citi-news letter...zce - daily data (change from previous day) mcx (change from previous day) dec...

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Cotlook A Index - Cents/lb (Change from previous day) 11-12-2018 88.25 (-0.25) 11-12-2017 84.20 12-12-2016 79.45 New York Cotton Futures (Cents/lb) As on 13.12.2018 (Change from previous day) December 2018 77.16 (+0.52) March 2019 78.84 (+0.16) May 2019 79.85 (+0.10) 13th December 2018 IIP rises to 11-month high in October Centre sanctions multi crore rupees apparel and garmenting centre in NE GST evasion worth Rs 12,000 cr detected between Apr-Nov India’s FTAs with ASEAN, Japan and Korea have widened trade deficit: Study EU parliament approves Japan trade deal in what is being called the world’s biggest Cotton and Yarn Futures ZCE - Daily Data (Change from previous day) MCX (Change from previous day) Dec 2018 22060 (-160) Cotton 14715 (+30) Jan 2019 22310 (-150) Yarn 24135 (+45) Feb 2019 22550 (-160)

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Page 1: CITI-NEWS LETTER...ZCE - Daily Data (Change from previous day) MCX (Change from previous day) Dec 2018 22060 (-160) Cotton 14715 (+30) Jan 2019 22310 (-150) Yarn 24135 (+45) Feb 2019

Cotlook A Index - Cents/lb (Change from previous day)

11-12-2018 88.25 (-0.25)

11-12-2017 84.20

12-12-2016 79.45

New York Cotton Futures (Cents/lb) As on 13.12.2018 (Change from

previous day)

December 2018 77.16 (+0.52)

March 2019 78.84 (+0.16)

May 2019 79.85 (+0.10)

13th December

2018

IIP rises to 11-month high in October

Centre sanctions multi crore rupees apparel and garmenting centre in NE

GST evasion worth Rs 12,000 cr detected between Apr-Nov

India’s FTAs with ASEAN, Japan and Korea have widened trade deficit:

Study

EU parliament approves Japan trade deal in what is being called the

world’s biggest

Cotton and Yarn Futures

ZCE - Daily Data (Change from previous day)

MCX (Change from previous day)

Dec 2018 22060 (-160)

Cotton 14715 (+30) Jan 2019 22310 (-150)

Yarn 24135 (+45) Feb 2019 22550 (-160)

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2 CITI-NEWS LETTER

-------------------------------------------------------------------------------------- India aims to grow its manufacturing GVA to $1 trillion by 2025-26

IIP rises to 11-month high in October

Centre sanctions multi crore rupees apparel and garmenting centre in

NE

TEA upset over reduction in duty drawback rates on apparel

GST evasion worth Rs 12,000 cr detected between Apr-Nov

India’s FTAs with ASEAN, Japan and Korea have widened trade deficit:

Study

ADB retains India’s growth forecast at 7.3% for FY19

CAIT slams CII report favouring 100% FDI in multi-brand retail

India-US-EU Combine Halts China's Belt and Road Initiative at the UN

Raghuram Rajan on what India needs to do to get a $5-trn economy

IIFT to conduct research conference on international trade, finance

------------------------------------------------------------------------------------------------- EU parliament approves Japan trade deal in what is being called the

world’s biggest

Bangladeshi apparel to draw bigger FDI

Amid US-China trade war, Vietnam wields a slew of benefits over its

rivals

Vietnam runs biggest trade surplus with US, EU in 11 months

Acting minister of textile industry appointed in Turkmenistan

------------------------------------------------------------------------------------------------

NATIONAL

----------------------

GLOBAL

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3 CITI-NEWS LETTER

NATIONAL:

India aims to grow its manufacturing GVA to $1 trillion by 2025-26

(Source: Rahul Jain, Financial Express, December 13, 2018)

Achieving accelerated and sustainable growth in India’s manufacturing sector, driven by

rising global and domestic demand, active policy support and a shift towards Industry 4.0

technologies.

India aims to grow its manufacturing gross value added (GVA)

by about 3 times to reach $1 trillion by 2025-26. This implies a

compounded annual growth rate of about 12%, which is a

significant leap from the current growth rate of 7-8%. Achieving

this target calls for a multipronged growth strategy for India’s

manufacturing sectors—increasing their share of global exports

and growing the capability to actively substitute imports with

local production while continuing to cater to rising domestic

consumption. Due to the recent turn of events, several industry

houses prefer the services sector for investment over the

manufacturing sector. This is owing to the diminishing returns and relative risk profile in

manufacturing. A concerted effort is required both from industry and government. On

one hand, industry needs to step up its game by leveraging technology and driving

productivity and, on the other hand, the government needs to enable competitiveness by

reducing the cost of doing business and providing policy support till necessary scale is

achieved.

Across key industry sectors, India’s import dependence ranges between 30-40%. While

in some selective cases, duty and tariff structures need review, one key aspect to focus on

for the Indian manufacturing sector is technology depth and the ability to produce a range

of products that cater to user industry requirements. Process and control equipment, such

as power generation, steel and other metal production, high-precision machining

stations, etc., represent a small sample of many such technology gaps. Bridging this

technology gap is imperative for Indian manufacturers to be competitive and serve

demand centres globally. Adherence to evolved quality and design standards and

innovation are critical for success in some high-volume export markets. Additionally, a

shift towards a more efficient, cost-competitive and sustainable manufacturing ecosystem

is not attainable without parallel upskilling of the human resources involved.

Globally, and across the value chain, digital-induced disruption is imperative and early

signs are visible. To maintain and improve global competitiveness, Indian manufacturing

needs to accelerate the adoption of Industry 4.0. The business case for adoption will need

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4 CITI-NEWS LETTER

to include improvement in quality and customer service level beyond cost optimisation.

It is important to take into account specific nuances while we focus on Industry 4.0

adoption—brownfield acquisitions that have grown over time and become complex with

respect to layout, material and process flow, the need for low-cost technology, etc.

Leveraging the strength of India’s IT services sector and tapping the effusive

entrepreneurial spirit evident throughout the burgeoning start-up sector potentially

presents opportunities to provide the much needed boost for Industry 4.0 in India.

