarizes emerging patterns of Indias comparative advantage in exports of good and services. Section 5 makes some concluding remarks.

Page | 6

1. Factors Affecting the Demand for Exports There is amltitude of factors that are likely to affect the demand for India's exports of goods and services as seen below.

1.1 Growth Performance of World Economy and Key Trading Regions The growth rates of the world economy and world trade do influence the overall demand for India's exports. For instance, the rates of stagnation in the growth rate of world trade in the period since 1996 have affected the growth of India's exports. Some broad correspondence between the growth rates of world trade and Indian exports is evident from Figure 1. Depending upon the intensities of India's trade relations the growth prospects in these specific regions may also affect the demand for India's exports. The regions which may be particularly important for India's exports include North America, the European Union, Middle East, East and Southeast Asia and South Asia. Therefore, it will be important to watch the growth outlook and projections for these regions. Figure 1: Growth Rates of World Trade and India's Exports Over the 1990s
25 20 15 10 5 0 -5 -10
Percentage

1991 1992 1993 1994 1995 1996 1997 1998 1999

India's exports

World Trade

Source: RIS on the basis of WEO Database of the IMF

1.1.1. World Output and Trade at the Turn of the Century and the Outlook The world economy in 2000 seems to have fully recovered from the slow down of 1998-1999 on account of the East Asian crisis. The estimated world output growth of 4.8 percent in 2000 is highest since 1988 and of world trade at 12.4 percent is highest of the past 25 years (Table 1, Figure 1). The impressive recovery of the world economy and world trade in the early part of 2000 generated optimism all
Page | 7

around as countries expected to benefit from favourable spillovers in the form of rise in demand for their exports. However, the optimism has proved to be short lived. It has been partly tarnished somewhat by the crude oil prices hitting the roof in the third quarter of 2000 and adversely affecting the outlook of many regions besides raising the threats of inflation in different parts of the world. Furthermore and more importantly, the emerging trends confirm that a trend of slow down was set in the US economy in the third quarter of the 2000. Hence, fears of a hard landing of the US economy in 2001 have continued to grow. A scenario of hard landing of the US economy in 2001 is thus likely to short-circuit the rebound of the world economy of 1999-2000, even though the major European Union economies are improving their performance. The Japanese economy continues to remain sluggish.

The slow down of the US economy has a compounded effect on the growth of the world economy by adversely affecting the demand for the products of partner countries as well. As a result the growth rate of world output is likely to slow down in 2001 from the levels reached in 2000 to 3.2. The world economy is expected to pick up moderately to 3.9 per cent in 2002. The effect of the impending slow down is more severe on the growth rate of world trade which is likely to reduce by nearly half from the rate achieved in 2000 to around 6.5 per cent in 2001 and 2001. In the light of recent trends, the outlook for the world economy and trade growth over the next ten years could be taken at 3 and 6 per cent respectively. Table 1: Annual Growth Rates of World Output and World Trade (Percentage p.a.) 1991 1992 199 199 199 199 1997 199 1999 2000 2001 2002 p p 3 4 5 6 8 World GDP Real 1.5 2 2.3 3.7 3.6 4.1 4.1 2.6 3.5 4.8 3.2 3.9 8.9 6.7 9.8 4.3 5.3 12.4 6.7 6.5

World Trade in 4.5 4.5 3.8 9 goods and services

Source: RIS on the basis of WEO Database of the IMF.

Page | 8

Table 2 summarizes the growth rates of output in key regions of the world and projections for the coming years.

Table 2: Growth Outlook in Indias Major Trade Partners Region/ country WB/GEP Projections (12/00) 1998 1999 World United States European Union Japan Developing Countries Developing Asia East Asia 5* South Asia Middle East Latin America and 2.0 the Caribbean Sub-Saharan Africa 2.0 2.6 4.4 2.7 -2.5 3.5 4.1 -8.2 5.6 3.5 4.2 2.6 0.8 3.8 6.1 6.7 5.7 0.8 0.2 2.3 2000 4.8 5.0 3.4 1.7 5.8 6.9 6.9 6.4 5.4 4.1 3.0 4.1 3.4 4.3 3.7 5.5 5.5 5.1 5.5 2001 3.4 3.2 3.2 2.1 5.0 2002 3.2 2.9 2.8 2.2 4.8 IMF/WEO Projections (05/01) 2001 3.2 1.5 2.4 0.6 5.0 5.9 3.4# 5.6 2.9 3.7 4.2 2002 3.9 2.5 2.8 1.5 5.6 6.3 4.7# 5.9 4.6 4.4 4.4

*Indonesia, South Korea, Malaysia, the Philippines, and Thailand. #ASEAN-4. Source: RIS based on World Bank (2001), IMF (2001).

