Twelve Pacific rim countries, in October 2015, agreed on the Trans-Pacific Partnership (TPP), the largest regional trade agreement ever, which covers countries that account for 40% of the global economy.
- The aim of TPP is to ease the flow of goods, services and investments among them, and to strengthen the rules on labour standards, environmental issues, origin criteria and intellectual property.
- It is touted as the most ambitious of trade deals between these countries that have about 800 million people and account for 40% of the global trade.
- Though not part of it, TPP still holds significant lessons and warnings for India.
How will it affect India?
The TPP will likely affect India’s exports to the 12 Pacific countries. According to one estimate, trade worth $2.7 billion will be diverted away from India. This number could increase to $3.8 billion if South Korea joins the club. The costs could be even higher if India is unable to participate in global supply chains due to the TPP’s rules on standards, labour and environment policies.
- Further, standardisation of intellectual property regimes across the TPP countries and rules on expropriation may make it more difficult for India to attract foreign investment over, say, a Vietnam.
- The TPP has even altered India’s bargaining power and negotiating positions.
What should India do now?
- Conclude other free trade negotiations:
Impelled by the looming onset of the TPP, India should conclude, on a priority basis, its ongoing free trade negotiations. These include the India-EU Bilateral Trade and Investment Agreement and the mega Regional Comprehensive Economic Partnership with the Association of Southeast Asian Nations, China and others. Benefits from these agreements will help mitigate some of the export losses that India may face in leather goods, textile, and plastics on account of trade diversion due to TPP. Aiming to diversify export destinations to hitherto untapped markets like Latin America and Africa would also help.
- Protect traditional knowledge:
India also needs to identify its trade interest areas and propose alternative negotiating templates. One such area is biopiracy, protection of traditional knowledge, and the link between the WTO’s Trade-Related Aspects of Intellectual Property Rights agreement and the Convention on Biological Diversity. There have been several instances of biopiracy in the past, of Indian traditional knowledge, such as the patenting of the wound-healing properties of haldi (turmeric). Being among the 12 mega biodiversity-rich countries, India needs to bring this issue to the negotiating table in its own free trade agreements.
- Make products more cost-competitive:
On the domestic front, India should accelerate the process of making its products more cost-competitive. There is no denying that India’s infrastructural deficiency, including port congestion and poor road connectivity, is one of the main hurdles in attaining this cost competitiveness. Addressing these will have the dual effect of not only making India’s exports cost-competitive, but will also make them more attractive for international lead firms to integrate India in global value chains.
- Have appropriate conformity-assessment procedures:
The government should launch a comprehensive initiative to enable Indian exporters to not only comply with standards prevalent in the importing market, but also demonstrate the compliance through appropriate conformity-assessment procedures. India should resist any attempt to converge its domestic public standards with the dominant private standards in TPP countries. If India’s public standards are harmonised with foreign standards, they will be equally applicable to domestic and export sales on account of the ‘national treatment’ principle of the WTO which prohibits less favourable treatment to imported products. The harmonised standards may result in most producers not only being excluded from export markets, but also being edged out of the domestic market, undermining the Make in India initiative in the process.
- Ensure WTO commitments are not violated:
India also needs to closely watch the regulatory regimes in TPP countries, ensuring that these countries do not violate their WTO commitments in the process of implementing the TPP. The WTO does allow a member to deviate from its obligations with respect to a free trade area; however, such a deviation is not unqualified. If a TPP country restricts the market access for non-TPP members such as India on account of higher labour standards, a potential violation of WTO provisions may arise, which India should not shy away from pursuing using the WTO’s dispute settlement mechanism.
By not being part of the TPP, India will certainly incur losses on account of trade diversion. Yet, joining the TPP is not an option for the country. This would entail very heavy costs. Hence, the government should draw a cohesive trade policy approach on the international as well as domestic front, aimed at protecting and promoting India’s trade interests. Further, it needs to urgently strengthen its negotiating teams and re-establish its credibility to conclude big-ticket agreements.