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Opinion

Amid shifting global trade dependencies, can the South provide greater certainty?

Published on 20 May 2019

Image of Amrita Saha
Amrita Saha

Post Doctoral Researcher

Alistair Cowan

With trade wars between major economic powers lingering on, it comes as no surprise that countries are now looking elsewhere for strong and lucrative trade relationships. In the midst of this, South-South trade has received increasing attention. But could this potential realignment of trade be the catalyst for change towards sustainable trading relationships?

There have been unprecedented changes in the multilateral trading systems in recent years, with escalating trade wars. The US-China trade dispute especially has had far reaching costs and consequences for some at a time when stability is greatly needed, particularly for countries such as the UK navigating its own Brexit turmoil.

Some however see the uncertainty as an opportunity to build stronger alliances with alternative partners. The UK, for example, hoping to revive past ties with commonwealth countries, is looking especially to India, and to Africa. Meanwhile, India is now looking to the south, and also especially to Africa, realising some of its own cultural proximities with the continent, and the huge potential of untapped South-South trade. South-South trade however assumes an invariably triangular character with investments and knowledge exchange being key. Is this then an opportunity for South-South trade to lead the path within the wider triangular and multilateral system of development cooperation? In this blog, we briefly examine this changing dynamic, especially from the perspective of the UK and India; we then comment on the potential for South-South cooperation on trade and investments within triangular cooperation as the way forward for furthering trade for both countries.

India’s opportunities

The US-China trade war is moving into its second year, with periods when progress was declared, but often resulting in little to show for it. For India, it is a time for some frustration but also seemingly potential opportunity if it is able to grasp it.

India has felt some impact from the trade war, mainly from the US’s decision to remove India’s preferential trade status and its subjection of US tariffs of 25% on steel and 10% on aluminium imposed in March 2018. The impact was marginal however as India accounts for only 2% of US imports and 5% of exports for both commodities. The ongoing overall direct impact is also likely to be limited due to the country’s small share in global trade (1.7% in 2017).

Could India be the contender to fill the gap that reduced US-China trade has created? For trade with China, the reduced supply from the US of primary commodities due to Chinese tariffs on US goods has created a demand for commodities such as rice, sugar and milk. Being nearer to China than other potential contenders, India is well placed to fill the gap, especially in cotton and soybeans, where it has substantial industries. However, China’s continuing non-tariff barriers against Indian commodities have been a key challenge.

Looking west, there are opportunities again for India as the US is looking to reduce dependence on Chinese goods. These opportunities could play into India’s desire to build manufacturing capability. India’s strength in handmade craftsmanship has garnered specific attention. Meanwhile, India remains pro-investment which is positive for US businesses but continues to be prudent, especially with increasing tighter FDI rules, such as in e-commerce.

These opportunities are not without competition however, as for example other Asian countries are vying to fill the manufacturing gap and there is stiff competition for primary commodities with Brazil and Argentina. Considering the competition, India is also building ties with alternative partners to diversify options, strengthening links with African countries where it already has strong relationships. Increasing ties especially with African partners also meets India’s goals of South-South cooperation, factoring in trade for development.

The UK’s alternative

The UK is looking to build alternative relationships, anticipating the need to diversify trade sources post-Brexit, aiming at old commonwealth allegiances, particularly India. Is this sentiment reciprocated or does India have alternative options?

Undoubtedly, the UK and India do have a long history of trade and cultural connections, and with India set to become the third largest economy by 2030, the UK is rightly keen to strengthen this relationship. Trade between the two countries can certainly grow, sitting at a mere £3.7bn in goods exports from the UK (1.1% of total) in 2016 and £2bn in services (1% of total) to India in 2016. Likewise the UK accounted for only 3.3% of India’s exports in 2016. Several of both countries’ trade objectives are also complimentary, particularly healthcare and pharmaceuticals, where India is a leading global player. However, there are serious constraints to this relationship with the future largely dependent on the UK’s relationship with the EU.

South-South trade opportunities

The stalemate of existing trading relationships today has led to opportunities being sought out elsewhere, with a steer towards South-South trade. Indeed, India is already trading extensively with many countries in Africa for example. Trade between India and Africa increased eight-fold between 2001 and 2017, standing at $60 billion in 2017, and with India making up 6.4% of all African trade, and Africa making up 8% of India’s in 2017. With both partners keen to build on this relationship, and without strong existing barriers, concessions can be harnessed better such as India’s Duty-Free Tariff preference (DFTP) scheme offered to Africa’s less developed countries.

However, products being traded are still limited, with 75% of Africa’s exports being primary commodities to India, and India largely exporting refined petroleum and pharmaceutical products, there’s room for diversification. India’s vastly growing energy needs currently benefit greatly from Africa’s primary commodity exports, and India benefits again from access to the African market for its own manufactured goods. As both countries develop, this trend is likely to shift as India develops technological and intellectual property-based products and African countries build manufactured and agro-processed products.

UK-India-Africa triangular cooperation

The UK stands in a strategic position to partner into a strengthened south-south relationship, advancing its own trade objectives, while complimenting south-south trade and development goals. There is an increasing attention on triangular cooperation that bridges North-South and South-South trade and investments. The UK and India are already actively involved in triangular cooperation, with the development of the Asia-Africa growth corridor, highlighting its motivation. The UK has been a key partner in India’s growing participation in triangular cooperation, such as the recent aid-for-trade initiative ‘Supporting Indian Trade and investment for Africa’ (SITA). Such partnerships offer promise, generating business-to-business partnerships, facilitating investments, and boosting trade, by identifying and meeting key knowledge gaps, but are still relatively nascent. It remains to be seen how the design of such partnerships will further goals of greater trade, investment and development.

Furthering these initiatives may be the promise needed for global trade at a major crossroads. Given the changing dynamics of trade dependence resulting in large trading partners looking for alternative trade relationships, it is certainly a key moment to highlight the potential of South-South trade and its role within triangular partnerships towards a potentially stronger and sustainable global trading system.

 

Amrita Saha is an IDS Post Doctoral Researcher. Her ongoing research explores the political economy of trade protection, agricultural commercialization in Sub-Saharan Africa, innovation and inclusive structural change. 

Alistair Cowan is an IDS MA Globalisation, Business and Development graduate (2018), and is currently based in the East Africa region focusing on private sector and market systems development.

 

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