Trade Wrap News and Analysis March 2018 issue

Trade Wrap News and Analysis


Poking the dragon

US President Donald Trump recently signed an executive memorandum which would impose tariffs on Chinese imports worth $60 billion. Products that will be subject to the new tariff will be aeronautics, modern rail, new energy vehicles and high-tech products, hitting China where it really hurts. This is retaliation for what Trump perceives as unfair trade practices of the Chinese. Trump has alluded to China’s $375 billion surplus to back his claim. Peter Navarro, Trump’s trade director, describes the move as the US simply “defending itself against economic aggression.”

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The tariffs come after Trump repeatedly urged China to reduce its trade surplus with the US. China maintained that they should not be punished for not wanting to buy what the Americans are selling. With the ball now in their court, China a country that values its new found stature in the global economy does not want to stay quiet. In retaliation it has imposed higher import duties on US agricultural exports including wine and soybean.

Experts are of the opinion that protectionist measures like tariffs make consumer goods expensive in the domestic market and create an oversupply in foreign markets, having a net negative effect on the global economy. But Donald Trump is not likely to pay heed to such minutiae as long as he believes that he can “win big” in a trade war.


When old friends reconnect

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Uhuru Kenyatta
President of KenyaMARCH

Kenyan President Uhuru Kenyatta visited the island of Cuba in March, with the intent of building economic ties on the historic connection between the countries. Kenyan Foreign Affairs Cabinet Secretary Ambassador, Monica Juma, said that the Kenya wished to enlist Cuban support to achieve their ‘Big Four’ agenda that includes housing, food security, manufacturing and healthcare.

The Cuban healthcare system is recognised as one of the best in the world by the World Health Organization. Cuba has an average life expectancy of 80 years, infant mortality of 4.2 for every 1,000 births and a doctor-patient ratio of 1:150. Kenya, which has long struggled with providing healthcare to its citizens, wants to develop its pharmaceutical industry under Cuban guidance and the two countries have signed memorandums of understanding (MoUs) to this effect. Cuba has also agreed to send a team of 100 doctors to Kenya and train 50 Kenyan doctors.


Not a one-trick pony

Colombia, best known for its coffee and oil exports, made its first export of white rice to Canada recently. The South American nation has been looking to diversify its exports portfolio and considers this a step in the right direction. The Colombian Minister of Agriculture and Rural Development, Juan Guillermo Zuluaga, said that Canada is the first of many international markets that will welcome Colombian goods. Exports to Ecuador, Peru and Cuba are on the books, he added.

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For record, Canada imported 389,797 tonne of rice in CY2017. Canadian importers are also happy with the Colombian deal as white rice is a part of the FTA between the two countries and thus can enter duty-free into Canada.


Saudi solidarity

Crude oil prices rose to their highest since January 2017 after Saudi Energy Minister Khalid al-Falih said that OPEC and allied producers would continue with their supply cuts into the next year. The cuts were instituted in January 2017 in a bid to stabilise oil prices which had been on a free fall since 2014.

The rise in oil prices is expected to continue as it comes at a time when investors are growing wary of the escalating ‘trade war’ rhetoric coming from the White House. The US now requires 1 million barrels a day more than it required a year ago and the demand is expected to grow. Morgan Stanley predicts Brent will hit $75 a barrel in the third quarter as seasonal demand picks up.


To be, or not to be

US challenged Indian export subsidy schemes, such as the Merchandise Exports from India Scheme (MEIS), stating that they are in violation of the WTO rules. According to WTO rules, countries with over $1,000 per capita gross national income (GNI) are prohibited from giving export subsidies. India’s GNI crossed this threshold in 2014. Developing nations are allowed an extension of eight years to reduce export subsidies after they cross this limit.

MEIS is an extremely popular scheme amongst exporters. Even the recent mid-term FTP review provided for an additional 2% MEIS across several sectors to offset the effects of GST implementation. India, which has already lost two cases against the US in the WTO, might lose this one too. The way forward for India is to replace export subsidies that do not comply with WTO rules with production subsidies which do.


Thanks Jeff

Indian merchants who supply products to global markets via Amazon’s global selling programme have seen a growth of 224% on the platform in 2017. The American e-commerce giant reported that as many as 32,000 Indian sellers are making use of Amazon’s global distribution network to supply 90 million products to customers in countries like Spain, Mexico, Japan and US. Tier-1 cities like Delhi, Mumbai, Bengaluru and Kolkata have the most exporters, but smaller cities like Indore, Surat and Ahmedabad are also seeing local exporters tap into the potential of the global market.

Rise in demand in the apparel and gems & jewellery sectors is one of the reasons for this growth. India, which has immense manufacturing strength in these areas, hopes to make the most of this opportunity.


Solar buddies

The French President, Emmanuel Macron, visited India in the second week of March. On the very first day of this trip, companies from the two countries signed contracts worth $16 billion. The deals included a contract for French engineering giant, Safran, to supply Indian airline Spice Jet with engines, modernisation of Davangere’s water system to be done by Suez Environment and an agreement between Air Liquide and Sterlite. The French President’s office also added that investment of 200 million euros would be made in India.

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France and India have long been allies. The two countries have worked together on issues ranging from counter-terrorism to the environment in the past. Two years ago, on the sidelines of the Paris Climate Summit, they co-founded the International Solar Alliance (ISA). During his visit Macron pledged $850 million for solar projects in developing countries at the alliance’s first conference held in New Delhi. India, the world’s third largest polluter, has been looking to reduce its carbon footprint for quite a while now. A robust solar energy network might just be the solution to this problem. The Indian government has stated its intent to source 40% of its energy from renewable sources by 2030 and this is a major step towards that goal. Macron, standing by India, stressed the need to remove obstacles in the way of scaling up clean energy and said, “We only have one planet, and we are sharing it.”

World Bank Report

It’s complicated, they say!

The World Bank published a report stating that India’s Goods and Services Tax (GST) is one of the most complex systems of indirect taxes in the world. Adding to the complexity of the situation is the exclusion of petroleum products, stamp duty on real estate, alcohol and electricity duties from the GST. The report sampled 115 countries with similar tax systems and also found Indian indirect tax rates to be the second highest in the world.

The World Bank has identified complicated compliance procedures, administrative dysfunction and lack of clarity about the new tax as the main problems affecting implementation of the GST. It has suggested that the Indian government tackle these problems by simplifying laws and procedures, reducing the compliance burden on businesses, and educating both state governments and the industry on the nuances of the new tax. Looking to simplify the tax, the GST Council has reduced the number of items attracting 28% tax from 228 to just 50. Finance Minister Arun Jaitley has also promised to reduce the number of tax slabs by merging the 12% and 18% brackets once tax compliance improves.