Page | 9

1.2 WTO Agreements Since the implementation of the Final Act of the Uruguay Round in 1995, the WTO Agreements have become important factors in determining the patterns of world trade. Their full impact is not yet obvious as many provisions of these agreements are yet to be implemented because of the transition period provided. Most of the remaining provisions of the WTO agreements would be implemented in the coming five years. Therefore, the patterns of trade in 2020 would have to be speculated keeping in mind the impact of full implementation of the WTO agreements. Some of the agreements which are likely to affect India's exports are the following.

1.2.1 Agreement on Textiles and Clothing The Agreement on Textiles and Clothing (ATC) proposes to phase out the MFA quotas imposed by the developed countries on the imports of textiles and clothing from developing countries over a period of 10 years ending on 31st December 2004. Given the fact that India has substantially fulfilled her quota for the products coming under MFA, it may appear that the phasing out of these quotas would help in the expansion of exports. However, the impact of the phase out is likely to be a mixed bag. This is because with MFA phase out, Indian exporters would be competing directly with other exporters of textiles and garments such as China, Korea, Taiwan, Pakistan, Thailand, Turkey, Mexico, Hong Kong, Indonesia, Macau, Philippines, Sri Lanka, Bangladesh, among others. Therefore, while ATC provides an opportunity to Indian exporters to expand their exports of textiles and garments by removing the quota restrictions, it also poses a challenge of increased international competition. Some of them will enjoy preferential access to the importing countries due to their least developed country (LDC) status such as Bangladesh.

There are apprehensions on the full benefits of phase out being available to developing countries. As such the schedule of the phase-out has been backloaded over a ten-year long phase-out period. The industrialized countries may use other protectionist measures such as anti-dumping to prevent market access after the phase-out of quotas. A large number of textiles and clothing products already face tariffs in the range of 15 to 30 per cent in the Quad countries (World Bank, 2000). Some attempts of restricting them with

Page | 10

anti-dumping duties have already been made against these exports including those from India.

Another factor that will affect the competitiveness of Indian exports of textiles and garments in the post-MFA regime is the availability of trade preferences to emerging competitors of India. For instance, Mediterranean countries such as Turkey, Cyprus and Malta and Central and Eastern European countries enjoy free trade agreement with the European Union ahead of their full membership. The Caribbean countries enjoy a similar preferential access to the United States market under the Caribbean Basin Initiative (CBI). Mexico enjoys a privileged access to the North American Market as a member of NAFTA. These trade preferences have already resulted into diversion of trade in textiles and clothing to these countries. For instance, Mexican exports of clothing to the United States have grown at the rate of 27 and 15 percent in 1998 and 1999, respectively with the growth rate of exports to Canada in these years being 30 percent and 26 percent, respectively. Similarly, exports of clothing from Bulgaria, Hungary, Poland, Romania, Turkey to the European Union in 1998 have grown at 26 percent, 14 percent, 11 percent, 23 percent and 11 percent, respectively (WTO, 2000).

The ability of Indian exporters to take advantage of phase out the MFA quotas by 2004 will depend upon a number of factors such as their ability to enhance overall international competitiveness with productivity and efficiency improvements, quality control, ability to quickly come up with new designs, ability to respond to changes in consumer preferences rapidly and the ability to move up the value chain by building brand names and acquiring channels of distribution to more than outweigh the advantages of her competitors. The reservation of the garment industry for small-scale sector has affected capital investment, modernization and automation in the sector in the country. Although the small sector operation has imparted flexibility, it has prevented exploitation of economies of scale and scope by the Indian industry. The new Textiles Policy takes care of some of the concerns. It remains to be seen if the Indian industry will be able to exploit the opportunities provided by the increased market access with the MFA phase-out.

