India-Global slowdown has impact.

INDIA-TRADE TO SLOW DOWN.

The volume of global trade is expected to shrink in 2009 for the first time since 1982 due to the continuing global economic slowdown. The crisis will definitely prompt developed countries to focus on non-tariff measures to restrict imports so as to propel their domestic manufacturing or agriculture.

With the impact of crisis likely to be more visible in months to come, this strategy may also be followed by many countries. Such a move will give a jolt to the recovery process and in fact will delay the same.

A similar (albeit more drastic) phenomenon precipitated the downward spiral of the Great Depression in the 1930s when the US enacted the Smoot–Hawley Tariff Act, which caused a round of retaliatory tariff hikes around the world and devastated the world trade.

India’s commerce & industry minister Kamal Nath rightly urged the leaders of the different countries at Davos last week to refrain from trade-distorting subsidies and asked them to tackle the issue of rising protectionism which is tempting many countries as these protectionist measures could take the shape of erection of illegitimate trade barriers.

Developing countries face a plethora of non-tariff barriers (NTBs), especially in the form of product standards and regulations, be they government or private, nationally determined or internationally set.

An increasing awareness of the impact of climatic change on environment is expected to ignite many developed nations to impose new kinds of NTBs to coerce their trading partners. The US and EU are likely to place more emphasis on human rights, product safety, the environment and IPRs in their dealing with trading partners. These are bound to adversely affect India’s exports and increase the cost of compliance.

The EU may introduce mandatory labelling of garments in all languages spoken in EU. Conformity to inflammability standards for garments, compulsory testing of textiles, leather and other lifestyle products for use of azo-dyes and pentachlorophenol and registration procedures for pharmaceuticals would be made more stringent.

Exports of meat and meat products may be hit due to ban on use of hormones in livestock production. Stipulation regarding pesticides and chemicals residues in agriculture and plantation produce will have bearing on their exports. The EU has issued a directive requiring packaging materials to be so designed and produced as to promote their reuse. These measures will now be enforced meticulously even by new members of EU.

About 45% of India’s exports to US faces NTBs. The most important one are the technical (safety) and labelling requirement. Indications point to incorporation of new non-tariff measures (NTMs) in the recession-hit US.