Multiple initiatives have been conceptualised and developed over the last 4-5 years to

attract investment, encourage innovation, enhance skill development and build

infrastructure to transform the Indian manufacturing sector. ‘Make in India’, ‘Skill India’

and ‘Digital India’ are all directed towards developing the right enabling ecosystem and a

start has been made.

While policy and regulatory support are a must to set the foundation, it is imperative that,

in parallel, industry drives operating efficiency to become more competitive such as in

resource consumption-related parameters like specific energy consumption and labour

productivity. Further, factors such as low power quality, logistics and freight expenses

and poor transportation infrastructure, that have remained a challenge, require long-

term engagement focusing on modal mix for freight movement, investing in updated

transmission systems, strengthening roadways and exploring inland waterways as

alternative modes of transport.

Global trade dynamics have had interesting developments over the last 3-4 years, actively

and intricately linked with geopolitics. The rise of increased protectionism across key

economies presents yet another challenge for Indian manufacturers looking to grow

through the export route. India’s corporate taxes, land acquisition policies, border

compliance regulation and cost of capital also continue to be key challenges, which add to

the cost of doing business or often inhibit the ease of doing business. With a large number

of schemes launched to encourage the opening of businesses and facilitation of their

operations in India, it is important that the industry facilitates and aids the government

through enhanced participation and ownership.

If Indian manufacturing is to achieve success on the final frontier, a concerted

collaborative effort is required to be made by both the industry and government. This

would include identifying specific, time-bound, actionable and measurable initiatives

across the range of action areas that not only create the right enabling ecosystem but also

ensure implementation and uptake by industry. Looking ahead, to meet the $1-trillion

manufacturing GVA target, industry and the government need to work in perfect

synchronisation with each other to unleash the true potential of India’s manufacturing

sector.

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5 CITI-NEWS LETTER

Jain leads the industrial goods practice, Datta has expertise in operations and Gupta

works across industrial goods clients at BCG India

Home

IIP rises to 11-month high in October

(Source: The Hindu Business Line, December 12, 2018)

Industrial production activity rose at almost a one-year high in

October led by strong growth in the manufacturing and mining

sectors even as retail inflation for November slowed to a 17-

month low on cooling food prices, according to official data

released on Wednesday.

Growth in the Index of Industrial Production ((IIP) came in at

8.08% in October, up from 4.47% in the previous month, and

1.83% in October of last year. This was primarily led by the 7.04%

growth in the mining sector and the 7.92% growth in the

manufacturing sector, both of which grew 0.11% and 4.62% in the

previous month, respectively.

“Industrial production displayed a stellar performance in

October, coming in at a multi-month high with most sectors showing a markedly better

performance, albeit aided somewhat by a favourable base,” said B. Prasanna, head, global

markets group at ICICI Bank. “This is welcome after manufacturing growth slowed

notably in Q2 FY2019.”

“Electricity volume growth has re-entered double-digit territory after a gap of over two

years and the consumer goods segment also gained from the favourable base, with both

durables and non-durables on a healthy uptrend,” Mr. Prasanna further noted.

Growth in the electricity sector touched 10.8% in October, up from the 8.24% in

September. The last time growth in the sector hit double-digits was in April 2016. Growth

in the consumer goods segment also hit double-digits, coming in at 12.1% in October from

5.68% in the previous month. Within this, growth in the consumer durables segment

zoomed to 17.56%, up from 5.16% in September.

Growth in the capital goods sector was at 16.8% in October, up from 6.51% in September.

“The boost in IIP is from infrastructure which is primarily government-led spending,”

said Ranen Banerjee, leader, public finance and economics, PwC India.

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6 CITI-NEWS LETTER

“We hope private sector investments will pick up soon, else the burden on the government

and the risk of fiscal slippages will be higher,” he added.

Moderating inflation

Growth in the Consumer Price Index (CPI), the measure of retail inflation, slowed sharply

to 2.33% in November from 3.38% in the previous month. It was 4.88% in November of

last year.

“Macro data got a boost from a very benign CPI print aided by low food prices

characterised by continued deflation in pulses and vegetables,” Mr. Prasanna said. “There

is also substantial moderation in core inflation sequentially. We expect CPI to remain

below 4% till Q1 FY2020.

“We also expect a change in monetary policy stance to “neutral” from “calibrated

tightening” in the February policy and expectations of a rate cut will now start building,”

added Mr. Prasanna.

Inflation in the food category remained in the negative territory, contracting 1.69% in

November compared with a contraction of 0.14% in the previous month. The housing

sector also saw a significant easing of inflation, to 5.99% from 6.55% over the same period.

The fuel and light segment also witnessed slowing inflation to 7.39% from 8.55%.

“The inflation print will lead to calls for aggressive monetary policy and reversal in stance

by the Reserve Bank of India on the interest rates,” Mr. Banerjee said. “Falling food prices

will put pressure on farmers’ income, leading to pressure for more farm loan waivers.”

Home

Centre sanctions multi crore rupees apparel and garmenting centre in NE

(Source: Rajiv Roy, North East Now, December 13, 2018)

Construction and installation of machinery in 21 units in seven States (Assam, Arunachal

Pradesh, Manipur, Meghalaya, Mizoram, Nagaland and Tripura) were completed

The Ministry of Textiles has sanctioned a project to set up one each apparel and

garmenting centre consisting of three units in all of the northeastern states at a cost of Rs.

18.18 crore per centre.

Disclosing this in the Rajya Sabha on Wednesday Minister of State of Textiles Ajay Tamta

said that the project was sanctioned under the North East Region Textile Promotion

Scheme (NERTPS).

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7 CITI-NEWS LETTER

“Construction and installation of machinery in 21 units in seven States (Assam, Arunachal

Pradesh, Manipur, Meghalaya, Mizoram, Nagaland and Tripura) were completed and the

facilities have since been handed over to the Project Implementing Agencies of respective

State Governments. Project Implementing Agencies are in the process of operationalizing

the units through entrepreneurs,” he said.

Silk production in the country has been increasing during recent years and no

manufacturing unit is losing the Indian silk market to China in recent times. As the

consumption of silk is more than the domestic production, India is importing raw silk

from China and other countries. India mainly imports Bivoltine raw silk from China.

“With the significant increase in the Bivoltine raw silk production in the country, the share

of Bivoltine silk in the total silk production has gone up from 8.38 percent in 2012-13 to

18.41 percent in 2017-18.