Page | 11

1.2.2. Agreement on Agriculture (AoA): The AoA proposes to liberalize the international trade in agriculture by restricting the agricultural subsidies provided by governments to the farmers, reduction in export subsidies in agriculture, removal of QRs and establishment of tariff rate quotas applicable to trade in agricultural commodities. In general Indias obligations under AoA are limited given the low level of agricultural subsidies compared to EU and the US. It is believed that implementation of the AoA commitments by industrialized countries will benefit countries like India in terms of market access for some agricultural commodities. However, the implementation of the commitments on the part of industrialized countries so far does not provide any room for optimism. The extent of subsidies given by industrialized countries have actually increased over the past few years as acknowledged by OECD reports. It is possible that in the coming years the provisions of the Agreement are implemented in the letter and spirit. The likely effect of the full implementation on Indias trade is difficult to be speculated. However, one can have an idea about the likely scenario from efficiency indicators and incentive structure. Given lower than world prices of rice, wheat, maize, sorghum, chickpea and cotton in India, their exports may expand under the liberalised trade in agriculture. Hence the area under cultivation for these crops may increase since profitability and effective incentives will get tilted in favour of these crops. The same is true for pearl millet, pigeonpea and soyabean. However, production of oilseeds e.g. groundnut, rapeseed, mustard and sunflower, and pulses may be adversely affected in a free-trade scenario given the lower world prices. Thus, the import dependence in edible oils and pulses may increase.

1.2.3. Anti-dumping Regulations The Indian exports of a number of commodities have been subjected to antidumping regulations by some of our important trading partners such as the United States and the European Union. The onslaught of the anti-dumping measures on Indian exports is likely to increase in future with the growing competitiveness of Indian products. In order to minimize their disruptive effect of these regulations on India's exports, the industry and government will have to strengthen the machinery to counter such actions (Panchamukhi, 2000).

Page | 12

1.2.4. Tariff Negotiations and New Trade Round Although the average tariff rates in the industrialized countries are low, they have high peak tariffs for certain products, some of which are of export interest to India such as textiles and garments, and agricultural commodities (see Table 3). Market access for these products could be facilitated by our ability to secure reduction in these tariffs in the industrialized countries through future tariff negotiations in the WTO framework.

Table 3 : Distribution of Tariff Peaks by Product Groups in Quad Countries Product group Total No. of Items No. Share of 1222- 32100- >=30 peak in Total 19% 29% 99% 299 0% s (%) % Total

European Union Agricultural and 2779 544 fishery products (124) Mineral products, 257 fuels (25-27) 0 331 313 31 2 1221 97.7

0 0 7 338

0 0 8 341

0 0 0 31

0 0 0 2

0 6 42

0 0.5 3.3

Leather, textiles, 1565 6 clothing (41-43,50-64) Industrial (28-96) products 7771 27

ALL PRODUCTS (1- 10807 571 96) Japan Agricultural fishery products and 1897 204

1263 100

299

111

81

65

760

85.1

Page | 13

Mineral fuels Leather, clothing

products, 194

0 39 39 338

0 15 15 126

0 28 28 109

0 7 7 72

0 131 133 893

0 14.7 14.9 100

textiles, 2410 42 6880 44 8971 248

Industrial products ALL PRODUCTS USA Agricultural fishery products Mineral fuels Leather, clothing

and 1779 138 0

70 0 110 127 197

99 0 40 45 144

15 0 0 0 15

11 0 0 0 11

333 0 524 579 912

36.6 0 57.4 63.4 100

products, 183

textiles, 1814 374 8123 407 10085 545

Industrial products ALL PRODUCTS Canada Agricultural fishery products Mineral fuels Leather, clothing

and 1429 65 5

10 0 27 39 49

16 0 0 0 16

68 0 0 0 68

0 0 0 0 0

159 5 347 413 577

27.4 0.9 60.1 71.6 100

products, 187

textiles, 1209 320 6791 374 8407 444

Industrial products ALL PRODUCTS

N.B. HS Chapters are given in parentheses. Source: RIS based on UNCTAD/WTO (2000) The Post-Uruguay Round Tariff Environment For Developing Country Exports: Tariff Peaks and Tariff Escalation , UNCTAD, Geneva (TD/B/COM.1/14/Rev.1; 28 January 2000)
Page | 14

1.2.5. Trade Preferences for the Least Developed Countries One emerging development in the WTO system has been the tendency to divide the developing countries with the offer of special trade preferences for the least developed countries. A sizeable proportion of India's exports still comprise labour and resource intensive goods that are also exported by some of the least developed countries. If successful these preferences have the prospects of diverting trade from India to the least developed countries. The potential of these trade preferences for adversely affect ing Indias exports needs to be kept in mind.

