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  1. Can India benefit from a dead TPP?

Can India benefit from a dead TPP?

Two events that have significantly altered the discourse on world trade, especially in the Asia-Pacific region, are the Brexit and the US President Donald Trump denouncing the 12-member Trans-Pacific Partnership (TPP) early this year.

By: | Published: April 26, 2017 5:42 AM
The TPP would have covered 40% of the global GDP and nearly a third of the world trade.

Two events that have significantly altered the discourse on world trade, especially in the Asia-Pacific region, are the Brexit and the US President Donald Trump denouncing the 12-member Trans-Pacific Partnership (TPP) early this year. The TPP would have covered 40% of the global GDP and nearly a third of the world trade. According to studies carried out in the US, the enforcement of the TPP could have yielded annual income gains of $295 billion, including $78 billion in the US alone. It could also unleash potential gains of as much as $1.9 trillion in the Asia-Pacific region through free trade. It was highlighted that Vietnam was expected to gain 14% under the TPP as it would become the hub of low-end manufactured goods like textiles and garments.

But the scenario has changed in the last few months. Global trade is going through turmoil, with growth declining and an increase in protectionism as countries are resorting to more and more non-tariff barriers, regulatory measures, higher standards, etc.

In the above scenario, the calling off of the TPP by the US has come as a major disappointment to other member countries who had invested years on end in negotiating a high-quality agreement to benefit the Asia-pacific region which is hungry for trade.

On the contrary, for a country like India which was not part of the TPP, the imminent demise of the TPP means the pressure on India to sign bilateral and regional FTAs to counteract other mega-regional trade pacts has eased. India is now focused on the alternative Regional Comprehensive Economic Partnership (RCEP) and hopes that its members will be more accommodative towards India’s demands in the RCEP, especially with regard to increased market access in services including Mode 4 (access to India’s skilled professionals in the RCEP region).

The RCEP is a 16-member grouping with several countries from the TPP also being a part of it. The pact, first mooted in 2011, covers a population of 3.5 billion people and a combined GDP of $22.6 trillion. However, it is being opined that the TPP is a much higher-quality agreement vis-a-vis the RCEP because of its adherence to rules on a wide range of issues—environment, labour rights, state ownership of firms and intellectual property. The RCEP mainly focuses on tariff reductions in goods and leaves out many complex areas from its purview. Moreover, it is also possible that multilateral trade negotiations led by the WTO may get a fillip with the demise of the TPP; this would go in India’s favour as the country has always been a strong campaigner of multilateral trade.

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The US accounts for nearly 60% of the TPP’s GDP. With its withdrawal, the group cannot come into force. But the question is, will the other countries move forward with the TPP without the US? Since the US has made it clear that its administration would focus on negotiating “fair, bilateral trade deals that bring jobs and industry back to American shores,” what are the options with other countries? Many members in the group are hoping that once the Trump administration settles down in a few months’ time, the TPP could be revived. Meanwhile, countries like Australia, Japan and Chile have been discussing the idea of taking the TPP forward. It also remains to be seen how the bilateral trade of TPP member countries with the US will get affected without the TPP.

Talks were held during March 14-15 in the Chilean city of Viña del Mar over whether the TPP can be renegotiated and proceed without the US. South Korea and China were invited to participate and an official from the US was present—though China sent only its ‘special representative’, not a high-ranking trade official. But the talks remained inconclusive. The members agreed to meet again in May on the sidelines of the APEC forum in Vietnam and expressed concern about the growing protectionism in world trade. They were disappointed that years of negotiations on the TPP did not fructify. Australia, which has been proactive in pushing for a TPP without the US, conceded that it would focus on bilateral agreements with the Pacific Alliance states of Mexico, Chile, Columbia and Peru, and also pursue agreements with India, Indonesia and the EU. However, China promoted the RCEP in the Chile meet.

With the TPP effectively dead as of now, the future of mega FTAs looks bleak. Even the Transatlantic Trade and Investment Partnership (TTIP) negotiations have been stalled with the mess over the Brexit. The only mega FTA India can push for is the RCEP—India would need to argue that the ‘gold standard’ TPP framework has lost its appeal and popular support, and so a modest agenda based on including the diverse circumstances of negotiating countries should be the only one pursued at the RCEP. At the same time, there is still the danger that the TPP could be revived in another form, and so India must continue to reform its domestic economy and make it more competitive to survive the constantly changing global trade paradigm.

To remain relevant in the global trading system, India needs to focus on comprehensive trade pacts that not only offer a level-playing field for domestic business, but also provide a mix of bilateralism and multilateralism. If negotiated properly, each trade pact could be a progressive step towards integrating India with global markets. But the evidence on this remains open given that India’s comprehensive economic partnership agreements with Japan and South Korea didn’t bring sufficient gains for India.

Going forward, the global trade environment could transform with the focus of countries being on bilateral trade deals and what suits them the best. The US is negotiating bilateral deals with Japan, China and the EU, apart from renegotiating the NAFTA. However, a majority of WTO members are hoping that the collapse of mega FTAs could lead to the resurgence of the WTO with most countries preparing for the 11th WTO Ministerial in Buenos Aires, Argentina, at the end of the year. The situation at the moment is fluid but it is hoped that a clear picture of global trade will soon emerge.

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