The ratio of trade to world GDP has increased from 6 per cent in 1950 to over 20 per cent in 2010. This is mainly because of faster growth of world trade compared with GDP. In 2010, world GDP grew by 3.6 per cent, while volume of trade grew by 14.5 per cent. So a country aspiring for high economic growth cannot ignore international trade.
When India's traditional export markets of the European Union, Japan and the US are in trouble, it makes more sense to look for non-traditional markets. Latin America is one such market for pushing exports and sourcing edible oil, crude oil and gas, coal and copper.
Realising the importance of the region, India has entered into preferential trade agreements (PTAs) with Chile and Mercosur bloc, comprising Argentina, Brazil, Paraguay, Uruguay and Venezuela. It would be interesting to examine the impact of these PTAs on bilateral trade flows.
Under India-Chile PTA, which became operational in 2007, India provides duty concessions on 178 items while Chile on 296 items. Under India-Mercosur PTA, which became operational in June 2009, India provides preferential market access to 450 export items of Mercosur and, in return, gets duty preference on 452 items.
Analysis of trade data (see table for details) shows that:
in the period 2001-11, India's exports to the world grew by five times; its exports to Latin America grew by 10 times, except export to Venezuela, Uruguay and Mexico;
post-PTA , India's exports to Chile grew by 45.7 per cent while India's overall export to Latin America grew by 139.9 per cent in 2007-11;
post India-Mercosur PTA , India's exports to Latin America as a whole grew by 65.8 per cent as compared to its export to Argentina (13.1 per cent), Brazil (49.7 per cent), Paraguay (8.38 per cent) and Uruguay (37.8 per cent) in 2009-11. In comparison, India's export to non-PTA Latin American partners grew at faster rates, for example, Mexico (38.4 per cent), Colombia (49.8 per cent) and Costa Rica (78.3 per cent).
As for imports , India's imports from the world grew by six times, while its imports from Latin America as a whole grew by 13 times in 2001-11. In this period, highest import growth was recorded by Venezuela (201 times), Colombia (15 times) and Brazil (10 times). In the four-year post-PTA period, imports from Chile declined by 19 per cent. In the two year post India-Mercosur PTA period, while imports from Argentina, Brazil and Paraguay posted impressive growth, Paraguay gave a lacklustre performance (8.3 per cent). The highest growth was witnessed with respect to imports from non-PTA partner Colombia (50 per cent) and Costa Rica (78.3 per cent).
Latin America India Investor Forum
At a panel discussion of the recent Latin America India Investor Forum, the role of PTAs in increasing bilateral trade was discussed. Delegates from both India and Latin America agreed that it would be too early to conclude that Preferential Trade Agreements (PTAs) had not been successful in boosting India-Latin America trade. The reasons sighted were:
limited nature of India's PTAs with Latin American countries covering a few hundred items with 10-20 per cent duty discounts on most items;
relatively narrow trade baskets with copper concentrates, crude oil and edible oil accounting for two-third of India's total imports from Latin America;
high duties on products with trade potential (such as, textiles and clothing, transport vehicles and food products;
dearth of direct shipping lines between India and Latin America, thus increasing shipment time and cost by as high as 25-30 per cent;
poor trade infrastructure, such as port inefficiencies, poor inland connectivity, cumbersome and expensive export import formalities which add to trade transaction cost;
increasing cost of compliance with non-tariff trade barriers, especially TBT and sanitary and phyto-sanitary measures;
currency fluctuations ;
non-coverage of trade in services and investment under PTAs.
Measures to boost trade
Given the slow progress of the WTO Doha Round, deepening of the existing PTAs into full-fledged comprehensive economic partnership agreements, covering trade in goods, services and investment will be a great boost to bilateral trade flows.
Besides, both Latin American nations and India are actively negotiating several FTAs, so there is no option but to consider expansion of preferential trading arrangements with Latin American nations, not only for acquiring duty advantage but also for protecting the existing comparative duty advantage.
Improving trade infrastructure and rationalisation of trade documentation need urgent attention. As per the latest World Bank's Ease of Doing Business Report , roughly 36-69 per cent of the time taken and 15--38 per cent of the cost of export formalities are incurred on documentation which reduces net realisations from export. In the case of India, 50 per cent of the time taken and 38 per cent of the total cost is incurred on export documentation. For Venezuela, these ratios are 69 per cent and 25 per cent respectively.
Trade Prospects
At present, Latin American region accounts for 4 per cent of India's trade. Given the comparable level of per capita income, similar consumer preferences and complementarities of resource endowment, a target of 10 per cent share of Latin America in India's trade can be attained, if the issues highlighted above are addressed.
(The author is an expert in international trade for a corporate house.)