WTO, India, China

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WTO, INDIA & CHINA Presented by: Group 8 I.B.E Project

Flow Of Presentation:

Flow Of Presentation Introduction Objectives Methodology and Analysis Conclusion & Recommendations Analysis

Introduction:

Liberalization of foreign trade redefined the economies of both India & China. Shift from ‘inward looking import substitution policies with emphasis on self sufficiency’ to ‘opening up to the outside world and outward looking market oriented policies’. India, a member of WTO since inception. China joined in 2002. Both adhere to WTO rules in conducting international trade. Introduction

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China always had positive trade balance with few rare exceptions in early 50’s and mid 80’s. Chinese living outside China contributed greatly to B.O.P and brought back newer technologies to enhance domestic production and exports. Not true for India. NRI contribution was insignificant and FDI was both small and not export oriented. However, both these nations are growing very fast and can propel the future world economy with a pool of the world’s largest skilled work force. Hence, a scope of economic cooperation between the two nations. But at the same time, they pose major threats to each other.

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India and China will witness steady high growth rates and Asia will continue to lead global recovery, according to the latest communication by International Monetary Fund (IMF) officials in April 2010. According to the global management consulting firm, Boston Consulting Group's (BCG), in its10th annual Global Wealth Report released in June 2010, India and China will generate triple the growth of other countries from 2009-end to 2014. India and China with their rapid economic growth rates have bettered their rankings as preferred investment destinations, while Europe has taken a hit, according to the global consultancy firm, Ernst & Young's 2010 European Attractiveness Survey, released in June 2010. India is the fourth most attractive foreign direct investment (FDI) destination for this year with 22 per cent of the 814 leading global investors voting for it. China tops the list with 39 per cent.

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China’s entry into WTO presents new opportunities and challenges to establish cooperation in areas of negotiation. To comprehend the implications of future trade relations and international profitability, its very crucial to understand their interaction in isolation and w.r.t WTO.

Objectives:

To analyse the Indo-China bilateral trade in the past and the future. To understand the competitiveness of Indian products in Chinese market and potential of Indian exports to China. To analyse the competitiveness of exports of India and China to third country markets, especially, in the US, the EU, Japanese markets. Objectives

Objective 1:

To analyse the Indo-China bilateral trade in the past and the future. Objective 1

Methodology:

We wanted to analyze the Indo-China trade relationship before and after China joining the WTO in 2001. Created two timelines: 1999, 2000 & 2001 2002, 2003 & 2004 Collected trade data for “ all commodities ” exchanged between the two from UN Commodity Trade Statistics Database in these timelines and compared the data for significant changes. Followed changes in tariff rates from 1990 to 2004 to see if the Governments or the WTO had taken concrete steps to facilitate trade between the two countries. Methodology

Analysis:

Analysis India’s exports to China in 2003 and 2004 were phenomenally high due to a surge in exports of steel. This can be attributed to a record growth in the iron and steel sector in India during this year

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These figures are abysmally low. Nevertheless, they saw a sharp growth in the second timeline after China joined the WTO.

India’s Exports to and imports from China:

India’s Exports to and imports from China

Total Trade Volume between India and China:

Total Trade Volume between India and China

Tariff Rates Over The Years:

Tariff Rates Over The Years

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India and China gradually opening up to the world. China had been reducing tariffs even before joining WTO but most significant drop came after joining. Indian tariffs very high when a closed economy. But started declining after 1991 and became less than half of original value when it became a part of WTO. Weighted Mean average Tariff for the nations in 2008 China: 3.92% India: 5.86% (Source: tradingeconomics.com)

Objective 2:

Analyzing Competitiveness of Indian Products in Chinese market Objective 2

Methodology:

Handpicked three commodities from the basket of commodities that India exports to China. These are Iron & Steel Cotton Organic Chemicals Timeline for study: 2007, 2008 and 2009. (Data for 2010 has not been computed yet) We found out the trade volume of the export of these products to the Chinese market and then analyzed their competitiveness by determining the percentage of these products against China’s total imports of the same products from the rest of the world. Methodology

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Also, we tried to identify the competition India faces in the Chinese market from other countries, the competitiveness of these products as compared to the Indian products and finally we have tried to comment on the sustainability of these products in the future Chinese market. [ Qualitative only ]

ANALYSIS:

ANALYSIS A snapshot of value of India’s exports to China in these three commodities in the years 2007, 2008 and 2009.

