Trade Wrap March 2018 issue

Trade Wrap


Say cheese!

The Mexico-EU trade deal is under threat of disintegration over the naming of a particular type of cheese, the Manchego. Spain exported $453.2 million in cheese and curd products in CY2016. Manchego cheese, being a high-value product, is a big part of this pie for Spanish manufacturers. Spain says that the Mexican product, which is a far cry from the Spanish original, is eating into their profits as it is sold at a more competitive price. Cheese is a major part of both Spanish and Mexican cultures and hence the situation is not as trivial as it may seem from afar. This, however, is not the first international stand-off on the topic. In 90s Greece faced off against Denmark, Germany and France to claim Feta cheese as their own. Negotiations on the issue continued for almost a decade and all parties left the table unhappy. Let’s hope the Mexicans and Spanish have better luck.



Banking on defence

In a move intended to increase defence exports, the Australian government has announced the creation of a $3.1 billion (3.8 billion Australian dollar) fund that will provide loans to defence exporters who are not able to get loans from conventional banks. With this move, the Australian government hopes to enter the top 10 global defence exporters’ club. According to a research from Stockholm International Peace Research Institute, an independent international institute focussed on conflict, arms and disarmament, the annual export of global defence equipment from Australia ranges from Australian $1.5 billion to $2.5 billion, making it the 20th largest arms exporter in the world. Australian Prime Minister Malcolm Turnbull believes that his country should be able to do much better than this. The US is of course the largest arms exporter in the world with arms exports of over $5.4 billion (CY2016). Australia has a lot of catching up to do.


When the world unites...

Leaders from across the world came together for the annual meeting of the World Economic Forum held in Davos. The Summit was attended by more than 3,000 participants from various sectors and over a 119 economies. The largest contingent was from US with over 780 participants, followed by UK (266), Switzerland (233) and India (129). With the presence of leaders of state from across the world, the platform hoped to initiate major newsworthy discussions. Most leaders though stuck to their oft-repeated rhetoric. They made the usual speeches on globalisation, terrorism and growing economies. The discussions that followed also did not offer anything new. Indian Prime Minister Narendra Modi and German Chancellor Angela Merkel spoke about the importance of globalisation and inclusion. Representatives from Mexico and Canada expressed satisfaction in developments on the NAFTA deal. Mexico’s Economy Minister Ildefonso Guajardo was quoted as saying that the deal was currently in a much better position than earlier. US President Donald Trump invited world leaders and companies to invest in the US while simultaneously espousing protectionist policies at a forum for free trade, without an ounce of irony. In the east, Chinese media reported on how many of the leaders present at the event were looking towards China’s ambitious One Belt One Road initiative as a means for economic development and cooperation in the coming days.


Trumped up taxes

Solar-powered devices and washing machines are expected to become a lot dearer for American consumers in the near future. And the reason is simple. US has announced a 30% import tax on the import of crystalline-silicon solar cells, while for washing machines tariffs will start at 20%. This move is expected to have a major impact on the profits of exporters from Asia, South and Central America, which in turn will affect the American consumers. According to the US Solar Energy Association, as of 2016, nearly 260,000 US workers were employed in the solar industry which is more than double the number of workers in 2012. According to a media report, this new duty is expected to add an additional $650 to the installation cost of a residential solar-based system. “This move will put as many as 63,000 US solar industry workers at risk of losing their jobs and also have a detrimental effect on the environment,” says the Solar Energy Industries Association. The Trump administration claims that the new duties are in line with the current administration’s focus on reducing imports and promoting domestic production.



Finding opportunities

On the sidelines of the World Economic Forum Annual Summit, held in Davos recently, Indian Prime Minister Narendra Modi and Swiss President Alain Berset discussed the possibility of a trade and economic partnership between the two countries. This is not the first time that the two countries are discussing the possibility of a bilateral trade, investment and cooperation agreement. In September 2017, during a visit by the then Swiss President Doris Leuthard to India, the two leaders had discussed expanding trade and cooperation through an agreement. Although the total bilateral trade saw a decline over the last five years, both countries are hopeful for a revival in the coming days. Currently, India accounts for 6.6% of all Swiss exports, making us Switzerland’s fourth-largest export market.



Better days ahead?

The Economic Survey 2017-2018 painted the Indian economy in a positive light. It credited government-backed reforms in helping strengthen the economy in the previous year. According to the Survey, the Indian GDP for the year FY2018 is expected to be stable at 6.75%. It’s a slight decline from 7.1% reported the previous year, but is predicted to rise to 7-7.5% in 2019. Good news on all fronts as exports are up and the fiscal deficit is down. Similarly, forex reserves in the country are up by approximately 10.6%. The Survey adds that policy vigilance will be a necessary step going forward if we are to adequately address growing “microeconomic concerns”. The agenda for the year ahead, according to the Survey, will be stabilising the GST and overcoming the twin balance sheet problem. The survey will hopefully inspire a new wave of optimism in investors about India.



Adding shine to steel

The Ministry of Commerce, GoI, in a recently released notification, announced that two additional ports would now provide for the import of non-prime steel and steel products. Previously, imports of non-prime steel (seconds/defective steel) was permitted only through Mumbai, Chennai and Kolkata. This facility has now been expanded to two additional ports, namely JNPT in Mumbai and ICD-Tughlakabad in New Delhi. India is amongst the top 10 importers of steel in the world. In order to promote and protect the domestic industry from the growing influx of cheaper steel into the country, the Indian government has in the past and even recently imposed anti-dumping duties. While most local producers are happy with these policies, the secondary steel industry is not. In January this year, the All India Furnace Manufacturers Association requested the government to remove the 2.5% import duty on scrap steel. Two new ports being able to handle non-prime steel imports is a sign that the government is paying attention, to an extent, to the issues raised by industry.



Trade made easier

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In a move to help strengthen India and UAE ties, the two countries are expected to soon eliminate the use of dollar and instead trade in the local currency – Indian rupee and UAE dirhams. The move is expected to not only help ease trade but also help traders on both sides save money as they will be able to avoid loss in currency during conversion. This deal is in addition to five other MoUs that were signed between the countries, during Indian Prime Minister Narendra Modi’s trip to UAE. An MoU for the financial swap was signed between central banks of both countries in 2016. India and UAE have been actively working towards strengthening trade and tackling financial challenges in the recent years. As of FY2017, the bilateral trade stood at $53 billion.

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A win-win game

In an attempt to give a boost to the Indian logistics sector, Dubai-based DP World and India’s National Investment and Infrastructure Fund (NIIF) have tied up to create a $3 billion fund which will be used to develop ports and other logistics infrastructure in India. The investment fund will not only provide for expanding infrastructure at sea ports but also freight corridors, inland container terminals and logistics infrastructure. According to reports, the first close of the fund, which took place in October 2017, saw investments from domestic investors such as ICICI Bank, HDFC Bank, Axis Bank and Kotak Mahindra Bank. International investment came in the form of funding from a subsidiary of the Abu Dhabi Investment Authority.