Indian Westerlies

Moratorium on Cross Border E-Transmissions If one imports a book into India, one will pay applicable customs duty (currently 10% basic customs duty, and all applicable cess/welfare charges). However, if one downloads the same book over Amazon Kindle, one gets it duty free. Kindle books are almost always cheaper than their paper counterparts and the zero import duty is one of the factors keeping it that way, other factors being savings on printing/paper, transportation etc. This is an example of how the moratorium on international cross border taxation on Electronic Transmissions (ET), adopted by WTO in 1998  affect the prices.  Share of Digitalised Products in Global Imports - as represented in UNCTAD study Also, there is the question of direct taxation, in terms of corporate taxes or taxes on profits from the earnings made in India for companies who are highly digitalised in terms of delivery/users/markets (Amazon cloud service...

How do you stop the President from tearing up a trade deal. As per Bob Woodward in his new book Fear:Trump in White House, by simply pulling out the signing paper from the desk. The President simply forgot that he had to unsign the NAFTA deal, or rather sign a NAFTA withdrawal (someone please do that for RCEP in India). While the deal break never happened (or engineered to not happen), the revised onerous negotiations on NAFTA wound their way to give the world a glimpse of what makes the US President happy when it comes to trade deals. Mexico has hammered out a deal that's acceptable to the US President. And going by the look of it, Trump loves trophies. He got his wall sponsored. Well almost. Canadians are still thinking, and bargaining.  One can understand the Canadian negotiators' dilemma. There's noting on the table for Canadians if they sign. But if they don't, they have things to lose in trade and economic growth. US is their biggest trade partner with more ...

This post was originally published at The Hindu Business Line newspaper here Distributed Ledger Technology (DLT), a concept of recording and sharing data across multiple data stores, or ledgers as they are popularly called, is an idea whose time has come. The concept of DLT was introduced through block chains in the famous paper by the elusive author known only as Satoshi Nakamoto in 2008. While the initial application was limited to crypto currencies, it didn’t take much time for the world to realise that the underlying technology of using distributed ledgers has multiple applications spanning various spheres. However, it is only lately that we are seeing actual implementation of the often discussed concepts. To cite an example of block chain application in mainstream commerce in India, we may look at the Trade Receivable Discounting System (TReDS) guidelines of the RBI, which sought to set up a system to ease the liquidity crunch for MSMEs by way of bill/invoice factoring in ...

(This article was first published few days ago on Swarajya Online Magazine with the heading "Export promotion in the era of trade wars" at this link ) The newspapers are awash with analysis of President Donald Trump’s tariff hikes and the subsequent threat by United States Trade Representative (USTR) to pull India to World Trade Organization (WTO) dispute panel for maintaining export subsidies to the tune of $7 billion. The current popular narrative revolves around how the US’s tariff move is bad for the world trade, and why India should stick to the stand of promoting multilateralism in international trade. The arguments are usually sound and include the fact that there is ultimately no winner in a long drawn trade-war. However, it is important to understand and analyse the matter in more depth, as the stand we take now would affect the direction of our industry and trade policies in future. In addition, it is also important that we understand and account for the emergin...

(This post was originally published at  Swarajya online magazine at  this link  around a week ago) Arvind Panagariya (Feb 12 ET: Return of Protectionism) and Mihir Sharma (BS: Feb 26: Govt's move to protect industry ignores both economics and history) argue that Government's recent customs duty hikes on various products is not in the interest of development. Their main arguments stem from the traditional reading of international economics which favours free trade across borders for its own sake. The way a Government looks at free trade may differ from the way the textbooks look at it. Trade for its own sake has no meaning unless it generates employment and decreases inequality. Creating pockets of prosperity and masses of dissent through free trade would lead to political problems, a fact that politicians understand intuitively the world over. While some points in the articles command merit, most fail to stand up to closer scrutiny. It is important that we...