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Export of all three commodities saw a fall in 2008. We can attribute this to the recession. As the economy recovered, so did the exports. Except for cotton which fell further. India had intentionally decreased their export of cotton to provide an impetus to its domestic textile industry as the spot price of cotton had substantially increased.

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However, we cannot comment on the competitiveness of any product considered in isolation. Hence we have next compared the import volume of India from China against China’s total imports of that product.

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These figures have been rounded off the nearest integer as Microsoft Pie charts don’t take decimal values.

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Looking at these figures we can see that Indian exports constitute a very small portion of the Chinese imports. The major exporters to China are USA and EU-27. Let us consider each commodity in individual now to analyze their competitiveness. Iron & Steel: India is a large exporter of iron ore concentrates, iron pellets, iron ore in the form of lumps, finished steel, different steel coils, flat steel products etc. Main competitors are Brazil, Australia, Canada & South Africa.

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Indian ores are better in quality and higher in prices as compared to its competitors. Demand for steel in China is huge. But more thrust is on use of domestic iron ore and imports are discouraged to an extent by the Chinese government. Hence, the trade of Steel & Iron between India and China may not be very sustainable in the long run unless there’s a change in the Government’s outlook towards imports.

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COTTON India exports cotton yard, knitted fabric and raw cotton to China in huge volumes every year. But the Indian export of Cotton has seen a downfall in the last few years due to two major reasons An impetus provided by our Government to the domestic textile industry keeping in mind the increased spot prices of cotton. A relatively poorer quality and stiff competition from other countries. The major competition comes from Indonesia, Bangladesh, Pakistan, USA, Egypt and Thailand, besides local companies

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Quality of cotton from competing countries is better and prices of Pakistan and Bangladesh are lower. Though the current situation looks discouraging, Indian traders feel that trade is sustainable in the long run due to the surge of garment companies in China. Organic Chemicals: India is a major exporter of organic chemicals to China. Main competitors are Indonesia, Russia, Saudi Arabia, USA, South Korea, Taiwan, Poland and Ukraine.

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Prices and quality that India provides are more or less at par with its competitors. However, Saudi Arabian products are marginally cheaper while technology is more advanced in Russia. Major threat comes Saudi Arabia & Russia also because few of the supplying companies are also supposed to form joint ventures with Chinese companies in the near future. However, Indian exporters are optimistic about the sustainability of this trade and expect good growth in the future.

Overview of Other Products:

India has a considerable market share in China in products like sesame seeds, granite, chromium ores, menthol, paper, worked human hair, wool or animal hair, diamonds, iron ore, shrimps, prawns, aluminium oxide, leather etc. India is a major exporter of resource based or low technology based products but China’s major imports constitute mainly of medium and high technology products which creates a trade mismatch between India and China. India is progressing very fast and advancing its technology rapidly, its overall market share in China is seeing a gradual improvement in recent years. Overview of Other Products

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The three underlying reasons because of which we anticipate a higher competitiveness of Indian products in China in the future are Increase in Chinese demand; Improvement in the competitiveness of the Indian exports; and Increase in the number of products, which India has started exporting to China. (Product Diversification)

Objective 3:

To analyse the competitiveness of exports of India and China to third country markets US, EU and Japan Objective 3

Methodology:

Data collection of India and China’s export to those countries. YoY growth rate in exports of India and China to those countries BOPs and major commodities traded Position of India and China in the Import/Export partner’s list Ranking of the exports of India and China with respect to the level of technology they contain Methodology

Competitiveness of exports of India and China in USA:

Competitiveness of exports of India and China in USA US is a net Importer

Other Information:

China’s exports are Electrical Machinery and Equipments, power generation equipments, apparels, toys and furniture India’s exports are IT Services, crude petroleum products and gems. China has more than 10 times a bigger export market in the US than India China ranks first in US’ import partner list and India ranks 12 th . China ranks 3 rd in US’ export partner list and India ranks 13 th . Both India and China deals in low to medium technology products export. Other Information

Competitiveness of exports of India and China in EU:

Competitiveness of exports of India and China in EU EU is a net Importer EU is a net Exporter

Other Information:

China’s exports include Machinery and Transport Equipment, Textiles and Clothing, Chemicals and other product India’s exports include Textile and Clothing, Machinery and Transport Equipment but it is a net importer in this sector, and Chemicals but it is also a net importer in Chemicals China is the largest exporter to the EU, India ranks 10 th China ranks 3 rd in the EU’s export partner while India ranks 8 th . India is a rival, but still far from posing a real threat. Other Information

Competitiveness of exports of India and China in Japan:

Due to absence of adequate data, we are unable to comment on the kind of commodities being imported or exported. Competitiveness of exports of India and China in Japan Japan is a net Importer Japan is a net Exporter

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Ranking of China and India in the categories of Export worldwide India scores only in Resource based exports and Low technology based exports, China is #1 in low technology products, also score well in medium and high technology. India mostly exports cotton, textiles, gems and jewellery and crude petroleum products predominantly.

