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WORLD BUSINESS

China, India's rise add complexity

'New' trading nations put strains on system

By Geoff Hiscock
CNN Asia Business Editor

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India's pharmaceutical industry is moving from generic copies to the search for its own blockbuster drugs.

SPECIAL REPORT

FACT BOX

WORLD'S TOP TRADERS
Total merchandise imports and exports, 2004
1. United States $2344.3 billion
2. Germany $1629.2 billion
3. China $1154.5 billion
4. Japan $1020.3 billion
5. France $914.2 billion
6. UK $810.4 billion
7. Italy $700.2 billion
8. Netherlands $677.5 billion
9. Canada $596.3 billion
24. India $172.8 billion
Source: WTO, October 2005

FACT BOX

TOP SERVICES TRADERS
Total services imports and exports, 2004
1. United States $578.3 billion
2. Germany $326.9 billion
3. UK $307.9 billion
4. Japan $228.9 billion
5. France $205.9 billion
6. Italy $162.6 billion
7. Netherlands $145.4 billion
8. Spain $138.2 billion
9. China $133.7 billion
16. India $80.5 billion
Source: WTO, October 2005

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George W. Bush

(CNN) -- As the world's trade officials gather in Hong Kong for a crucial round of talks, it is the rise of China and more recently, India, as "new" trading powers that is adding to the complexity of multilateral negotiations.

China in particular has transformed the global trade picture during the past decade. It is now the world's third busiest merchandise trading nation, behind the United States and Germany, having moved ahead of Japan last year.

Ten years ago, China's merchandise trade with the world totaled about $280 billion. This year it will be around $1.3 trillion to $1.4 trillion -- a consequence of annual growth rates above 30 percent in some years.

But its rise to trade prominence has not been smooth sailing. Its voracious appetite for energy resources and commodities to feed its red-hot economic pace has put pressure on a variety of global markets, and its export engine makes for tension among some of its biggest partners.

The massive trade surplus that China runs with the United States -- expected to hit $200 billion this year -- is the source of constant complaint from domestic U.S. politicians fearing more job losses in import-sensitive sectors such as textiles and clothing. A similar refrain is heard in Europe.

Along with job losses, the U.S. and the European Union continually complain about what they regard as China's undervalued currency, which they say gives its exporters an unfair competitive advantage.

Companies involved in the world's main creative industries such as software and entertainment are critical of China's cavalier attitude to intellectual property protection, despite government promises and occasional crackdowns on pirates.

After postwar decades of focusing on its big domestic economy, India is still a trade minnow, outside the top 20 in merchandise imports and exports.

But since the liberalization push began in the early 1990s, India's trade flows are starting to grow at a rate not much below China's and it will be a force to be reckoned with in the next decade. Total trade in goods and services was about $240 billion last year, with imports up 34 percent and exports rising 27 percent.

Already, India's emergence as the competitively priced "back office" to the advanced world has delivered big benefits to global sectors such as financial services, pharmaceuticals and information technology. The downside for India has been its heightened profile as a target for U.S. industries, workers and politicians fearful of the domestic consequences of outsourcing or "offshoring."

India's brightest stars for export earnings currently are information technology (including software services) and pharmaceuticals. But if India can solve some of its most pressing shortcomings in infrastructure -- notably ports, roads, airports and power -- there may be even greater potential in sectors such as steel, automotive, agriculture and transportation/tourism.

Like China, it has had a big impact on the prices and traded volumes of key commodities in recent years.

According to the World Trade Organization's review of world trade this year, "the sharp increase in net oil imports of China, the United States and India since 2000 has been a major factor behind the expansion of oil trade and the increase in oil prices."

These are not the only two "new traders" to watch. Brazil and Russia posted impressive export growth figures of 32 percent and 35 percent respectively last year, while their imports rose 30 percent and 27 percent.

Like India, they are well below the big North American, European and Asian exporters, but their trajectory suggests stellar status may await them. Indeed, some analysts believe that Brazil, Russia, India and China -- the so-called "BRIC" bloc -- will dominate global economic growth by 2050.

Separately, "The New Terms of Trade," a major new study of world trade by Sydney, Australia-based think tank the Lowy Institute says the global economy is having to adapt to the re-emergence of China and India as key players.

It says this is one of several developments helping to generate friction and adjustment strains among trading nations.

The study argues that safeguarding the international trading system is one of the most pressing issues for policymakers, starting with the WTO meeting in Hong Kong.

It notes that two of the past three WTO ministerial meetings ended in failure, and only one successful multilateral round has been concluded in the last quarter century.

"While a collapse of the (Doha) round might not inflict a fatal wound on the multilateral system, it would certainly come perilously close to doing so," the study says.

"So in the short term yet another push to get Doha over the line is warranted."

But it argues that long term, a "skeptical public" needs to be convinced that the world trade system is worth saving.

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