Page | 15

CHAPTER 4 IMPORTANCE
In the context of the global crisis international merchandise trade registered its greatest plunge since the Second World War: Between the fall of 2008 and the spring of 2009 global trade collapsed by 20 per cent in volume. Having initially rebounded sharply beginning in mid 2009, growth in international merchandise trade then slowed again in the course of 2010. While regaining its pre-crisis peak level in that year, the global crisis appears to have left a marked impact on the dynamism of global trade, keeping the volume of global trade well below its precrisis growth trajectory(Chart) with global prospects dimming by year-end 2011. Apart from remaining unfinished, the trade recovery has also been rather uneven. By the end of 2011, in developed countries as well as in South-East Europe and the Commonwealth of Independent States (CIS), where the trade collapse had been sharpest, merchandise trade in volume terms has yet to even reclaim its pre-crisis level. By contrast, the volume of both imports and exports in most groups of developing countries had already exceeded their pre-crisis peak in the course of 2010, with East Asia, China in particular, leading the expansion. Globalization features the rise in global exports relative to global income, while individual countries see their respective exports and imports rise as shares of national income (Motion chart). In other words, a rising proportion of global production of goods and services is being traded across borders rather than sold at home. The global crisis has brought the long-run trend of rising global integration through trade to a halt, at least temporarily. The pre-crisis trend toward more openness and ever-deeper trade integration might well firmly reestablish itself in due course. But persistence or trend reversal seem also possible. At a time of high unemployment, fiscal austerity, and complaints of currency wars, the threat of rising trade protectionism is looming large. The global crisis and uneven trade recovery have reinforced the ongoing shift in balance in the world economy, featuring the relative decline of developed countries (Chart). In 2010 the value of total merchandise exports from all countries of the world was $15 trillion (in current United States dollars), of which the share of developed countries was 54 percent, down from 60 percent in 2005. As the worlds leading merchandise exporter since 2009, Chinas share of world exports climbed to 10 per cent in 2010, ahead of the United States (8 per cent), Germany (8 per cent), and Japan (5 per cent) (Table). On the import side, the

Page | 16

ranking still shows the United States in first place (13 per cent), followed by China (9 per cent), Germany (7 per cent), and Japan (4.5 per cent) (Table).

The shifting global balance is also visible in the changing distribution of exports by destination, featuring the rising importance of trade among developing countries. The rise in South-South trade has been especially pronounced in East Asia and is linked to the gain in prominence of global supply chains. While developing countries as a whole have become the key driving force behind global trade dynamics in the 2000s, and especially so since the recovery from the global trade collapse in 2008-2009, contributing 54 per cent to the overall rebound from it, performance varies considerably between regions and countries within the aggregate. Especially successful were developing economies in Asia. In general, progress in least developed countries (LDCs) and other low-income economies, after having fallen behind since the 1960s, has picked up somewhat, as they could recapture some of the lost ground since the mid-2000s. Helped by improvements in commodity prices, the export share of the LDCs, the majority of which are in subSaharan Africa and commodity-dependent, rose from 0.6 percent in 2001 to 1.1 percent in 2010 (Chart). Yet commodity price increases have been a mixed blessing even to LDCs, proving harmful rather than beneficial to some. Especially low-income, food-deficit countries that had suffered severely in the food crisis of 2007-2008 were again affected negatively in 2010-2011. While an upward trend in world primary commodity prices asserted itself in the 2000s, reversing the prior downward trend that had been in place since 1995, the period surrounding the global crisis witnessed commodity prices taking a rollercoaster ride. The boom years since 2002 ended with a severe nosedive from their peak level of mid-2008, followed by a sharp rebound that took prices back to 2007 levels by early 2011 (Chart), when a sizeable correction began together with
Page | 17

soaring volatility. Heightened market instability and price volatility (Table) have become the norm as uncertainty about the global recovery is weighing on market participants minds. Commodity price developments since 2002 came along with sizeable changes to terms of trade. In general, countries exporting oil and mining products saw substantial terms-of-trade gains, while those exporting mainly manufactures and importing raw materials, especially oil, experienced losses. Countries with more diversified exports and exporters of agriculture products experienced relative stability (Chart) while manufactured goods exporters were confronted with a decline trend. Terms of trade changes can have substantial impacts on economies depending on their openness, in particular, either adding or subtracting from real domestic income. In the aggregate, all the developing regions gained, with the exception of East, South and South-East Asia (where manufactures constitute the largest share of exports). Wide differences exist within each region, however.