As a result, the share of imported raw silk has reduced drastically from 17.32 percent in

2012-13 to 10.42 percent in 2017-18. There is thrust for increasing the Bivoltine and

Vanya silk production in the country with a goal to become self-reliant in silk production

by 2022.

Home

TEA upset over reduction in duty drawback rates on apparel

(Source: Fibre2Fashion, December 12, 2018)

The Tiruppur Exporters’ Association (TEA) is dismayed on the reduction of duty

drawback rates on apparel items. In this revised list, government has reduced rates for

value added readymade garments while improving rates for raw materials like cotton,

yarn and fabrics. The rates have been lowered from 2 to 1.8 per cent for few and 1.9 per

cent for others.

The new list has totally disappointed the knitwear garment sector in Tiruppur when they

were expecting hike in the rates, said TEA in a representation made to the prime minister.

The revision will not only affect the exports but will also strengthen the business of

competing nations.

Highlighting the plight of the apparel industry, TEA has asked the prime minister to

initiate a consultative process with all stakeholders in the apparel manufacturing segment

and arrive at means to compensate the exporters by increasing the drawback and ROSL

rates so as to arrest the further fall in exports.

It may be noted that the industry has been crying for an increase in the duty drawback

rates because of the continuous negative growth being encountered post implementation

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8 CITI-NEWS LETTER

of GST, said the letter urging the prime minister to look into the issue and help to revise

the drawback rates upwards.

"When the raw material cotton and subsequent processed item cotton yarn drawback

rates were enhanced, how can the value added garment sector and employment generator

be neglected?" pointed out TEA president Raja M Shanmugham.

India is already at a disadvantage with all its competing nations like Bangladesh,

Cambodia, Myanmar, Ethiopia and Vietnam that enjoy tariff benefits with the western

countries. Till July 2017, a portion of this competitiveness gap was being offset by the

cushion made available through duty drawback and ROSL benefits. The elimination of

this additional cushion has immediately shown its result whereby there is an

unprecedented month on month fall in apparel exports for the past one year.

"Your intervention in this regard will go a long way in not only preventing huge job losses

in one of the biggest employing industry of the country but also realise its true potential

of becoming the global leader in textile manufacturing," stated the letter.

Home

GST evasion worth Rs 12,000 cr detected between Apr-Nov

(Source: Times of India, December 12, 2018)

The government has detected GST evasion worth Rs 12,000 crore in 8 months till

November, a senior tax official said Wednesday.

Central Board of Indirect Taxes and Customs (CBIC) member John Joseph said despite

the electronic way or Eway bill mechanism there has been rampant evasion and there is a

need to increase compliance. "We started anti-evasion measures from April onwards, and

from April-November we have detected Rs 12,000 crore of GST evasion. This is huge

compared to what happened in central excise or service tax side. There is huge evasion.

There are smarter guys outside who knows how to pocket the money," Joseph said

addressing an Assocham event

Joseph, who looks after investigation in the CBIC, said almost Rs 8,000 crore worth GST

evasion has been recovered by the tax officials.

Goods and Services Tax (GST), which subsumed 17 local taxes, including excise duty and

service tax, was introduced on July 1, 2017. Since it was a new tax, the government had

decided to go slow on enforcement action in the initial months of its implementation.

Joseph said only 5-10 per cent of the 1.2 crore assessees are evading GST and bringing a

bad name to the industry. "We need to improve compliance mechanism."

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9 CITI-NEWS LETTER

On industry concerns as to whether a change in government might lead to an overhaul of

the GST process, Joseph said: "With all the apprehensions that you have, whether the

election results are going to be bad for the GST or not, I can tell you very clearly that the

same politicians whether in opposition or ruling party, they all came together to conceive

this.

"There may be some changes in law, some procedural changes can definitely happen, but

it will not be lock, stock, and barrel as in the case of Malaysia." He said the GST Council,

comprising the Centre and states, had taken all decision relating to the new indirect tax

regime.

The CBIC member also said the new GST return forms will have a beta version initially,

so that industry has enough time to suggest what could be done to improve the quality of

returns.

In July, the CBIC had put up in public domain draft GST return forms 'Sahaj' and 'Sugam'

and sought public comments. These forms will replace GSTR-3B (summary sales return

form) and GSTR-1 (final sales returns form)

The new forms are slated to be launched in April 2019.

With regard to industry concerns over varied orders passed by the Authority for Advance

Ruling (AAR), Joseph said the Centre was pushing for a national bench for AAR but it hit

the roadblock as the bench was required to have about 40 members with representations

from every state.

"I do agree, there is a real serious issue in that (Advance Ruling). The Centre is trying to

push that there has to be a single advance ruling authority but unfortunately think about

a situation where every state says I have equal right as the Centre. So, think about a

situation where a national bench is constituted with 39/40 people sitting, how do you

think it will work. That is where the problem is coming in," Joseph said.

He said even for setting up regional benches there is a huge disagreement between the

states. Currently, what the government is doing is they are going through the entire thing,

studying the issue and then issuing a clarification, the member noted.

"Once the clarification is issued, the entire advance ruling thing becomes null and void.

For some time, you have to adjust to that situation till a trust is developed between the

Centre and states," Joseph added. As per the law, all states are required to set up at least

one AAR for seeking advance ruling over GST levy and one appellate authority to hear

appeals against the AAR order.

In March, the New Delhi bench of the AAR had held that duty-free shops at airports are

liable to deduct GST from passengers. However, these shops were exempt from service

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10 CITI-NEWS LETTER

tax, and Central Sales Tax in the earlier regime. Further, the solar industry too was left in

a vexed situation when the Maharashtra AAR said that 18 per cent GST rate would be

levied for installation works, but the Karnataka-bench of AAR passed an order levying 5

per cent GST on the same.

On concerns over availing input-tax credit, Joseph asked the industry to submit their

representations, backed by data, along with suggestions.

Home

India’s FTAs with ASEAN, Japan and Korea have widened trade deficit: Study

(Source: The Hindu Business Line, December 11, 2018)

The three pacts resulted in rising imports and a progressive slowdown of exports

India’s three free trade agreements with the ASEAN, Japan and South Korea have not

turned out to be favourable for the country as these resulted in growing deficits in

merchandise trade, according to a study published by think-tank Third World Network.