US has passed the bill to cut its corporate tax rate and IMF loves the move . The tax rate has been slashed from 35% to around 20%. That's a BIG cut which would make every organisation in the USA rethink its tax planning. The rethink has already begun at organisations like Apple , which reamined innovative in its tax planning all these years, and had stashed profits abroad to avoid taxes, and is now thinking of moving it back. Even domestic firms are looking at increased cashflows, e.g. Comcast as shown in figure below.  Tax cut leads to higher cash flow to Comcast: Source Economist Before going further, let me sum up the changes envisaged in the corporate tax reform a) The corporate tax rates in US is being brought down from 35% to around 20%  b) US is moving into territorial taxation system where the earnings abroad would be facing a one-time repatriation tax of around 15% on cash and and lesser on other assets. After this one time meas...

China maintains an undervalued currency which is one of the key reasons for trade surplus of China with most trading partners. It has also led to huge forex build up over the years. While China's undervalued currency has faced criticism from trading partners, the public policy choice of this tool for development of China is not well appreciated. The use of currency undervaluation as a tool to gain export advantage has decreased over time for China due to multiple factors and I doubt it the current level of Chinese currency is as undervalued as it used to be. Yet, as a policy lesson it is illuminating to analyse the effects. China has used the currency as a policy tool to empower itself; it is just incidental that this policy has done damage to trading partners. The undervalued currency of China acts as a direct subsidy for exports. A 20% undervaluation of currency is equivalent to 20% direct subsidy support in terms of export price. Given that China has usually maintained an und...

The Information Technology Agreement - II (ITA-II) is now tentatively finalised at WTO. India has decided to stay away, blaming the earlier version ITA-I for the sorry state of IT related hardware manufacturing in India today, and believing that India needs to retain duties on IT products in order to bring the Indian IT manufacturing industry to speed. This agreement is mainly a tariff reduction agreement that would bring the import duties on agreed products to zero thus (probably) helping trade.  ITA-I was finalised in 1997, around 18 years ago and included products that are no longer in practical existence, and excluded products that have since been invented. Also, due to faster product life cycles of IT hardware the rate of obsolescence is high. A revision was necessary to that extent.  There were differences over items in the list, as expected, and the negotiators were able to navigate around to reach consensus among interested parties. 51 countries that agreed ...

Way back in 2012, I had written about how India is wrong in opposing ITA 2 agreement at WTO blindly. You can find it here . ITA 2 is the Information Technology agreement - Version 2, that is currently being negotiated at WTO. The agreement is solely a tariff cutting mechanism in the trade of IT hardware products. India was a signatory to the first version, and rightly or wrongly blames it for the poor state of electronic hardware manufacturing industry in India today. India has strongly opposed any expansion of product coverage under the deal. You may read the news reports  here and here . The premise is, if we cut the import duties on electronic goods, our domestic electronic manufacturing would suffer as it would then be easier to import than to produce locally. In the light of time that has elapsed since the last post,  I thought I should revisit the issue. Meanwhile, Krugman has opposed USA's trade deals , the transpacific and transatlantic deals that are und...

Regional Comprehensive Economic Partnership (RCEP) is a Free Trade Agreement between ASEAN countries plus three (China, Japan, South Korea) and three more (India, Australia, New Zealand). The contours of this FTA is under discussion and negotiations are on. More at wikilink .  India is already into trade agreements with most of the participating countries in RCEP. The traditional discourse in the media focuses on how our 'Look East Policy' needs this FTA. Also, RCEP is supposed to work as a common framework which will remove some of the confusion that arises out of multiple FTAs in this region with India, each having its own scope, its own rules of origins and such. In addition, we are not part of the other two big trade negotiations, viz., the trans-atlantic and trans-pacific agreements, currently underway.  There are some points that I thought the greater debate in Indian media (if ever there was one on such topics) is missing, and which can be discussed in a post ...

I had blogged earlier about the matter regarding objection of India to sign Trade Facilitation Agreement(TFA) at WTO, as agreed at Bali ministerial. India has now agreed to sign the agreement as I had predicted in that post as one of the likely outcomes. However, when I see what is being signed, I wonder if it was worth to take the fight to this level. There is hardly much change, as far as I understand, from what could have been signed then, and what is being signed now, despite what our media projects as a great victory without any compromise.  India's objection to TFA was linked to following issues: that Agri negotiations (on public stockholding for food security purposes) are not going at the expected pace and direction. As Agri is part of the package, there is no meaning in signing only one part of the package, i.e. TFA, while the other part, i.e. Agri negotiation, is still in its infancy at the table.  Specific inside the Agri negotiations, India had various i...