Page | 18

CHAPTER 5 IMPORTANCE OF WTO

The basics of the WTO The foundations of the international trade regime date back to 1947 when the General Agreement on Tariffs and Trade was concluded. This Agreement, salvaged from an unratified larger agreement called the International Trade Organization, was one piece of the so-called Bretton-Woods system, designed in the post-World War II environment to promote and manage global economic development. (The International Monetary Fund and International Bank for Reconstruction and Developmentthe World Bankwere the other two main pieces.) GATT established the two basic directions for the trade regime:

Developing requirements to lower and eliminate tariffs, and Creating obligations to prevent or eliminate other types of impediments or barriers to trade (non-tariff barriers).

From 1948 to 1994, eight negotiating "Rounds" took place under the auspices of GATT to further develop the trade regime along both these lines. Early rounds focused more on tariffs alone, but non-tariff barriers have since come to the fore. The last of these negotiations, the "Uruguay Round," concluded in 1994. TheMarrakech Agreement Establishing the World Trade Organization marked the end of the Round. It also created the World Trade Organization. In this section, the basic elements of the WTO and its law are identified. These include the most important components, functions, principles and agreements that provide the foundation for today's modern trade regime. The World Trade Organization came into force on January 1, 1995, fully replacing the previous GATT Secretariat as the organization responsible for administering the international trade regime. The basic structure of the WTO includes the following bodies

The Ministerial Conference, which is composed of international trade ministers from all member countries. This is the governing body of the WTO, responsible for setting the strategic direction of the organization and making all final decisions on agreements under its wings. The Ministerial Conference meets at least once every two years. Although voting can take place, decisions are generally taken by consensus, a process that can at times be difficult, particularly in a body composed of 136 very different members.
Page | 19

The General Council, composed of senior representatives (usually ambassador level) of all members. It is responsible for overseeing the dayto-day business and management of the WTO, and is based at the WTO headquarters in Geneva. In practice, this is the key decision-making arm of the WTO for most issues. Several of the bodies described below report directly to the General Council.

The Trade Policy Review Body is also composed of all the WTO members, and oversees the Trade Policy Review Mechanism, a product of the Uruguay Round. It periodically reviews the trade policies and practices of all member states. These reviews are intended to provide a general indication of how states are implementing their obligations, and to contribute to improved adherence by the WTO parties to their obligations.

The Dispute Settlement Body is also composed of all the WTO members. It oversees the implementation and effectiveness of the dispute resolution process for all WTO agreements, and the implementation of the decisions on WTO disputes. Disputes are heard and ruled on by dispute resolution panels chosen individually for each case, and the permanent Appellate Body that was established in 1994. Dispute resolution is mandatory and binding on all members. A final decision of the Appellate Body can only be reversed by a full consensus of the Dispute Settlement Body.

The Councils on Trade in Goods and Trade in Services operate under the mandate of the General Council and are composed of all members. They provide a mechanism to oversee the details of the general and specific agreements on trade in goods (such as those on textiles and agriculture) and trade in services. There is also a Council for the Agreement on TradeRelated Aspects of Intellectual Property Rights, dealing with just that agreement and subject area.

Page | 20

The Secretariat and Director General of the WTO reside in Geneva, in the old home of GATT. The Secretariat now numbers just under 550 people, and undertakes the administrative functions of running all aspects of the organization. The Secretariat has no legal decision-making powers but provides vital services, and often advice, to those who do. The Secretariat is headed by the Director General, who is elected by the members.

The Committee on Trade and Development and Committee on Trade and Environment are two of the several committees continued or established under the Marrakech Agreement in 1994. They have specific mandates to focus on these relationships, which are especially relevant to how the WTO deals with sustainable development issues. The Committee on Trade and Development was established in 1965. The forerunner to the Committee on Trade and Environment (the Group on Environmental Measures and International Trade) was established in 1971, but did not meet until 1992. Both Committees are now active as discussion grounds but do not actually negotiate trade rules. The mandate of the CTE is discussed in greater detail

Functions of the WTO The main functions of the WTO can be described in very simple terms. These are:

To oversee implementing and administering WTO agreements; To provide a forum for negotiations; and To provide a dispute settlement mechanism.

The goals behind these functions are set out in the preamble to the Marrakech Agreement. These include:

Raising standards of living; Ensuring full employment; Ensuring large and steadily growing real incomes and demand; and Expanding the production of and trade in goods and services.

