Whether or not India
should join the TPP is a debatable issue. What one can safely conclude is that
India’s interest in participation would bring in dynamism to the TPP and be a
great relief for both the United States and Japan.
With the Doha Round of
the World Trade Organization (WTO) not quite going anywhere, countries have
started moving towards bilateral free trade agreements (FTAs) as well as
regional trade agreements (RTA). These are seen as a way forward, with trade
experts hoping that these will ultimately pave the way for a multilateral
agreement in the WTO.
India is negotiating
entry into some RTAs, but opinions about them are mixed. Three mega trade agreements
are being negotiated: the Regional Comprehensive Economic Partnership (RCEP),
the Trans Pacific Partnership (TPP) and the Transatlantic Trade and Investment
Partnership (TTIP). India has started preparing for RCEP with its set of
demands and offerings but has not taken any stand on the TPP (the TTIP has no
relevance because of the geographical area it relates to).
Starting off in 2005 as
the Trans Pacific Economic Partnership Agreement (TSEP or P4) between four
countries (Singapore, New Zealand, Chile and Brunei), the TPP now covers 12
countries – the United States, Canada, Australia, Vietnam, Malaysia, Japan,
Mexico and Peru getting added along the way – which together account for around
40 per cent of global gross domestic product (GDP) and nearly a fourth of
international trade. Taiwan and South Korea are also planning to join.
What is in it for India?
India’s scepticism over
FTAs stems from the fact that it has not been able to take full advantage of
them as much as its partner countries have. One reason for this could be that
India has been silent or slow on economic reforms, as a result of which
domestic industries are not efficient enough to compete in the turfs of the
partner countries. It is only now that serious efforts have started but they will
take some time to show results. However, India can’t wait forever for this
process to set in.
India is negotiating an
ambitious FTA with the European Union for quite some time now. With India
unrelenting on certain areas like government procurement and differences over
the automobile sector, these negotiations are not going anywhere. However, the
European Union must be desperate for the agreement in view of its domestic
economic situation and pressure from its industry which is bereft of any real
growth. It all depends on how effectively the policy makers there would be able
to convince their varied countries.
As of now, the
differences between their economic goals are increasing due to the worsening
economic situation in some of the EU member countries. However, instead of
embarking on that exercise, that is, convincing its member states about the
desperate need to enter into a FTA with India, the European Union is trying to
bring down India’s negotiating will by pretending as if it is more interested in
the TIPP, which it is now negotiating with the United States and is trying to
create barriers such as recent directives on government procurement, so as to
send a message to India.
In this backdrop, the
best option for India is to simultaneously move on multiple fronts and conclude
deals wherever possible, with whatever little gain it can accumulate. This no
doubt is a tough call as in any negotiation, we need to give away some to get
some. While RCEP and TPP may be competing among themselves, India can’t afford
to choose one over the other, leading to a complete neglect of one of the
groupings, especially due to the China factor which looms large over RCEP and
the fact that, seen from India’s perspective, RCEP may be more about
manufacturing sector and TPP about services.
Analyses of TPP
Dr. Badri Narayanan of
Purdue University, in a recent paper co-authored with Dr. S.K. Sharma of the
Indian Institute of Foreign Trade says that India would lose due to TPP,
regardless of whether it joins or not. This is because of ‘strong trade
diversion effects arising from global price reduction facilitated by widespread
tariff elimination’. However, Narayanan adds that India might gain in areas such
as textile products, leather, light and heavy manufacturing, fish, dairy,
meat/livestock etc., as India’s output would increase if it decides to join the
TPP. These are crucial sectors for India because of their employment generation
potential.
Narayanan points out that India might, anyway, lose in
agriculture as output would decline in sugar, wheat, vegetables, processed food
etc. Apart from this, he points out that his study has not taken into account
services and hence this study may ‘underestimate the potential effect of
liberalization where services sector is to be included’. Thus, this crucial
aspect of impact of TPP on the services sector in India is missing in that
study making the conclusions incomplete. And it is services sector which need
to be looked into carefully with regard to India’s entry into TPP.
There are other analyses with regard to TPP’s impact on
other countries. Standard Chartered predicts benefits to Vietnam’s apparels
export due to trade diversion from Sri Lanka and Bangladesh. Dr. Rashmi Banga
of UNCTAD predicts further decline in Malaysia’s domestic value added exports
due to increase in imports from the United States and Japan. The European Union
has already felt that the impact of TPP on it would be negative, forcing it to
move faster on its foreign trade agreements with Asian countries.
Hence, we need not shy away from moving towards foreign
trade agreements or wait till we put our house in order. This definitely would
mean giving away some of our stated positions. That is part of the negotiation.
However, the appropriate negotiating strategy is to give away things that would
hurt us less or when the offloaded baggage would benefit us in the long run.
India and the contentious areas of TPP
The recent developments in TPP negotiations show that the
United States is proposing to make TPP countries its playground. It is trying
to expand its ideas of intellectual property rights, trade, entrepreneurship
and government procurement to the TPP alliance. Taking lead will have an ‘equal
and opposite’ impact on the United States. It would mean that it will have to
part with its jobs – mainly in the services sector either voluntarily as a bait
or due to the structural compulsions of ‘comparative services advantage’.
It would also mean dilution of its ‘Buy American’ laws,
adversely affecting the protection it gives to its domestic manufacturing
sector, thereby losing out those jobs to TPP countries. Since much of
manufacturing jobs have already moved from the United States, this exodus of
remaining jobs in manufacturing and jobs in services sector will greatly affect
it. This time, it will not be only the low end ‘white collar coolie’ jobs that
will move to other countries, but also lead to an exodus of high end jobs in
the services sector as well.
Of all the chapters, the demands on intellectual property
rights would be the most contentious. It already is, with economists such as
Paul Krugman pointing out that the proposed Intellectual property provisions
envisioned by the United States would mainly help the pharmaceutical industry
and Hollywood. Krugman has severely criticized the TPP on the ground that,
while it may help its corporate giants, the average American worker would lose.
Senator Bernie Sanders also argues on similar lines. And this is where India
needs to pay attention.
The agreement has 29 chapters and the one on services is
of foremost importance to India. The provisions that may cause concerns are the
intellectual property rights and agriculture. The agreement aims at comprehensive
market access, which means that tariffs and barriers would be eliminated among
the member countries for trade in goods and services. It also aims at
protecting investments. One problem area for India would be that it will get
firmly entrenched in the domain of the United States and the present
independence and flexibility it enjoys might be affected if it agrees in toto
to the terms and conditions of the TPP, as it exists now.
However, at the same time, America’s agenda in Asia would
be ineffective without the participation of the two Asian giants – China and
India. With TPP being rumoured to be a tool by the United States to encircle
and limit the influence of China’s clout in the region, as part of its ‘pivot
to Asia’ policy, and Japan silently playing in the background, India’s interest
in participation would bring in dynamism to the TPP and will be a great relief
for both the United States and Japan.
India now has an upper hand due to the threat of the
other competing mega deal – RCEP which, if made effective, might invalidate any
gains that the United States would dream of with the TPP. Hence, it is all the
more important that India takes a firm view on this mega deal at this juncture
from its present position of strength as it would give it the flexibility to
bend the clauses being negotiated. +Swarajya
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