The session on ‘Evolving Global Trade Architecture and Return of Industrial Policy’ was conducted by Dr. Aashish Chandorkar. He began the session with an introduction to Neoliberal times where government interventions in the economic policies became a bit of a taboo. The current economic and trade system that we see today is a result of a series of events that mainly happened post World War II, but mostly after the establishment of the World Trade Organisation (WTO).
History of Global Trade
The speaker discussed the significant role that globalisation has played in shaping the global trade landscape. Following World War II, several key international institutions, including the United Nations, the IMF, the World Bank, and the General Agreement on Tariffs and Trade (GATT), were established. Notably, there were plans to create an International Trade Organization (ITO), but negotiations for its establishment were halted, primarily by the USA, which was opposed to including elements like labour policies—a perspective that has since evolved ironically.
GATT emerged as a temporary organisation formed by a group of countries, initially intended to be dissolved once the ITO was established. However, the ITO negotiations, later known as the Uruguay Round negotiations, were revived in 1986 after the end of the Cold War, eventually leading to the establishment of the World Trade Organization (WTO). Numerous agreements were signed within the framework of the WTO, covering areas such as import licensing, trade-related legal barriers, and government procurement, all bundled together as a single undertaking.
Over time, the Bank-Fund consensus gained strength, especially in the wake of financial crises in Latin America and Asia. The current rules governing global trade are the result of this lengthy process. It’s essential to recognize that each step of this process occurred during periods of heightened globalisation.
This leads to the question of whether trade is a byproduct of globalisation or a driving force behind it. Many contemporary economists view the WTO as a fundamental legal framework. Unlike most other international agreements, the WTO is a legally binding agreement, with its members collectively recognizing its legal character. Consequently, a prevailing notion emerged that favours open borders and discourages government intervention in industrial policy. In today’s context, government investments in soft infrastructure such as healthcare and education are considered beneficial, while intervention in industrial policy is often viewed negatively.
The prevailing consensus that governments should refrain from intervening in trade policies is currently facing significant challenges. A series of complex crises, including the global pandemic, the Russia-Ukraine conflict, and widespread economic instability, has prompted nations to reevaluate the intricate relationship between industry and trade. These multifaceted challenges have catalysed a profound rethinking of the dynamics governing international trade.
The crux of the current debate revolves around the tension between resilience and efficiency. Traditionally, modern supply chains have been meticulously designed with a strong focus on efficiency, often leveraging cutting-edge technology. However, this long-standing emphasis on efficiency came under scrutiny when Southeast Asia experienced abrupt shutdowns during pandemic-related lockdowns. These disruptions raised pressing questions about the capacity to maintain continuous manufacturing processes when resilience is lacking within the supply chain. As a result, there has been a growing shift in focus towards prioritising supply chain resilience over sheer efficiency.
When we speak of supply chain resilience, we delve into characteristics such as trust, timeliness, and transparency, emphasising the importance of robust and adaptable supply networks. Over the past 15 years or so, there has been a growing recognition of the limitations inherent in our highly interconnected global economy. Furthermore, we’ve witnessed the unsettling trend of the weaponization of various aspects, from the financial system to essential commodities like food grains. These developments have raised critical concerns about food security, an issue that has gained newfound prominence. Additionally, the pandemic underscored the significance of healthcare security, shedding light on the vulnerabilities in global healthcare supply chains.
Collectively, these multifaceted challenges have left an indelible mark on the way global trade is conceptualised and managed. In response, we have witnessed a notable resurgence of industrial policy initiatives across the world. Nations are grappling with these intricate and interrelated issues as they seek to safeguard their economic interests while navigating the evolving landscape of global trade.
Emerging Landscape in Global Trade
The underpinning rationale behind the contemporary industrial policies adopted in Western countries encompasses a wide array of critical considerations. These encompass concerns related to national security, environmental sustainability, the health of plant ecosystems, the safeguarding of intellectual property, the promotion of local employment opportunities, the pursuit of supply chain management goals, and the pursuit of social objectives. These multifaceted objectives guide the implementation of industrial policies, which take various forms, including subsidies in the form of grants, investments in research and new technologies, and initiatives aimed at advancing intellectual property protection.
