The TPP threat

Business Standard, April 22, 2014
Obama may set the stage for the ambitious Trans-Pacific Partnership to be concluded this week. India can’t afford to ignore its progress

Among the big talking points of President Obama’s Asia visit that begins tomorrow is the TPP or Trans-Pacific Partnership — a trade pact between 12 nations including the US, Australia and other Pacific rim countries that will eliminate trade barriers and facilitate the creation of a seamless free-trade zone. It represents 40% of world GDP and is expected to bring a paradigm shift to how global trade is conducted in the future.

Obama’s state visit to Japan could set the stage for this ambitious agreement to be concluded. Ahead of his visit, Japanese Prime Minister Shinzo Abe has said the two countries intend to overcome their differences to forge this “twenty-first-century economic order for Asia and the Pacific”. And while there are several stumbling blocks that Obama must clear back home, a probable end to the long-winded negotiations with Japan that have been underway since 2010 are being seen as a big last leap before TPP comes into force.

India should be worried. Opinion is sharply divided on whether we would have benefited from a bid for TPP membership. Suvi Dogra of IISS and Jun Jie Woo from the Lee Kuan Yew School of Public Policy argue in the Financial Express that “India may induct itself into the Asian economic architecture” in any case, having become a part of the Regional Comprehensive Economic Partnership or RCEP, a parallel FTAof 10 ASEAN states and partners such as India. Other public policy experts bemoan India’s exclusion though. TPP could have facilitated an estimated $500 billion of bilateral trade with the US (roughly 10 times the current figure), given New Delhi’s preferential access to Southeast Asia’s fast-growing markets and “from a geopolitical standpoint, a chance to rack up a rare diplomatic victory against Beijing,” say policy experts Jesse Kaplan and Sean West in a piece last year for Politico. Critics of this future free-trade zone, meanwhile, contend that TPP only serves the interests of wealthy nations and large US corporations, imposes heavy burdens on developing nations and that India would be better off having nothing to do with it. Its standards are too high in any case, and India is not in a position to adhere to them.

Whatever may be the accurate standpoint, the fact remains that India cannot afford to ignore TPP’s progress. From isolation as a manufacturing hub to the prospect of global supply chains moving away, to India being forced to adhere to higher degrees of regulation by member countries, Jean-Pierre Lehmann an Emeritus Professor of IMD and Deepali Fernandes a PhD candidate at theUniversity of Zurich, in a piece reproduced by Forbes magazine, list out an array of potential setbacks that India might have to contend with if TPP becomes a reality. India’s nominal GDP may be reduced by more than one per cent with substantial “resultant negative multiplier effects” on revenue and employment, say Bipul Chatterjee and Venugopal Ravindran of CUTS International. in a piece for this newspaper published late last month.

“Much of this impact will not be on account of reduction in tariffs in TPP and TTIP countries, as they are already low, but as a result of removal and/or harmonisation of non-tariff measures, particularly in respect to process and product standards, the application of intellectual property rights and other behind-the-border trade facilitation measures,” they write, warning that India’s export markets would further shrink and both manufacturing and agriculture will be threatened as a result of these adjustments. India is already in the middle of a raging battle with the US about its criticism of our FDI policy and IPR laws.

The government seems to have taken note of these adverse headwinds. Just last week, Commerce Secretary Rajeev Kher appealed to Indian industry to upgrade its standards and regulations and reduce non-tariff barriers by improving processes or face the prospect of shutting itself out of world markets. He spoke of the need for a comprehensive law to develop them and a sound regulatory environment to prevail in the country. Experts also see the need for a stronger emphasis on improving overall trade competitiveness, better utilisation of existing free-trade agreements and formation of new ones apart from a concerted negotiating strategy with the WTO to counter the impact of TPP AND TTIP.

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