Conclusion & Recommendations:

India and China together constitute 1/3 rd of the total world population and 1/4 th of world’s skilled labour force. They are two future economies to reckon with! For a sustainable trade relationship between the two nations facilitated by their interaction with WTO, it’s imperative that they move from competition to cooperation. Some of our key recommendations are discussed in the following slides. Conclusion & Recommendations

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Reduction in shipping costs: The Government should try to provide an impetus to entrepreneurs by providing subsidized shipping/ freight costs while exporting or importing goods from either of these countries. Mutual Recognition Agreements (MRA) on standards: For a meaningful trade relationship between the two countries to flourish, all non-tariff barriers need to be done away with. Reduction in Tariffs: The markets in both these countries should be made freely or almost freely accessible to each other with a constant waive in tariff rates. This would not only encourage bilateral trade but also add to the competitiveness of the products by making them available at a cheaper price.

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Emphasis on quality: Quality at an affordable price always creates a value proposition that’s difficult to challenge. So India should try to increase their competitiveness in the Chinese market by trying to provide an unparalleled value proposition. Increasing complementarities: There is a very clear mismatch between China’s requirements and India’s offerings. India should try to focus not only on resource based and low technology products but also move to medium and high technology products. With cheap and skilled labour, India would be able to take on all major economies if it can bring itself at par with their technologies. Penetrate deeper: Penetrate deeper into their markets and develop regional marketing strategies.

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Product Diversification: Feed into each other’s supply chain. Increase the variety of products that are exchanged between the two countries. Unique comparative advantages: Both India and China have comparative advantages in similar sectors such as chemicals, metals, alloys, textile etc. This makes them highly competitive in third country markets. Try not to intrude too much into each other’s markets by splitting the booty! Foreign Direct Investments: Make themselves more attractive FDI destinations by means of further liberalization.

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A politically diplomatic stance: The political scenario between two countries would always play a major role in their trade interactions. Hence a politically diplomatic stance is very necessary even if they have opposing views on tertiary issues such as their individual relation with USA, UNO etc. Also it may be crucial to resolve the long ongoing controversy regarding each of their claims on Arunachal Pradesh. Joint Ventures: To take trade cooperation to the next level and build a cemented relationship, it may be a great idea to create joint ventures in certain areas that could lead to mutual benefit. After all, it’s one common motive that both these countries are working towards; an inclusive growth and reduction in poverty while emerging as global economic superpowers by next decade.

References:

Bhatt, T.P.: India and China in WTO, 2006,Planning Commission Govt. of India, Institute for Studies in Industrial Development, New Delhi- 110070 Rao , P.S (2008). International Business: Text and cases . 3rd ed. New Delhi: Himalaya Publication. p340-520. Goldhar , B. (2005). Impact on India of tariff and quantitative. ICRIER . 172 (1), p10-12. Anonymous. (2011). Tariff Rates: all products, China. Available: http://tradingeconomics.com/china/tariff-rate-applied-weighted-mean-all-products-percent-wb-data.html. Last accessed 24th Feb 2011. Anonymous. (2011). Tariff Rates: all products, India. Available: http://tradingeconomics.com/china/tariff-rate-applied-weighted-mean-all-products-percent-wb-data.html. Last accessed 24th Feb 2011. European commission trade. (2011). Economic Indicators, China. Available: http://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_113366.pdf. Last accessed 24th Feb 2011. Min. of internal affairs, Japan. (2010). International Balance of Payment. Available: http://www.stat.go.jp/english/data/handbook/c11cont.htm. Last accessed 24th Feb 2011. UN Commodity Trade. (2010). Database Statistics. Available: www.comtrade.un.org. Last accessed 24th Feb 2011. PRC General Administration. (2010). US-China Trade Statistics. Available: http://www.uschina.org/statistics/tradetable.html. Last accessed 24th Feb 2011 References

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Thank You!