These objectives are to be achieved while allowing for the optimal use of the world's resources in accordance with the objective of sustainable development, and while seeking to protect and preserve the environment. The preamble also specifically mentions the need to assist developing countries, especially the least developed countries, secure a growing share of international trade.
Page | 21

The core principles The WTO aims to achieve its objectives by reducing existing barriers to trade and by preventing new ones from developing. It seeks to ensure fair and equal competitive conditions for market access, and predictability of access for all traded goods and services. This approach is based on two fundamental principles: the national-treatment and most-favoured nation principles. Together, they form the critical "discipline" of non-discrimination at the core of trade law.

The principle of national treatment requires, in its simplest terms, that the goods and services of other countries be treated in the same way as those of your own country. The most-favoured nation principle requires that if special treatment is given to the goods and services of one country, they must be given to all WTO member countries. No one country should receive favours that distort trade.

Members follow these principles of non-discrimination among "like products" those of a similar quality that perform similar functions in a similar way. They are, of course, free to discriminate among products that are not like-foreign oranges need not be treated the same as domestic carrots. Note, however, that products that are not physically or chemically identical can still be considered like products if, among other things, the products have the same end use, perform to the same standards and require nothing different for handling or disposal. The "like products test," which tries to determine which products are and are not like, is thus of central importance. These two complementary principles and the notion of "like products" are discussed further Sustainable development: Some argue that the concept of sustainable development has now emerged as a principle to guide the interpretation of the WTO Agreements, though not at the level of the core principles of non-discrimination. In the 1998 Appellate Body ruling in the so-called shrimp-turtle case, it was made clear that the interpretation of WTO law should reflect the Uruguay Round's deliberate inclusion of the language and concept of sustainable development. This ruling may have moved the WTO toward requiring the legal provisions of its agreements to be interpreted and applied in light of the principles and legal standards of sustainable development.

Page | 22

CHAPTER 6 PHYSICAL AND ECONOMICAL LINKAGES

In the introduction we argued that there is no simple pattern to the relationship between trade, environment and development. Depending on the sector, the country, the markets and prevailing policies, trade and trade liberalization may be good or bad for the environment and development. In fact, they will usually be both at oncegood in some ways, bad in others. This chapter illustrates the point by listing and explaining the complex physical and economic linkages that bind trade and sustainable development. For the most part, these consist of the impacts of trade on environment and development. The next chapter, on legal and regulatory linkages, widens the scope to also include the impacts of environmental concerns and environmental law on trade. Trade flows and trade liberalization have at least four types of physical and economic impacts on environment and development: product effects, technology effects, scale effects and structural effects.1 Each of these is examined in the following pages. Product effects occur when the traded products themselves have an impact on the environment or development. On the positive side, trade may lead to spreading of new technologies for protecting the environment, such as microbial techniques for cleaning up oil spills. Or it may more rapidly spread goods or technologies that have less environmental impactfor example, solar power technology or more fuel-efficient automobilesthan those currently used. Openness to trade and investment can also help contribute to development objectives, by facilitating transfer of new and improved technologies and management systems. On the negative side trade can facilitate international movement of goods that, from an environmental perspective, would best never be traded. With hazardous wastes and toxic materials, the environmental risks increase the further the goods are transported, since spillage is always possible. As well, such "goods" may end up being dumped in countries without the technical or administrative capacity to properly dispose of them, or even assess whether they should be accepted. Trade also makes possible the over-exploitation of species to the point of extinction there is rarely enough domestic demand to create such pressure. The Basel Convention and CITES, discussed earlier, are MEAs that restrict such trade because of its negative direct effects.

Page | 23

A subset of product effects, sometimes termed "technology effects," are associated with changes in the way products are made depending on the technology used. Technology effects stem from the way in which trade liberalization affects technology transfer and the production processes used to make traded goods. Positive technology effects result when the output of pollution per unit of economic product is reduced. Foreign producers may transfer cleaner technologies abroad when a trade measure or agreement results in a more open market and a business climate more conducive to investment. Trade-induced growth and competitive market pressures generated by liberalization can hasten processes of capital and technological modernization for all firms. Newly opened markets can provide the revenue and the income to allow firms to accelerate capital turnover, and invest in cleaner, more efficient plants, technologies and processes. On the other hand trade liberalization and an expanded marketplace may harm more environmentally friendly and socially valuable traditional production methods. Trade liberalization can also promote the spread and use of harmful, lessenvironmentally friendly technologies. Whether technology effects stemming from liberalization have an overall positive or negative effect on the environment will depend considerably on other conditions and policies in the marketplace that determine availability and choice of those technologies (for example, price and national environmental regulation). These effects are reflected again under the heading "imported efficiency Trade and trade liberalization can expand the level of economic activity possible by making that activity more efficient. Box 4-1 explains the ways in which trade can increase efficiency, producing more goods with the same given set of natural resources, labour, machines and technology. This expansionessentially creating additional wealthcan have positiveeffects on the environment and development. It has obvious development benefits; although development is more than economic growth, such growth is essential for development in most Southern countries. We should note, however, three important qualifications to this positive link between trade and development:

First, distributional considerations matter. That is, if trade increases inequity by creating wealth that is mostly concentrated in the hands of the wealthy, then it works against important development objectives. Second, not everyone will benefit from trade liberalization; inherent in the wealth-creating process is destruction of inefficient firms and sectors.

Page | 24

Third, the potential of trade to increase wealth is just that: potential. To enjoy trade's full potential countries may need to devote, for example, a large amount of resources to building capacity in their export sectors.

Where trade creates wealth two types of environmental benefits may follow. First, increased efficiency can directly benefit the environment, since efficient firms need fewer natural resource inputs and produce less polluting waste. In this sense, the basis of comparative advantageefficient use of resourcesalso underlies the goal of sustainable development. Second, efficiency can benefit the environment indirectly by making people wealthier, and thus more likely to demand stronger environmental protection. This is not to say that the poor do not value the environment; indeed, their poverty may mean they depend on it more directly than do the rich. But it may be a lower priority than it would for those with stable employment and adequate income, food and housing. Much evidence suggests that richer economies will likely have lower levels of some harmful emissions than poorer ones (though this relationship does not hold for pollution and environmental degradation whose effects are felt far away in time or in space, such as greenhouse gas emissions). Where trade alleviates extreme poverty, it may save people from a vicious cycle whereby they are forced to degrade their environment to survive, in the process becoming increasingly impoverished. An increased scale of economic activity can also have negativeenvironmental effects. Most economic activity damages the environment, whether in extracting raw materials, harvesting renewable resources, or in creating waste and pollution. Increasing the scale of economic activity means increasing the levels of environmental damage, unless regulations are in place to ensure that the additional activities cause no harman unlikely scenario. Another possible negative effect stems from the additional wealth created by tradethe same wealth that, as noted above, can benefit the environment and development. For some types of pollution, increased wealth may mean more, not less pollution. The richer countries of the world, for example, have far higher per capita emissions of all types of greenhouse gases than do developing countries, and far higher per capita emissions of such toxins as PCBs, dioxins and furans. With enough wealth comes the opportunity to consume at levels and in ways that are worse for the environment.

Page | 25

CONCLUSION

The main goal of this handbook is to make the complex relationship between the environment and international trade more understandable and accessible to policymakers, non-governmental organizations and the public. The book also aims to dispel the idea that the relationship between, trade, the environment and development can easily be described as either negative or positive. It is an immensely complex interaction that varies from country to country, sector to sector, and firm to firm. There are both threats and opportunities in this relationship for countries, local communities and firms pursuing economic development and environmental protection. The challenge, for all these stakeholders, is to exploit the opportunities and reduce the threats, and in so doing to maximize the net positive contribution that trade can make to sustainable development. A broader and clearer understanding of the linkages between trade, environment and development among all stakeholders is a prerequisite for seizing those opportunities and reducing those threats. The conclusions that can be drawn from this handbook are essentially about research and consensus-building, enhancement of international co-operation, and defining new and more balanced and participatory procedures for international policy-making on these issues. In particular, formal assessments of the environmental impacts of trade liberalization and the trade implications of environmental policies will have to be undertaken. These assessments will have to take account of the interrelated economic and social effects of environmental and trade policies, through integrated assessment techniques. Research and assessment need to be undertaken in a participatory manner that includes all the relevant stakeholders. At the national level this implies involving civil society as well as government officials; at the international level this implies financial and technical assistance for developing countries and those with economies in transition to build their capacity to undertake this analysis. This assistance, and the broader awareness of the linkages it fosters, will help build consensus on the policy integration challenges that are faced, and the solutions that will then have to be developed at both national and international levels. International negotiations which lead to new trade agreements will also have to be characterized by more balanced and equitable participation of developed and developing countries, if those agreements are to accurately reflect the needs and
Page | 26

conditions in all countries. We also hope that an enhanced understanding and awareness of trade, environment and development linkages will inform implementation of existing, and negotiation of new, multilateral environmental agreements, enabling them better to respond to the needs and conditions in countries at differing levels of development. Achieving these objectives requires first a broader understanding of the linkages between the environment and trade, and the policies designed to foster both. UNEP and IISD hope that this handbook will foster that broader understanding, and both organizations remain open to suggestions to improve the handbook in this regard, and offer their collaboration and partnership to the same end.

