Pankaj Ghemawat on India and globalisation

I had blogged here about Pankaj Ghemawat's views on globalisation. In this interview, he outlines that India has a long way to go before being completely integrating into the world economy. I found his analysis of the extent of globalisation (as against the notion of the world being "flat") interesting:

"The world is flat notion is the idea that borders don't matter and that international integration is close to complete.

And one of the points I have made in my work is that when you actually look at the things that could happen across borders or within borders, look at the cross border component as the percentage of the total, the result is much closer to what I think is 10 per cent globalization or semi-globalization rather than 100 per cent globalization.

So, if you think of the people flows, only three per cent of the world's population is accounted for first generation immigrants, these are long-term people flows.

If you think of short-term people flows, the percentage of students studying in countries other than the ones they are citizens of is only two per cent. If you want to think about information flows, the percentage of phone calling minutes that cross national boundaries is only two per cent of all calling minutes.

Even when you turn to something like the Internet, estimates are that less than 20 per cent of the bits transmitted over the Internet actually cross national borders at any point in their journey. And, finally, when you talk about money, foreign direct investment represented about nine per cent of all the money invested in the world last year.

So, it's hard to reconcile those kind of data with the notion of the world is flat.

It's hard to reconcile with just our personal experience. If you talk to any business person about whether it is easy to do business abroad, in a flat world it would be just like doing business at home, but that's clearly not the case."

 Highlighting the reason for the limited integration of India into world trade, he opined:

" The causes are multiple, ranging to historical reasons to the Licence Raj. I remember when I was doing a study for CII with Mike Porter on Indian competitiveness in the 1990s; we had more that one industrialist tell us 'look we have a huge protected domestic market, so why bother with exports'.

That is a problem.

There are some structural issues, such as the conditions of the ports, in particular, and the general state of Indian infrastructure. One of the reasons why software has managed to defy some of these general trends is because they don't have to rely on Indian ports. Most of the barriers are geographical and artificial ones, for example our failure to improve our infrastructure.

Then there are other natural geographic barriers, it's better to call them political barriers.

India has very poor trade connectivity with its neighbours. When you run a cross country regression that sort of tries to predict how much a country should trade with each other based on proximity and compare Indian results with the results for the world at large, the biggest deviation from the cross country relationship are the top country regression plan is the fact that India trades much less with Pakistan than any normal model would predict.

Unfortunately, if you look at our neigbours, this is one of the key structural differences between China and India; China is part of the East Asian production workshop.

India, in contrast, is surrounded by countries that either because we have political tensions with them or because of their internal dysfunctions simply aren't that attractive as trading partners. The breadth of Indian trade interactions is actually quite high but regional numbers are not very high. Most parts of the world that have progressed have progressed with much closer regional integration than what Saarc currently exhibits.

There are multiple reasons for India's low global trade but, at least, some of the reasons have got to do with things we can change.

We can't change who India's neighbours are but we can change how bad the infrastructure is, we can change the incentives to expand overseas and we can do a lot more things that would connect India to the world."

Realising the benefits of globalisation would require a combination of effective domestic state policy, increased integration and infrastructure development. The case for India benefitting from international trade has to be propelled by a strong domestic state-led policy of infrastructure growth within the boundaries of its international commitments.

India bans cotton exports

Reports that India had banned the exports of cotton were reported here, here and here. The ban was notified by the DGFT, India.The reason for the ban was to ensure availability of cotton yarn to domestic users.

Normally disputes relating to import bans are taken up more seriously in the international fora since producers from one's countries are affected by the ban. Export bans are rarely challenged (The case against the ban on export of minerals in case of China is one example).An interesting array of issues relating to export restrictions have also been discussed in the IELP blog here. Reuters has brought out various issues relating to export bans in this piece.

Are export bans permitted by the WTO rules? As per Article XI of GATT clearly states:

"1.No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party."

However it goes on to create several exceptions, including:

"2.The provisions of paragraph 1 of this Article shall not extend to the following:

(a)      Export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party;"

This study titled "Export Controls: An overview of their use, economic effects, and treatment in the global trading system" by the US International Trade Commission provides an overview of export restrictions that are employed by countries to further domestic interests.

"Export controls are measures that, regardless of form, limit export volumes. When employed for economic reasons, they are used to raise revenue, control prices, or provide downstream industries with inexpensively priced inputs. In other contexts, political or social motivations, including transboundary issues like environmental protection, spur the use of export controls. Export taxes on agricultural products and raw materials appear to be the most common types of control, used mainly by lower-middle and low income economies. The economic impacts of export controls are varied, affecting the country applying the tax and its trading partners, often in unintended and undesirable ways. Although export restrictions have not traditionally been a central focus of trade negotiations, they have received increased scrutiny in recent years. Where export controls have been addressed in the Doha Round negotiations, regional trade pacts, and WTO accession agreements, the trend is generally toward restricting or eliminating their use."

An interesting insight into the various domestic interests that determine a decision on the ban is brought out by this edit in the Financial Express,

"Spinning is the only sector where 90% of output is in the organised sector—there are all manner of reservations in other sectors—and in this sector, India is the second-largest exporter in the world. Which is why the Confederation of Indian Textile Industry (CITI) even asked the government not to interfere in the cotton market, arguing that industry does well in sectors where the government role is minimal. Indeed, while making this point, CITI pointed out that the industry didn’t even have enough money to buy all cotton produced as the mills were reeling under a host of other problems including large power cuts. It added that government intervention would hurt long-term supplies of cotton as well. So this is a move which, while benefiting no section, will harm everyone."'