“When the analysis of the three existing Comprehensive Economic Partnership

Agreements (CEPA) show that the balance sheet is heavily loaded against India, there is

no reason to hope that the Regional Comprehensive Economic Partnership (RCEP),

which includes 16 countries, will be any different for the country,” said Biswajit Dhar,

author of the report titled ‘India’s CEPAs with ASEAN, Japan and Korea’, at a discussion

on Tuesday.

The study is important as the government is at present focussed on how to make India’s

free trade agreements deliver more for all stakeholders and has also employed three

think-tanks to analyse the on-going RCEP negotiations. India is especially anxious about

RCEP as China, which is one of the bloc partners, holds the threat of flooding the domestic

market with cheap Chinese goods.

Rising trade imbalance

Over the past decade, India’s trade imbalance vis-à-vis its existing CEPA partners has

steadily increased, the study observed. After the initial spurt in the middle of the previous

decade, trade imbalances saw a sizeable increase immediately after the three CEPAs with

the ASEAN, Japan and Korea came into effect. Trade deficit with the three countries,

which stood at $4.5 billion in 2004 and $16.4 billion in 2010, shot up to $29.7 billion in

2015 before cooling down a bit to $26.6 billion in 2016.

“What is of additional concern is the fact that India’s exports have lagged behind at a time

when its CEPA partners have been providing additional market access,” Dhar said.

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11 CITI-NEWS LETTER

The three CEPAs not only resulted in rising imports but also a progressive slowdown of

exports. “These trends provide a clear indication that while India’s FTA/CEPA partners

were well positioned to taken advantage of an open Indian economy, Indian entities have

been unable to exploit the market access opportunities offered by the partner countries,”

the study said.

Available trends in both exports and imports point to a hollowing out of the

manufacturing base, which has prompted the present government to initiate measures

for the revival of the manufacturing sector, the report added. The Society of Indian

Automobile Manufacturers (SIAM), in its white paper on India’s FTAs, has stated that the

negative fallout of the pacts will seriously compromise investments, manufacturing value

add and employment at no obvious gain in trade or economic expansion.

While the study could not throw much light on services trade in the absence of comparable

bilateral data, it observed that none of the pacts resulted in significant liberalisation in

the movement of skilled professionals.

Home

ADB retains India’s growth forecast at 7.3% for FY19

(Source: The Hindu Business Line, December 12, 2018)

Asian Development Bank has retained its India’s growth forecast at 7.3 per cent for the

current fiscal and 7.6 per cent in the following financial year. India is maintaining growth

momentum on rebounding exports and higher industrial and agricultural output, ADB

said today in its Asian Development Bank Outlook Supplement.

“India saw GDP growth moderate to 7.1 per cent in Q2 of FY2018 (ending March 31, 2019)

from 8.2 per cent in Q1,” ADB said.

The slowdown came mainly from food prices, lower rural consumption, rising oil prices

delivering a negative shock in terms of trade, and rising costs for raw materials.

“Nonetheless, growth forecasts of 7.3 per cent for 2018-19 and 7.6 per cent for 2019-20

are retained from the update despite some downside risks,” ADB said in the supplement.

Home CAIT slams CII report favouring 100% FDI in multi-brand retail

(Source: Times of India, December 12, 2018)

Traders' body CAIT Wednesday slammed industry chamber CII for favouring 100 per cent

foreign direct investment in multibrand retail and said any such move would affect

livelihoods of crores of people.

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12 CITI-NEWS LETTER

In a joint report released Tuesday, the Confederation of Indian Industry (CII) and global

management consultancy firm AT Kearney said the government should consider

permitting 100 per cent foreign direct investment in multi-brand retail and further

improve ease of doing business for the sector to promote growth in the segment.

Reacting to the CII report, the Confederation of All India Traders (CAIT) issued a

statement alleging "the CII is a mouth-piece of MNCs and corporates who are destined to

capture and monopolise the retail trade of India. Its demand for allowing FDI in multi-

brand retail is to keep such companies in good humour as they are funding CII".

The industry chamber's report said that to overcome the barriers and enable a smooth

growth and harmonious coexistence of traditional and modern retail, the government

needs to adopt a single cohesive national retail policy, which adequately addresses all the

concern areas.

However, Chairman of CII's Retail Committee Shashwat Goenka said: "The report talks

about creating a common law for all formats of retail. So either we do 100 per cent FDI in

all formats of retail or in none."

"It is interesting to note that the report is prepared in association with a foreign company

AT Kearney which obviously will forward and advocate the agenda of MNCs. It is none of

the business of CII to speak for retail trade and it will be better if it keeps itself to the issue

of corporates," the traders' body asserted.

The traders' body said foreign direct investment in multi-brand retail is a crucial issue

affecting livelihood of crores of people in the country

Home

India-US-EU Combine Halts China's Belt and Road Initiative at the UN

(Source: Seema Sirohi, The Wire, December 13, 2018)

The last vestige of BRI propaganda was deleted from a resolution on Afghanistan on

December 6.

Washington: In a significant expression of international will, references to China’s Belt

Road Initiative (BRI) have been deleted from all UN resolutions, bringing an end to

Beijing’s “wordplay diplomacy” and dealing a blow to its biggest strategic gambit.

The spread of “Xi Jinping thought” via subterfuge came to a complete halt, at least at the

UN, thanks to some diplomatic due diligence by India, the US and the EU. China’s little

helper Pakistan could do nothing but watch.

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13 CITI-NEWS LETTER

The last vestige of BRI propaganda was deleted from a resolution on Afghanistan on

December 6 in a final act of cleansing that started last year when India took a strong stand

against BRI and rained on Xi’s parade by raising questions about transparency,

environmental standards, predatory economics and violations of sovereignty.

Just as last year, when the coalition of India, US and EU worked to remove references to

BRI from two other resolutions, the three-pillar resistance was led by the young Indian

diplomats at India’s permanent mission who negotiated with other delegations and

gathered widespread support.

