Analysis of Intra-Industry

Trade
India’s Trade Trends

What is Intra-Industry Trade?

A high proportion of trade, however, is intra-industry trade—that is, trade of goods within
the same industry from one country to another. For example, the United States produces
and exports autos and imports autos. Table shows some of the largest categories of U.S.
exports and imports. In all of these categories, the United States is both a substantial
exporter and a substantial importer of goods from the same industry. In 2014, according to
the Bureau of Economic Analysis, the United States exported $159 billion worth of autos,
and imported $327 billion worth of autos. About 60% of U.S. trade and 60% of European
trade is intra-industry trade.

Gains from specialization and Knowledge Spillovers

Consider the category of machinery, where the U.S. economy has considerable intra-
industry trade. Machinery comes in many varieties, so the United States may be exporting
machinery for manufacturing with wood, but importing machinery for photographic
processing. The underlying reason why a country like the United States, Japan, or Germany
produces one kind of machinery rather than another is usually not related to U.S., German,
or Japanese firms and workers having generally higher or lower skills. It is just that, in
working on very specific and particular products, firms in certain countries develop unique
and different skills.

Specialization in the world economy can be very finely split. In fact, recent years have seen a
trend in international trade called splitting up the value chain. The value chain describes
how a good is produced in stages. The production of the iPhone involves the design and
engineering of the phone in the United States, parts supplied from Korea, the assembly of
the parts in China, and the advertising and marketing done in the United States. Thanks in
large part to improvements in communication technology, sharing information, and
transportation, it has become easier to split up the value chain. Instead of production in a
single large factory, all of these steps can be split up among different firms operating in
different places and even different countries. Because firms split up the value chain,
international trade often does not involve whole finished products like automobiles or
refrigerators being traded between nations. Instead, it involves shipping more specialized
goods like, say, automobile dashboards or the shelving that fits inside refrigerators. Intra-
industry trade between similar countries produces economic gains because it allows
workers and firms to learn and innovate on particular products—and often to focus on very
particular parts of the value chain.

India’s Trade Choices

1. Despite the overwhelming case in favor of greater and freer trade, there are reasons
why India is unable to seize the opportunity.
2. The trends have stated that several sectors of economy struggle with the imports
from China.
3. In the one experience that India had a major trade liberalization, during the
economic reforms of 1991, there was a little evidence to suggest that manufacturing
had received a boost.
4. India’s trade strategy needs to be more of an Asian trade strategy, centered on East
Asia and South Asia, which have enormous potential for integration.
5. The first step in an Asian strategy must be to address the bottlenecks in the domestic
economy that render the Indian industries uncompetitive in the first place.
Thus, India needs to combine a domestic strategy with an external strategy so as to
move forward and become a trade leader.

Intra-industry trade in India

Liberalization and evolution of Intra-Industry Trade:

The conventional wisdom states that trade liberalization has led to a restructuring in which
productive resources have been reallocated from import competing industries to those
industries where the country has comparative advantages. An increase in the inter-industry
trade i.e. export increase from one set of industries and import increase in another is a
natural consequence of trade liberalization. Earlier, for India, the potential for intra industry
trade was severely limited during the import substitution policy regime, but now, over the
years as the economy opened up for competition and pattern of specialization underwent
changes, caused an increase in allocative efficiency related to Intra-industry trade.
 Some illustrations of Intra Industry Trade Products:

1) JAPAN-
Indian Imports from Japan

S.NO. 8-digit HS Code Product Name

1 74031100 Cathods and sections of cathods
2 89080000 Vessels and other floating structures for breaking up
3 87084000 Gear Boxes
4 87089900 Other parts and accessories of Vehicles (HDG 8701-8705)
5 72083930 Sheets of Flat rod products in coils of thickness<3mm
All other articles of steel/iron Nes, steering or rudder equipment for ships and
6 73269099 boats
7 72104900 Other products of iron- non alloy steel plated with Zinc
8 40024900 Other Chloroprene Rubber
9 73181500 Other screws and bolts with nuts or washers threaded
10 39269099 Other articles of Plastic Nes

The data in the table above represents the Top 10 articles/ products imported from Japan to
India.

Looking at the table, it can be clearly seen that the major material of import has been steel
in India. As a matter of fact, we also observe from the graph below that India indulges in
Intra-Industry Trade for all above products.

INDIAN EXPORTS:
Top exports from the data for top 10 imports, i.e., we will look at the products that India
imports and also, exports them.

