Assessing Globalisation: What do China and India mean for the EU and the US?

Speakers: Daniel Gros, Director, CEPS
                Sandra Polaski, Senior Associate and Director, Trade, Equity and Development Programme, Carnegie Endowment for International Peace
                Ambassador C. Boyden Gray, Special Envoy of the US for European Union Affairs
                H.E. Dipak Chatterjee, Ambassador of India to the European Union
 
Date: 15 January 2007
 
The event was opened by an intervention by Sandra Polaski, Carnegie Senior Associate and Programme Director, providing an overview of the findings of Carnegie's recent publication entitled “India's Trade Policy Choices”. In light of the Indian economy's increasing engagement with the global economy, this study examined the potential consequences of India entering into a Free Trade Agreement (FTA) with the EU, United States and China, respectively, and of its possible adhesion to the Doha Round of the WTO.
 
The report is based on an econometric model that showed that, of all the trade pacts simulated, it is an agreement on the Doha Round that would have the largest impact on the Indian economy. However, while the positive effects on the Indian economy of a multilateral agreement within the framework of the WTO would be modest, such an agreement would also lead to a substantial reduction of tariffs on agricultural products, thus making it crucial to ascertain the potential effects in case of shocks to the world price for rice and wheat. Global price decreases (which are likely to happen, given the short- and medium-term instability of prices of agricultural products) would indeed cause negative effects on the overall Indian economy. They would not only offset any gain drawn from the agreement, but also increase Indian poverty and employment rates in both the agricultural and urban contexts, exacerbating the inequalities within the population. The study therefore supports the concerns of the Indian government over the possible negative implications for poverty and the distributional effects that could arise from a Doha agreement.
 
Of the other simulations of potential FTAs, the one between India and the EU – India's largest trading partner –
estimated negative effects on the Indian side (though modest gains on the European one), while bilateral trade pacts with the US and China would only have slightly positive effects for the Indian economy as a whole, and contextually implied losses in the standards of living of households.
 
In her concluding remarks, Polaski emphasised how, in negotiating further liberalising steps, India has to take into consideration several aspects, balancing market opportunities and distributional costs. In a country that nowadays accounts for the world's largest share of poverty, this balancing act has to be carried out not only in the interest of India, but in the interest of global stability.
 
The presentation by the Carnegie expert was then followed by the intervention of CEPS Director Daniel Gros, who presented the main points of his forthcoming CEPS publication: China and India: Implications for the EU Economy. This study provides an evaluation of the Chinese and Indian economic performances vis-à-vis that of the EU, in order to define the possible challenges that are likely to arise in the near future. First of all, the results demonstrate that the Chinese economy is evolving much faster than India's, thanks in particular to great improvements in terms of both human and physical capital. With regard to human capital, however, China still lags behind the EU and the US in terms of the levels of tertiary education attained (and consequently, technical skills). Moreover, the Chinese export structure is already very similar to those of the EU and the US (i.e. it is the typical structure of an already developed country, rather than a developing one). Nevertheless, according to this study, the dramatic growth of China, even if will condition the future of the global economic environment, would not imply any losses for the EU.
 
The event was then concluded by brief comments by Ambassadors Dipak Chatterjee of India and C. Boyden Gray, Special Envoy of the US for European Union Affairs. Ambassador Chatterjee emphasised the efforts undertaken by his government to achieve a higher degree of trade liberalisation, but also the need to exercise care in defending the interests of urban and above all poor agricultural households. Ambassador Boyden Gray called for a greater liberalisation of the Indian economy, and expressed some concerns over the environmental consequences of China's growth.