The latest victory was achieved when references to BRI contained in the 2017 and 2016

resolutions on Afghanistan, which had the UN General Assembly welcoming “regional

economic cooperation through regional initiatives, such as the Silk Road Economic Belt

and the 21st-century Maritime Silk Road (the Belt and Road) Initiative and other regional

projects,” were deleted. The 2018 resolution on Afghanistan was rid of BRI baggage.

“BRI at the UN is going, going, gone…” a UN observer told this columnist. The belt had

fallen and the road was blocked.

Interestingly, references to all other regional initiatives such as the Turkmenistan-

Afghanistan-Pakistan-India or the TAPI gas pipeline project and the Chabahar agreement

between India, Afghanistan and Iran were retained, making the deletion of BRI reference

even more noticeable.

In fact, the resolution made a special mention of the delivery of the first consignment from

India to Afghanistan from Chabahar Port and the establishment of the Afghanistan-India

direct air freight corridor.

The last bit will especially irk Pakistan because its attempts to squeeze Afghanistan

economically by denying India land transit rights for trade are failing. Last week, the UN

recognised the importance of other routes devised by India to help Afghanistan.

The Chinese representative accepted defeat, registering mild unhappiness and noting

only that the final text of the latest resolution had failed to mention the “consensus”

reached in the past. He did not mention BRI, probably to avoid focus on the failure.

Diplomatic sources in New York said India, with support from the US and the EU,

emphasised that all connectivity efforts in the region must be based on the principles of

economic viability and financial responsibility – something that the BRI has spectacularly

failed to do.

They argued that all transnational projects must follow “universally recognised

international norms, rule of law, transparency and environmental standards” – basically

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14 CITI-NEWS LETTER

the criticisms first made by India as Xi was showcasing BRI at a summit in Beijing in front

of eager heads of state.

Those criticisms are now almost universally accepted and have become the backbone of

the resistance. They have been used by the US, Japan, Australia in their Quadrilateral

Security Dialogue to arrive at a counter-narrative of “sustainable infrastructure” (BRI

promotes indebtedness) and “skill and technology transfer” (China brings its own workers

for projects, giving no jobs to locals).

“Connectivity initiatives must respect the sovereignty and territorial integrity of nations,”

a senior diplomatic source said. “They should promote trade, not tension.”

Countries from Sri Lanka to Pakistan, from Malaysia to Myanmar are already having

second thoughts about BRI as the shadow of debt darkens their door and local

populations gain almost nothing in terms of skills transfer or even basic employment.

This battle royale at the UN between China and the US-India-EU combine may seem

esoteric but it is significant nonetheless. It was important to wage this war over words

because the tradition of precedent allows countries to build on previous resolutions and

augment their narrative.

Language buried in resolutions can be resurrected later at an opportune moment to one’s

advantage and before you know it, bad ideas are being endorsed by the General Assembly.

But once something is deleted by consensual agreement, getting the same language back

in the same resolution or others becomes difficult.

The Chinese, in the great power tradition, see the UN as a vehicle to further their agenda.

They have been working meticulously over the past few years to spread their word and

thought through various UN organisations.

In their vision, BRI is the perfect expression of the “very purposes and principles of the

UN Charter,” and pretty much an incarnation of the UN’s Sustainable Development

Goals.

Well, not so fast, said the troika of India-US-EU.

Seema Sirohi is a Washington DC-based commentator.

Home

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15 CITI-NEWS LETTER

Raghuram Rajan on what India needs to do to get a $5-trn economy

(Source: Economic Times, December 12, 2018)

Focus on the fundamentals, get them right and we will suffer the least damage in a highly

leveraged world , Raghuram Rajan, Former Governor, RBI, tells Supriya Shrinate of ET

Now at the India Economic Conclave

You have the advantage of being a global insider of sorts. You have been in policy making

in India. Are we future ready and what do we need to do to get to a $5 trillion economy.

First, we must pat ourselves on the back a little for what we have done so far. I think 25

years of 7% of growth is a good thing and we have come some distance. However, we are

approaching middle income country level and that means we have to focus much more on

getting our growth path straightened out. There are some problems that are emerging

that we have to be wary of.

One, of course is that we actually need more equitable growth than today. For example,

one must worry about the extent of job creation in India. Reports of 25 million people

applying for 90,000 railway jobs is something that suggests there is not enough supply of

jobs in the market.

We also have to worry about the path of growth in terms of pollution, emissions and so

on. We are choking our cities and if we are doing that at our level of growth, think of what

happens when we double our GDP to $5 trillion as you suggest! So we need to do a lot

more on having cleaner growth. Of course, that leads to the issue of institutions. The

factor that helps us grow in a healthy way is strong institutions, whether it is the pollution

regulator, the emissions regulator or whether it is the financial regulator. These are

structures that we must strengthen They have to stand as independent bodies to ensure

our growth is healthy and stable.

Everybody seems to laud each other on the 7% growth and I know you say

that we have grown at 7% for 25 years. Is it really phenomenal or is this the

new Hindu rate of growth up from the Asian 3.5% that we have seen? Is this

going to lift these people out of poverty, create jobs, create the necessary

gainful employment that is required or are we stuck in the range of 7% to

7.5%?

I wish this was the new famous Hindu rate of growth. I am not sure. It is a healthy rate of

growth but it is insufficient in terms of creating the jobs that we need. We either need to

shift some of the growth to job creating sectors and we have not done that well in the past.

I am not sure we know quite how to do it or increase the pace of growth more generally

by a couple of percentage points to absorb the people coming into the labour force.

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16 CITI-NEWS LETTER

A key to stronger growth will have to be areas like construction where building the

infrastructure that India needs, will employ a lot more people and create jobs for people

leaving agriculture as well as for modestly educated people from urban areas. We need to

think about what we can do to create these jobs because otherwise we have problems

ahead.

India’s physical infrastructure will be key to a development and yet it

hinges on two issues – land acquisition and environmental clearances.

These are both politically and socially sensitive. Can there be a balance?

We do it the right way. The temptation will be to cut corners, to have draconian powers

on land acquisition or to eliminate the need for environmental regulation. But that would

be a mistake both for our long-term growth as well as a mistake given our democracy. The

more draconian you get, the more opposition builds up.

Instead, we have to find clever ways of trying to achieve the objectives that we want with

these measures while at the same time respecting the intent of environmental regulation

or careful land acquisition. We need to take people along. For example, in land

acquisition, could we improve the pace of the process first by making land rights much

clearer?