Does the ban on export of Indian cotton yarn fall under the exception provided under the GATT provision? Is the ban to prevent or relieve critical shortages essential to India? The decision again brings to the fore competing domestic interests - cotton farmers, local industry dependent on cotton, traders in cotton exports as well as consumers in India. 

More on India's request for consultation with Turkey

I had blogged yesterday about India's consultation request with Turkey over cotton yarn imports. India's request for consultation with Turkey over imposition of definitive and provisional safeguard measures on cotton yarn imports revolves around the alleged violation of Turkey's WTO obligations relating to the Agreement on Safeguards (AoS). 

India's request for consultation is found here.

" (a) With regard to the definitive Safeguard Measures imposed with effect from 15 July 2008, 

Turkey acted inconsistently with the provisions of - 

(i) Article XIX:(1(a) of GATT 1994 and Articles 3.1 and 4.2(c) of the AoS as Turkey did not establish that increased imports causing serious injury to the domestic industry were as a result of unforeseen developments and of the effect of GATT obligations; 

(ii) Articles 2.1, 3.1, 4.1(c), 4.2(c) of the AoS as Turkey did not consider data relating to domestic producers whose  collective output constituted a 'major proportion' of total domestic production of like or directly competitive articles; 

(iii) Articles 2.1, 3.1, 4.2(b) and 4.2(c) of the AoS as Turkey failed to demonstrate, on the basis of objective evidence, the existence of causal link between increased imports and serious injury; 

(iv) Article XIX:1(a) of the GATT 1994 and Articles 3.1, 4.2 (c), 5.1 and 7.1 of the AoS as Turkey failed to establish that the measure was necessary for a period of three years to 'facilitate adjustment' as the investigation report did not consider this aspect at all;

          ... 

(c) With regard to the definitive measures applied on 28 January 2012 retroactively with effect from 15 July 2011, Turkey acted inconsistently with the provisions of- 

(i) Article XIX:1(a) of the GATT 1994 and Articles 3.1 and 4.2(c) of the AoS as Turkey did not establish that increased imports causing serious injury to the domestic industry were as a result of unforeseen developments and of the effect of GATT obligations;   

(ii) Article 7.2 of the AoS as Turkey extended the period of application of measures on 28 January 2012 after the expiry of the measures on 14 July 2011, and without making a prior determination  in conformity with the procedures set out in Articles 2, 3, 4 and 5 of the AoS that the safeguard measures continue to be necessary to prevent or remedy serious injury to its domestic industry, that there is evidence that the industry is adjusting, and provided that the pertinent provisions of Articles 8 and 12 having been observed.   

(iii) Article 7.5 of the AoS as the initial application period of safeguard measures expired on 14 July 2011 and Turkey made the fresh application of measures on the same product on 28 January 2012 without waiting for the mandatory period  as required under Article 7.5 of the AoS;  

(iv) Article 7.2 of AoS as the determination made by Turkey did not meet the requirements of Articles 2, 3, 4 and 5 of AoS regarding determinations with respect to domestic industry, like or  directly competitive articles, serious injury or threat thereof, causal link and that the safeguard measures continued to be necessary to prevent or remedy  serious injury and that there was evidence that the industry was adjusting."

The thrust of India's argument is that Turkey has not supported it's safeguard measures with "objective" evidence and data that establishes a causal link between the rise of imports and serious injury to domestic producers. Will await this space to see Turkey's reaction. Will this issue result in a full fledged WTO dispute or an amicable compromise pursuant to consultations?

India takes on Turkey over cotton

The WTO website carried an announcement recently that India has requested for consultations under the dispute settlement mechanism concerning the safeguard measures undertaken by Turkey against the import of cotton yarn from India.





The media in India itself have not extensively covered this dispute. The Economic Times carried this piece in 2011,

"India will soon file a complaint with the World Trade Organization against "illegal" duties imposed by Turkey on cotton yarn imports. The commerce and industry ministry is consulting lawyers to file a case before WTO's Dispute Settlement Body, a senior official said.

India says Turkey has randomly extended safeguard, or additional, import duties of 12%-17% on cotton yarn, making Indian textiles uncompetitive in their sixth largest export market.

"India may approach the dispute settlement board soon," a government official said. "Consultations are on with lawyers on the validity of the extended safeguard duties." Turkey had imposed a safeguard duty on cotton yarn imports in July 2008.

As a result, the import levy on yarn in the country had risen 13%-20% from 5%, which was the bound import duty rate or its commitment to WTO. Under the WTO norms, a safeguard duty could be imposed only for three years.

A country seeking to extend this duty beyond this period has to establish through a review that it still needs to protect domestic producers against a surge in imports."

Another report here gives the bare details. International Law Curry carried this piece.


Unfortunately, not much information about the genesis of this dispute is in the public domain. It would be interesting to see how India puts forth it's claims in the dispute settlement forum. Is India alleging that Turkey has violated Article 2 of the Agreement on Safeguards which stipulate the conditions under which a safeguard measure may be applied?


India has not been an active participant lately in the dispute settlement forum as compared to other developing countries, especially China, which is gradually recognising the importance of the rule-based dispute settlement mechanism. This lack of participation could  be attributed  to either a lack of instances of WTO violation against India by its trading partners or a lack of engaging in the dispute settlement mechanism.

The initiation of this case is a positive indication of the willingness of India to engage with the multilateral forum to seek one's rights. Whether the case would finally succeed would depend on the merits of the case. However, the mere willingness to use the multilateral dispute settlement system to protect one's domestic interests is a good sign. After all the dispute settlement mechanism is a transparent, rule based system not based on the power relations between trading partners but on a judicial interpretation of existing treaty obligations. And of course, it is the cornerstone of the WTO system.