Page | 27

ARTICLES

Expanding trade through innovation and the digital economy A total of 41 sessions will be devoted to the topic of trade and innovation. International organizations, trade experts, academics, business representatives, non-governmental organizations and government representatives will discuss linkages between trade and innovation. Topics for debate will include whether technological innovation has changed the way we trade, and if so, how? The Forum will also discuss whether trade has helped countries to innovate, how innovation can enhance the trading capacities of developing countries, and how trade can keep up with the rapid evolution of technology. Mr Roberto Azevdo, who begins his term of office as WTO Director-General on 1 September 2013, will be joined by heads of agencies, trade experts and CEOs to discuss different aspects of trade and innovation in the opening debate entitled How can innovation foster growth and trade? Innovation and international competitiveness will be the theme of the debate on the second day of the Forum. High-level speakers will exchange views on how open trade and innovation work together and how new technologies have changed the traditional way of doing business.

From :webmaster@wto.org

Page | 28

The Safety of Imported Foods The Food and Drug Administration proposed new rules last week that should go a long way toward ensuring the safety of imported foods. The need for stronger regulation is clear. Food imports have been soaring, inspections by the F.D.A. have been lagging, and imported foods have been blamed for a number of outbreaks of illness.In recent months, for example, pomegranate seeds from Turkey used in a berry mix sickened more than 150 people across the country with hepatitis A, and cucumbers imported from Mexico were linked to an outbreak of salmonella that made 84 people in 18 states ill.Some 15 percent of the food Americans eat is imported, more than double what it was a decade ago. That includes 50 percent of the fresh fruit and 20 percent of the fresh vegetables. The F.D.A. is able to inspect only a tiny percentage of these imports, less than 2 percent, at the point of entry. The new rules would shift the primary burden for safety to the companies that import the food. They would have to verify that their foreign suppliers were achieving the same level of safety as domestic growers and processors. The companies have the motivation (to reassure worried consumers) and the resources to prevent contaminated foods from entering the country in the first place, rather than responding to problems after an outbreak. The proposed rules had languished at the Office of Management and Budget until they were forced out by a court suit. The rules were praised by consumer groups and industry giants like Cargill. They, along with separate rules proposed in January for domestic producers, are open for comment for 120 days. Both should be given final approval.

From :Meet The New York Timess Editorial Board and www.nytime.com

Page | 29

BIBLIOGRAPHY

Alwan, L.C., and H.V. Roberts 1988 Time series modelling for statistical process control. Journal of Business and Economic Statistics (6):87-96. Arndt, H. 1984 Measuring trade in financial services. BancaNazionaledelLavoro Quarterly Review 149(June):197-213. American Lawyer. Behind the Numbers: Noteworthy Trends in This Years AM Law 100 Report, May 2010, 96101. Baldwin, R. E. and Baldwin, R. E. (1996) Alternative approaches to the political economy of endogenous trade liberalization, European Economic Review 40: 775-782. Baldwin, R. E. and Murray, T. (1977) MFN Tariff Reductions and Developing Country Trade Benefits under the GSP, Economic Journal 87, 345: 30-46. Baldwin, R. and Robert-Nicoud, F. (2005) Juggernaut Model The Lego Version, mimeo, GIIS. Barfield, C. E. (2001) Free Trade, Sovereignty, Democracy: The Future of the World Trade Organization,Washington, D.C.: AEI Press. Barth, J., Marchetti, J. A., Nolle, D. E., and Sawangngoenyuang, W. (2006) Foreign Banking: Do Countries WTO Commitments Match Actual Practices?, WTO Staff Working Paper ERSD-2006-11, 20 October 2006. Barton, J. H., Goldstein, J. L., Josling, T. E. and Steinberg, R. H. (2006) The Evolution of the Trade Regime,Princeton: Princeton University Press. Bayoumi, T. and Eichengreen, B. (1998) Is Regionalism Simply a Diversion? Evidence From the Evolution of the EC and EFTA, in Takatoshi, I. and Kruger, A. (eds) Regionalism Versus Multilateral Trade Arrangements,

Page | 30