1) From Japan’s top 10 imported products- (Products that India exports with high
valuation from the above list)

HS Code Product Name Export Valuation

87089900 Other parts and accessories of Vehicles (HDG 8701-8705) $15 B

All other articles of steel/iron Nes, steering or rudder
73269099 equipment for ships and boats $9.2 B

73181500 Other screws and bolts with nuts o washers threaded $8.4 B

39269099 Other articles of Plastic Nes $6.8 B

74031100 Cathods and Sections of Cathods $5 B

72104900 Other products of iron- non alloy steel plated with Zinc $3 B

87084000 Gear Boxes $2.6 B

89080000 Vessels and other floating structures for breaking up $12 M

40024900 Other Chloroprene Rubber $3.5 M

Indian Exports of the product-7403110-Cathods and Sections of Cathods

Indian exports of the products-89080000- Vessels and other floating structures for
breaking up

The above graphs clearly show that over the years, India has been exporting Cathods and
sections of cathods to China and also, exports vessels and other floating structures for
breaking up to USA. Even though the number of exports has been fluctuating and might
even seem to reduce in current years, this gives the clear evidence of presence of intra-
industry trade for this product in the Steel Industry.

2) KOREA RP (South Korea)

India’s imports from Korea

8-digit HS
S.NO. Code Product Name
1 87089900 Other Parts of Vehicles of HDG 8701-8705
2 87084000 Gear Boxes
3 72083840 Strips of flat rod of thickness >3mm but <4.75mm
4 85177090 Other parts of telephonic/ telegraphic parts
5 84807100 Injection/ compression from rubber/ plastics
6 29025000 Styrene
7 72104900 Iron-non alloy products coated with Zinc
8 72083790 Strips of flat rod of thickness <4.75mm but >10mm
9 84073410 Spark Ignition for Motor Cars
10 39033000 Acrylonitrile-Butadiene Styrene copolymers
11 72107000 Products varnished/ coated with plastics
12 82073000 Tools for pressing, stamping or punching
13 39013000 Ethylene-vinyl acetate copolymers
Flat rolled products of Silicon electrical steel other than
14 72251920 Grain Oriented- Cold Rolled
15 89080000 Vessels and other structures for breaking up
Other ply (vinyl chloride) not mixed with any other
16 39041090 substance
17 72085110 Plates of coils of thickness more than 10mm
18 72091790 Strips of flat rod of thickness <0.5mm but >1mm
19 39074000 Polycarbonates
20 29261000 Acrylonitrile
 The data in the table above represents the Top 20 articles/ products imported from Japan to
India.

INDIAN EXPORTS:

1) From Korea’s top 20 imported products- (Products that India exports with high
valuation from the above list)

HS Code Product Name Export Valuation

87089900 Other Parts of Vehicles of HDG 8701-8705 $15 B
72104900 Iron non-alloy products coated with Zinc $3 B
87084000 Gear Boxes $2.6 B
85177090 Other parts of telephonic/telegraphic parts $1 B
72085110 Plates of coils of thickness more than 10 mm $920 M
84073410 Spark ignition for motor cars $916 M
72107000 Products varnished/ coated with Plastics $766 M
72091790 Plates of coils of thickness>0.5mm but <1mm $474 M
84807100 Injection/ compression from Rubber/ plastics $387 M
Flat rolled products of silicon electrical steel other than grain oriented-
72251920 cold rolled $182 M

Indian Exports of the product-87089900-Other Parts of Vehicles of HDG 8701-8705

Indian Exports of the product-72104900-Iron Alloy Products coated with Zinc

Overall Intra- Industry Trade Analysis

Taking up the data of import and export for 25 countries, mentioned below:

China
Australia
Germany
France
South Korea
Japan
Switzerland
Sweden
Thailand
Indonesia
United Kingdom
United States of America
United Arab Emirates
Russia
Finland
Netherlands
Brazil
Canada
Spain
 Taiwan
Singapore
Malaysia

The total valuation of Imports- 35,94,67,460.73 (in Rs. Lakhs)

Below are the HS Codes (4-Digit) that show intra- industry trade products for India-

Codes for
product with
Intra Industry
Trade
2603
2710
3901
3902
3907
7207
7208
7308
7326
8407
8411
8426
8430
8466
8480
8503
8504
8517
8529
8536
8538
8543
8708
8802
8803
8901
8904
8905
8906
9801

The total valuation of Intra-industry trade products- 4,77,09,254.14

Now, Percentage of the valuation of Intra Industry trade products with respect to the
Imports:

¿ ) X 100%=13.27%

As compared to the total import valuation, 13.27% of intra-industry for 25 countries is

comparatively less and it shows that even though India has become one of the major players
in trade, Intra Industry trade is something that can be increased over time depending on the
ability of initiatives like Make in India, Skill India, etc.