Right now, there are a lot of states where it is quite opaque who owns land wiht a decent

price as well as some kind of long-term incentive for the person who parts with the land.

For example, a land sharing mechanism like the one we had with the Andhra capital

acquisition. Let us look for best practices in India and see how that would work.

Similarly, in terms of environment, we have a lot of regulations but if you look at some of

what is happening for example in Delhi or you look at the growth of a place like Shimla,

you see that we have not achieved the objective of having clean growth. How do we go

about that? We need to spend a lot of time thinking how we manage this process sensibly

without shortcuts.

This government has significantly benefited from a benign oil regime. From the highs of

$140 a barrel, we have seen the lows of sub-30. in In the last policy, RBI called it a

tailwind. It has become a headwind after the OPEC cuts. Why did the tailwind not spur

our growth further?

It is a very legitimate question. Where has the oil windfall gone and how does it hurt us

as it comes back in the form of higher prices? But let us put that behind us. The key issue

is volatility of oil and with geopolitical tensions, volatility is going to increase.

There is a very strong need for oil hedging mechanism for a country like ours which is so

dependent on oil. We have discussed this in the past. Of course, we have started a strategic

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17 CITI-NEWS LETTER

petroleum reserve but overall and beyond that, we have to think about whether it makes

sense to hedge the price of oil, especially when it comes to levels such as these.

The problem is many fear the fallout if oil prices fall even further and you have hedged it.

But that has to be taken as a natural consequence of hedging programme and we must as

But that has to be taken as a natural consequence of hedging programme and we must as

a country think about whether we should start this process.

How crucial will the human capital be for being future ready to emerge as

a $5- trillion economy? Do we run the risk of fewer knowledge workers in

India in future?

It is not just education, it is also healthcare because of the kind of nutrition and healthcare

that our young get at an early age. It may in fact stunt them for the future and make it

much harder for them to benefit from any kind of education system, let alone the

education system that we have.

Now there are some pieces of good news on education. One is that everybody eventually

seems to be entering the classroom. Now whether they continue in the classroom, whether

they learn enough is a very different question and the ASER surveys, the work that

Pratham has done suggests they are not learning enough. A few of them can enumerate

and are able to read in an effective way.

At this point, we have to shift towards improving the quality of education and that means

a lot of remedial education to ensure that children are not left behind. After all, it is the

children who are left behind, who do not understand anything in class and who are prime

candidates for dropping out also. Now that we have got everybody into the system to begin

with, let us keep them there by giving them a much better, much higher quality education

that they are currently getting.

It requires a tremendous work on all sides again.

From human capital, I would like to address intellectual capital

requirements. Are we not investing enough in the future? Are our

companies not investing enough?

This indicates that we have work to do. There are small startups. I have met some people

in Bangalore who are working on artificial intelligence and machine learning but clearly

at this point, our northern neighbour China has stolen a march over us in terms of how

prepared we are.

Again, there is no shortcut here. You cannot produce world class companies in these areas

without having a strong research university system which backs them. China has made

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18 CITI-NEWS LETTER

that leap. If you look at Chinese universities, they have made a tremendous change over

the last 10 to 15 years and now some of them are really world class.

We need to do the same in India also and focus on improving the quality of research or

the quality of our universities and as a by-product our companies will also get better.

We were relying a lot on the companies themselves for doing what was necessary.

Certainly they could do some as well. We had world class companies in the IT area. Now

to some extent, they are falling behind as there is a shift to new areas and we need far

more research teaching in those areas to create the human capital to take us forward. I

think this is a wakeup call for us that we should do far more in the area of education.

What do you make of the debate on growth data in the light of reports that

say that there was a set of data on GDP figures earlier which was not

allowed. The credibility of statistical system is perhaps what is really in

focus. What is going to be the future of the economy based on this data? Are

those waters being muddied really?

This is a current controversy that I do not think I have knowledge or expertise to wade

into. The broader question you are asking is as we go forward and become a five-trillion

economy from the 2.5 trillion plus we are now, what more do we need to do?

Clearly one part of what we need to do is to have a robust and reliable data so that

economic decision makers can take decisions on that basis. This means strengthening of

our whole statistical process. It is not just the quality of data that we have to worry about

it is also the quantity of data. For example, look at the whole area of labour. What are the

unemployment numbers? How do they vary month by month we have no idea.

As far as the overall GDP growth numbers and GDP level numbers go, the reality is

whatever they be, we need to do more because again the proof of the pudding is in the

eating. If 25 million people are applying for 90,000 jobs, it suggests that we are not

supplying enough jobs. That means growth is not strong enough, at least in the job

creating areas.

Home

IIFT to conduct research conference on international trade, finance

(Source: Dev Discourse, December 12, 2018)

The commerce ministry's IIFT said it is organising a two-day research conference starting

from Thursday to provide a platform for academic debate and knowledge sharing on

issues related to international trade and finance.

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19 CITI-NEWS LETTER

The Indian Institute of Foreign Trade (IIFT), a deemed-to-be-university, is under the

administrative control of the ministry.

The conference, to be inaugurated by Commerce and Industry Minister Suresh Prabhu,

will be attended by renowned academicians from across the globe, policymakers and

economists from various multilateral agencies such as OECD, ILO, and UNESCAP.

The participants will exchange views and knowledge in the different domain of research

in trade and finance.

"The sixth research conference on Empirical Issues in International Trade and Finance

will be organised at its New Delhi campus," IIFT said in a statement Wednesday.

Besides lectures by guests and technical sessions, there will be four policy forums on trade

and employment challenges in South Asia, bilateral investment treaty, emerging issues in

international trade negotiations, and trade, technology and global value chain, it added.

The conference assumes significance as the global trade is at a standstill.

Home

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20 CITI-NEWS LETTER

GLOBAL:

EU parliament approves Japan trade deal in what is being called the world’s

biggest

(Source: Japan Times, December 13, 2018)

The European Parliament on Wednesday approved an accord with Japan that has been

dubbed the world’s biggest trade deal, covering economies that represent a third of the

world’s GDP.

The agreement will go into effect in February and was celebrated as a victory for Europe

as a free trade champion in the face of U.S. President Donald Trump’s protectionism and

Britain’s decision to leave the EU.

