India just signed a trade deal – really

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Hello and welcome to Trade Secrets. From a trade perspective, what about the results of last night’s first round of French presidential elections? A good result for Macron, of course, but many votes for far-left and far-right candidates with varying degrees of antipathy to different definitions of globalization. We will likely end up with Macron as President again and France will continue to be defensive, if not mindlessly destructive to trade. That usually happens. Today we look at the far more unusual event of India signing a trade deal and briefly discuss what allowing Ukraine more market access means for the UK. As always, if you want to get rid of something, I’m there

A turning point for India?

India has signed a trade agreement. This is not an exercise. Repeat: India has signed a trade agreement. This is not an exercise.

OK, so the deal, with Australia, is only an interim agreement. It excludes several broad categories of agricultural products where Indian farmers are very defensive (sugar, dairy, wheat). And as Sam Lowe in the Most Favored Nation newsletter mention, that, it goes out of its way to enable data localization, in this case in financial services. (India’s determination not to do its hard-fought IT industry any favors by restricting the free flow of data is a marvel of comparative disadvantage, surpassed only by Britain’s insistence on post-Brexit handicapping of its financial services sector.)

Nonetheless, India has signed a preferential agreement for the first time in more than a decade, and it has done so with a developed economy. (The respective trade ministers are make big here.) There are more. After knee-jerk unruliness on nearly all World Trade Organization issues dating back to the 2000s, it’s one of the core “quad” of four members (the others being the EU, US and South Africa) that seems to have reached some sort of thing preliminary proposal on the waiver of patent rights for Covid-19 vaccines. There is a way to approach this issue (I will come back to that in future trade secrets), but even the fact that India has engaged constructively and produced a text to take to its capital for discussion comes as a surprise to many , including me.

Tag this one turning point in Indian trade policy? New Delhi is also holding talks with the EU and the UK. Initial enthusiasm at the start of negotiations quickly dissipated, although Britain is aiming for an interim agreement similar to Australia’s by the end of the year. Whether those talks resume, and in particular whether India wants a big comprehensive deal with the EU, will be a big test of how serious New Delhi is about opening up further to trade.

The logic of why India would want to sign deals is pretty simple. Its foreign relations with China are poor, it has ambitions to become a major manufacturing power, and thus any opportunity to fit into global supply chains and gain access to rich world markets should be welcomed. Geopolitically, of course, India and Australia belong to the other quad, the Asia-Pacific security alliance, which also includes Japan and the US.

So far, this stimulus has evidently not been enough to overcome the traditional political toxicity of trade deals of any kind in India, even for a government like Narendra Modi’s that has done quite a bit of unilateral trade liberalization domestically. The ideal chance to establish India as a counterweight to Beijing would have been to join the Regional Comprehensive Economic Partnership, which he toyed with before making his final decision in 2019 not to commit.

I would be putting a lot of weight on a fairly weak peg if I said that this interim agreement and signs of progress in the WTO patent waiver talks represent a major shift. But it’s a fascinating development.

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Britain’s eye-catching offer to Ukraine

Boris Johnson and Volodymyr Zelensky go for a walk in central Kyiv over the weekend
Boris Johnson and Volodymyr Zelenskyy at the weekend in central Kyiv. The UK said it would give Ukraine a special trade deal by lifting all tariffs © Ukrainian Presidential Press Service/AFP

It was celebrated with British Prime Minister Boris Johnson Trip to Ukraine at the weekend — it’s hard to turn around in Kyiv these days without bumping into a head of government — said Great Britain it would give Ukraine a special trade deal by removing all tariffs. To be honest, this isn’t much more access to the UK market than Ukraine already has. The UK reiterated the Deep and Comprehensive Free Trade Agreement (DCFTA) the EU signed with Ukraine in 2014, an agreement which incidentally provided the spark for President Vladimir Putin’s invasion of Crimea and the Donbass region seems to be.

There is a more fundamental problem here. Although Putin clearly (and correctly) viewed the DCFTA as an attempt to draw Ukraine into EU orbit, not least because of the governance aspects of the deal, it actually did not done so much to improve its trading performance. The problem isn’t so much market access as having a competitive economy that produces something to sell.

If and when an economically and politically west-oriented Ukraine emerges, it will take time ton of investment and a much better business environment and less corruption so it can enjoy the benefits of its trade access. It will be harder and more expensive than messing around with tariffs, but much more likely to make a difference.

Mapped bodies of water

The Ukraine war continues to have a global impact, with the metal price expected to rise by two-thirds due to supply chain disruptions and sanctions against Russia.

Stock price change line chart (rebased to 100) showing how Japan's titanium makers take off

This seems likely to benefit Japanese titanium supplierswith traders betting they will capture significantly more of the global market for the metal as Western companies, particularly in aerospace and defense, are squeezed away by Russian producers.

Shares in Toho Titanium and Osaka Titanium Technologies, which are among the world’s only makers of high-grade titanium, are up about 61 and 51 percent, respectively, since February’s Russian invasion of Ukraine.

Food prices have hit a new record high Thanks to the disruption caused by the Ukraine war, the cost of ingredients for the classic bacon, lettuce, and tomato sandwich has skyrocketed more than the half in two years in the UK.

Research by scientists Richard Baldwin and Rebecca Freeman discussed the best way for governments to decide when to intervene in supply chains.

Even before the Ukraine war, higher gas prices had significantly reduced EU demand for the fuel, they say research from the Bruegel think tank.

Putin has made traders obsessed with central bank reserves again, says Katie Martin from the FT

Due to the bank holiday, there will be no trade secrets next week.

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Adam Bradshaw

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