Furthermore, these policies extend to mechanisms such as tax refunds and exemptions, support for both the quality and quantity of labor, and investments in skill development to enhance workforce capabilities. Governments also actively seek to facilitate the transfer of technology across different sectors, fostering innovation and progress in a rapidly evolving industrial landscape.
An illustrative example of such comprehensive industrial policies can be found within the European Union (EU). The EU has established a range of policies designed to address pressing challenges. These encompass initiatives like the Carbon Border Adjustment, which seeks to mitigate carbon emissions through trade measures, and the promotion of Deforestation-Free Supply Chains to combat deforestation-linked activities. Additionally, the EU has instituted regulations pertaining to waste management and packaging design, alongside ‘ecodesign’ regulations that aim to promote the creation of a circular economy—underscoring a holistic approach to industrial policy.
In essence, contemporary industrial policies in Western countries are multifaceted, driven by diverse objectives, and employ a wide array of instruments to foster innovation, sustainability, and economic progress while addressing complex global challenges.
India’s Place in the Global Trade
Dr. Chandorkar emphasises that the recently implemented Production Linked Incentives (PLI) will take some time to yield visible results. However, there are already notable improvements observed in sectors such as mobile phones, telecommunications, and pharmaceuticals. India is actively working towards establishing a resilient supply chain characterised by trust, transparency, and timeliness. This entails facilitating and promoting the flow of capital to strengthen the nation’s economic foundations.
Furthermore, efforts have been made to institute quality control regulations to not only encourage manufacturing in India but also to create an ecosystem that places a premium on quality. This quality-centric approach aims to position India as an integral part of global value chains, emphasising the importance of delivering top-tier products and services.
Recent legislative developments include the passage of the National Research Foundation Bill, which seeks to foster collaborative research among government, industries, and academia. It aims to streamline the allocation of research and development budgets in a manner that transforms academia into a hub for the creation of emerging technologies.
Additionally, there is a concerted effort towards building a robust defence-industrial complex, signalling India’s commitment to enhancing its defence capabilities and security infrastructure. These initiatives collectively reflect the nation’s resolve to drive innovation, competitiveness, and self-sufficiency while embracing a forward-looking approach to research, technology, and industry.
In conclusion, Dr. Aashish Chandorkar’s illuminating session on the evolving global trade architecture and the resurgence of industrial policy provides a comprehensive understanding of the complex forces at play in the world of trade and industry.
The historical perspective reveals that the current global economic and trade system has evolved over decades, with pivotal events occurring post-World War II and culminating in the establishment of the World Trade Organization (WTO). This period also witnessed the rise of globalisation, which significantly influenced the global trade landscape.
A central question raised is whether trade is a consequence of globalization or a driving force behind it. The WTO emerges as a fundamental legal framework that promotes open borders and discourages government intervention in industrial policy, aligning with contemporary economic thought. However, contemporary global challenges are prompting a reevaluation of established norms. The debate between resilience and efficiency in supply chains has gained prominence, with a growing emphasis on the former, especially after disruptions caused by the pandemic. The vulnerabilities of interconnectedness have become apparent, leading to concerns about the weaponization of various aspects, such as the financial system and essential commodities.
These challenges have reshaped the way global trade is perceived and managed, leading to a resurgence of industrial policy initiatives worldwide. These policies, evident in Western countries, address multifaceted objectives like national security, sustainability, intellectual property protection, and social welfare. They take various forms, including subsidies, investments in research and technology, tax incentives, and workforce development.
India, too, is actively adapting to the changing global landscape. Initiatives like Production Linked Incentives (PLI) are showing early signs of success in sectors like mobile phones, telecommunications, and pharmaceuticals. India is working diligently to establish resilient supply chains characterised by trust, transparency, and timeliness. Quality control regulations aim to position India as a crucial player in global value chains.
Legislative developments, like the National Research Foundation Bill, are fostering collaboration between government, industries, and academia, facilitating research and technology innovation. Additionally, efforts to strengthen the defence-industrial complex underscore India’s commitment to enhancing its security infrastructure.
In summary, the evolving global trade architecture and the resurgence of industrial policy reflect a dynamic and multifaceted landscape. As nations grapple with emerging challenges, they are reimagining the role of government intervention and strategic policy in shaping the future of trade and industry on a global scale.
Acknowledgement: Aasthaba Jadeja is a research intern at IMPRI.
Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.
Posted by Samprikta Banerjee, research intern at IMPRI.