“Our economic partnership with Japan — the biggest trade zone ever negotiated — is now

very close to becoming a reality,” EU Trade Commissioner Cecilia Malmstrom said.

Talking to AFP before lawmakers voted by 474 votes to 152 to back the deal, Malmstrom

called it “a symbol, a signal” and added: “We’re showing that for our part, we’re in favor

of open but regulated trade.”

The deal was confirmed even as British Prime Minister Theresa May defended her

faltering attempt to negotiate Britain’s orderly departure from the European Union before

a boisterous House of Commons.

But, ironically, some EU leaders see the wide-ranging deal they have agreed with far-off

Japan as a possible model for future commercial relations with the United Kingdom, once

it formally quits the bloc.

“Everything is uncertain with the United Kingdom for the moment, but one day or

another we’ll have to negotiate something,” Malmstrom said, predicting a British deal

would “go even further” than Japan’s.

Covering more than 630 million people and economies that add up to around a third of

global output, the EU-Japan Economic Partnership Agreement has been under discussion

since 2013.

When it goes into effect it will regulate almost all commerce between the Asian giant and

the 27 remaining EU economies and, according to Malmstrom, will benefit in particular

European farmers.

The pro-business lobby welcomed the deal.

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21 CITI-NEWS LETTER

“Approving the EU-Japan EPA, the European Parliament delivers on what business and

citizens need in a time of political and economic uncertainty,” said BusinessEurope

Director General Markus Beyrer.

“This agreement is projected to increase exports between the two economies by 34 percent

for the EU and 29 percent for Japan, liberalizing up to 99 percent of bilateral trade,” he

argued.

“The elimination of tariffs will save consumers and importers 1 billion euro per year in

the EU and will support a substantial increase of jobs, maximizing benefits for both

companies and citizens.”

Once the is fully implemented, some 85 percent of EU farm products will be eligible for

tariff free export to Japan, although in some cases this will come after a period of

transition.

Customs duties on beef, for example, will be progressively reduced, and rice, a source of

national pride in Japan, will be excluded from the deal.

Tokyo has also agreed to recognize more than 200 “geographic signifiers,” allowing iconic

European products like Roquefort cheese, Tirolean speck and Polish “Wodka” to protect

their brand value.

For their part, the Japanese will win free access to the European automobile market after

a multiyear transition period.

In a nod to the environmental and anti-globalist groups who have lobbied against this and

other EU trade agreements, it includes chapters on sustainable development and the Paris

climate change accord.

This was not enough to appease at least three NGOs — the Foundation for Man and

Nature (FNH) the Veblen Institute and Foodwatch — who denounced a deal they said was

“negotiated in the shadows.”

“The European Parliament agreed to a trade agreement that damages European

democracy,” Lena Blanken of Foodwatch said.

The deal “restricts the legislative authority of the EU and its member states, jeopardizes

the European precautionary principle and establishes committees without sufficient

democratic control.”

But Malmstrom was unrepentant.

“With or without a deal, we do trade with far off countries. That’s commerce,” she said.

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22 CITI-NEWS LETTER

“In the end, it’s consumers who decide,” she said, adding that, while many might prefer

to buy locally, Europe would work with Japan to reduce the environmental impact of long-

distance shipments.

With the deal, the EU is seeking access to one of the world’s richest markets, while Japan

hopes to jump-start an economy that has struggled to find solid growth for more than a

decade.

Home

Bangladeshi apparel to draw bigger FDI

(Source: Refayet Ullah Mirdha, The Daily Star, December 13, 2018)

UN body assesses impact of US-China trade war

The ongoing trade war between China and the US will bring

more work orders and more foreign direct investment for the

garment sector of Bangladesh, according to the United Nations

Economic and Social Commission for Asia and the Pacific (UN

ESCAP).

“Major players in the garment industry in the Asia-Pacific

region, such as Bangladesh and Vietnam, are expected to benefit

by acquiring a larger share in exports to the US, and thus

attracting more investment,” it said in its flagship annual report.

The report, the Asia-Pacific Trade and Investment Report (Aptir), was unveiled yesterday

at the UN ESCAP office in Bangkok.

Developing countries in the region continue to attract investment in labour-intensive

sectors, particularly the garment industry.

Bangladesh's textile and apparel sector received $422 million in FDI in 2017, which is 1

percent higher than a year earlier, the Aptir report said.

“The upward trend was recorded despite lingering concerns about the sustainability of

the country's garment sector.”

The Aptir also apprehends bad impact on the Asia Pacific economy if the trade war

prolongs. “The US-China trade tensions have also begun to disrupt existing supply chains

and dampen investor confidence, as evidenced by the deceleration in trade growth after

the first half of 2018.”

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23 CITI-NEWS LETTER

If the trade tensions remain, export growth may slow to 2.3 percent in 2019, compared to

a nearly 4 percent growth in export volume in 2018.

The FDI inflows to the region are also expected to continue in their downward trend next

year, following a 4 percent drop in 2018.

Tariff hikes that have already taken place are expected to cut global GDP by $150 billion

and regional GDP by a little over $40 billion if they remain. Since many of the main export

industries in the region are relatively labour-intensive, a contraction of export could spell

at least temporary hardship for many workers.

At a minimum, Asia and the Pacific will see a net loss of 2.7 million jobs due to the trade

war, with unskilled workers, often women, shouldering more severe impact.

If the tariff war further escalates in 2019 and investor and consumer confidence drop,

global GDP could ultimately be cut by nearly $400 billion, also driving regional GDP

down by $117 billion.

Almost 9 million people could be put out of work in the region, with many more workers

also moving to new jobs in different sectors.

“As production shifts take place and resources are reallocated across sectors and borders

due to the trade conflicts, tens of millions of workers may see their jobs displaced and be

forced to seek new employment,” said Mia Mikic, director of the Trade, Investment and

Innovation Division at ESCAP.

Regional integration will be important to create new economic opportunities.

But other complementary policies, such as labour, education and retraining policies plus

social protection measures to support people negatively affected must also be placed high

on the policymakers' agenda if the region is to continue making progress towards the

Sustainable Development Goals, she added.

Home

Amid US-China trade war, Vietnam wields a slew of benefits over its rivals

(Source: Nguyen Dieu Tu Uyen, Bloomberg, December 13, 2018)

Vietnam manufacturing wages are among the lowest in the region

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24 CITI-NEWS LETTER

In the race to lure companies looking for alternative

sites amid the U.S.-China trade war, Vietnam wields a

slew of advantages over its rivals.

Vietnam was ranked No. 1 among seven emerging

Asian countries as manufacturing destinations by

Natixis SA, which looked at demographics, wages and

electricity costs, rankings in doing business and

logistics, and manufacturing as a share of total foreign

direct investment.

“Vietnam is poised to capture some of China’s global

market share in labor-intensive manufacturing,” said

Trinh Nguyen, a senior economist at Natixis in Hong

Kong. “It’s the clear winner from the trade war.”

Prime Minister Nguyen Xuan Phuc is taking advantage of trade tensions to boost the

nation’s profile as a manufacturing and export powerhouse, selling everything from shoes

to smartphones. Trade amounts to about twice its gross domestic product -- more than

any country in Asia apart from Singapore.

Here’s a look at what makes Vietnam attractive to foreign investors:

Cheap

Production workers in Vietnam are paid an average of $216 a month, less than half what

their peers get in China. Thanks to government subsidies, electricity is also cheaper at 7

US cents per kilowatt hour compared with 10 cents for Indonesia and 19 cents for the

Philippines, according to GlobalPetrolPrices.com’s June data.

Vietnam also has one of the largest labor forces in Southeast Asia, at 57.5 million. That

compared with 15.4 million for Malaysia and 44.6 million for the Philippines, according

to the World Bank.

Deals, Investment

Vietnam’s communist leaders have pursued free trade deals with South Korea and Europe

and joined 10 other nations in March in signing a Trans-Pacific trade pact.

Officials completed a trade deal with the EU in June that will eliminate almost

all tariffs. In Southeast Asia, only Singapore has a similar agreement with the EU.

The government is also making it easier for foreign investors to do business with a

proposed securities law that would allow 100 per cent foreign ownership of public

companies, except those in restricted sectors like banking and telecommunication.

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25 CITI-NEWS LETTER

Foreign direct investment is surging, with the government expecting disbursed FDI to rise

to a record $18 billion this year.

Hon Hai Precision Industry Co., the Taiwan-based manufacturer for companies such as

Apple Inc., is considering shifting some of its production to Vietnam as a hedge against

the trade tensions between the U.S. and China, said Vu Tien Loc, chairman of the Vietnam

Chamber of Commerce and Industry. Representatives of the company have spoken with

Vietnamese officials, though discussions are preliminary, he added.

Geography

Vietnam’s proximity to China also adds to its appeal. The two share a land border,

compared with countries like Indonesia, Philippines and Malaysia which are all much

farther away.

Chinese companies that need raw materials or product components from the U.S. will

find it easier to source these goods via Vietnam. Vietnam is China’s largest trading partner

in Southeast Asia as the two nations become more central in each other’s production

chains.

Stability

Vietnam boasts one of the world’s fastest-growing economies, forecast to expand at about

7 percent this year. The dong has been relatively stable in 2018, compared with other

currencies in Asia like the rupee and rupiah which suffered large declines.

“Strong economic growth and political stability are very important to investors,” said

Tony Foster, the Hanoi-based managing partner in Vietnam for law firm Freshfields

Bruckhaus Deringer LLP.

The dong will remain fairly stable in the near-term, Fitch Solutions Macro Research, a

unit of Fitch Group, said in October, citing support from strong FDI inflows and

manufacturing.

Home

Vietnam runs biggest trade surplus with US, EU in 11 months

(Source: Nhan Dhan Online, December 12, 2018)

Vietnam enjoyed its largest trade surpluses with the United States and European Union in

the first 11 months of 2018, according to the General Statistics Office.

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26 CITI-NEWS LETTER

Vietnam had a combined trade surplus of US$57.5 billion with the US and the EU, up

7.3% from the same period last year and six times higher than the country’s total figure of

US$6.81 billion.

This figure substantially contributed to the national foreign exchange reserves, which

have grown to a record high of more than US$60 billion so far this year.

Over the period, Vietnam had its largest trade surplus of US$31.9 billion with the US, up

8.1% year on year and 4.7 times higher than the total national trade surplus. The most

growth was recorded in exports of mobile phones and accessories (49.8%), footwear

(14.6%) and garment and textile (12.4%).

Vietnam’s trade surplus with the EU stood at US$25.6 billion, a year-on-year increase of

6.2%. Among EU countries, Vietnam posted the largest trade surplus with the United

Kingdom, which imported more than US$4.73 billion worth of commodities from

Vietnam in the first 10 months of the year while the UK’s exports to the Asian nation hit

US$694 million.

Meanwhile, Vietnam ran trade deficits with 27 foreign markets, of which nine recorded

trade deficits of more than US$1 billion and five others exceeded US$2 billion.

As the Vietnam-Korea Free Trade Agreement entered into force, the Republic of Korea

(RoK) surpassed China to become the foreign market Vietnam posted the largest trade

deficit with. From January to November, Vietnam’s trade deficit with the RoK was worth

US$26.6 billion, down from US$29.2 billion over the corresponding period of 2017, or

8.9%.

Home

Acting minister of textile industry appointed in Turkmenistan

(Source: Azer News, December 12, 2018)

Turkmen Deputy Minister Ogulhajat Ishangulyev has been appointed acting Minister of

Textile Industry of Turkmenistan, Trend reports citing a presidential decree released Dec.

12.

Former minister of textile industry, Nepes Gaylyev, has been dismissed from this position

for serious work-related shortcomings.

More than one million tons of cotton are grown annually in Turkmenistan, and this serves

as a raw material base for the development of the textile industry.

The textile industry of Turkmenistan is represented by a wide range of exported products

- from cotton fiber and yarn to finished garments and knitwear, which are produced by

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27 CITI-NEWS LETTER

the largest textile complexes in Central Asia, located in the capital and in all regions of the

country.

A significant part of the products of Turkmenistan supplied abroad are home textiles,

sportswear and jeans, produced under the world-famous trademarks IKEA, Puma,

Walmart, Lidl, Bershka, Pool & Bear, River Island, Cosco.

Home

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