1. Column: Unavoidable implications

Column: Unavoidable implications

India's FTP must deal with mega regional trade pacts. Else, we will be isolated from a large chunk of global trade

By: | Updated: June 30, 2015 12:25 AM

Earlier this month, the US Senate voted in favour of the fast-track Trade Promotion Authority (TPA), enabling president Barack Obama to formalise the Trans Pacific Partnership (TPP). The twelve countries negotiating the TPP can now finish the remaining negotiations and commence the agreement. The possibility of the TPP seeing the light of the day by late 2016/early 2017 is a distinct possibility.

With around two-fifth of the world output and a quarter of global trade, the TPP will be a game-changer for the world economy. Its impact will manifest variously across the world. India, while not being a member of the TPP, will nonetheless experience some of its effects.

An immediate impact will be tariff preference erosion. The TPP is expected to eliminate tariffs on almost all goods traded by its members. These wide-ranging tariff withdrawals will affect export prospects of those countries that currently enjoy zero or preferential duties in TPP member markets. India, for example, is a beneficiary of the US GSP (Generalized System of Preferences) scheme offering duty-free access to almost 5,000 exports from developing countries. These advantages would be nullified with non-developing country TPP members such as Japan and Brunei also getting duty-free access for same exports. In what could be an even more damaging impact, TPP members would get duty-free access to the US market for several non-GSP exports that would continue to attract duties for India and other developing countries.

India’s tariff preference concerns are not limited to the US market. Among the TPP members —Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam—India has preferential market access to several countries other than the US. It has comprehensive economic cooperation agreements covering trade in goods, services and investments with Japan, Malaysia and Singapore. It also has goods FTAs with Chile and Peru. It obtains preferential access in domestic markets of Brunei and Vietnam through India’s goods FTA with the ASEAN. Considerable chunks of these preferential accesses would be neutralised post-TPP. Given that India’s existing agreements with most TPP members are rather narrow with large negative lists of products exempt from tariff cuts on either side, many Indian exports ineligible for duty-free access in TPP member markets under its existing agreements would be pitted against zero-duty access for same products in the latter markets.

The degree of preference erosion for Indian exports would depend on how high the tariffs are on Indian exports vis-à-vis zero, or near-zero tariffs for same exports from TPP members. For some exports, the applied tariffs would be low in those TPP markets that as it is have low base tariffs (e.g. Australia, Canada, Chile, Japan, Singapore, and USA) and would imply limited preference erosion. Furthermore, some upcoming agreements that India is negotiating bilaterally with TPP members like Australia and Canada can secure its exports new preferential access. It is important for India to conclude these agreements at the earliest. Similar beneficial effects can also come from quick conclusion of negotiations on the RCEP (Regional Comprehensive Economic Partnership). The RCEP is being negotiated by the ten-member ASEAN group along with Australia, China, India, Japan, New Zealand and South Korea. It has several members common with the TPP (e.g. Australia, Brunei, Japan, Malaysia, New Zealand, Singapore and Vietnam).

More than tariff preference erosion, India’s bigger concern with the TPP should be from the standards that the agreement will institutionalise in member economies and markets. Primary among these are standards for assuring safety and health of plants, animals, humans and the environment. Most TPP countries are sensitive about these standards and stringent on their satisfaction. Exports to TPP markets will need to comply with these non-negotiable standards. The challenge for non-TPP exporters like India would be to continuously upgrade the quality of their products in line with the TPP market standards. There would be two major problems in this regard. With quality standards for most products in the US and many other TPP members getting determined by private industry, obtaining knowledge on their evolution would be difficult for non-TPP exporters. An even bigger problem would be developing domestic certification capacities for ensuring higher standards in exports.

In addition to new and higher quality benchmarks, the TPP would be establishing new standards in several areas connected to trade in goods, services and investments. These would manifest through common regulations in TPP members for major domestic services like finance, telecommunication and e-commerce enabling seamless trade; uniform rules for government procurement; standardized competition policies; higher standards for protecting intellectual property and proprietary knowledge; common rules for settling disputes between investors and member governments; and new regulations for management of labour and environment. The TPP is expected to be the ‘standard-setter’ in world trade for most of these areas. Other mega-agreements like the TTIP (Transatlantic Trade and Investment Partnership) and Pacific Alliance are expected to adopt many of these standards. These standards are already getting reflected in bilateral agreements TPP members are signing with other countries such as the Australia-China and the Canada-EU agreements.

India’s Foreign Trade Policy (FTP 2015-2020) notes the emergence of mega-RTAs like the TPP and some of their likely implications. But it does not spell out a long-term policy for handling TPP and other mega-RTAs. Having such a policy requires India to be prepared to contribute to global trade rule-making outside the WTO. India has hardly been prepared to do so given its discomfort with the issues negotiated in the WTO-plus space. Unless it does so objectively, the TPP might mark the beginning of India’s isolation from a significant part of global trade.

The author is senior research fellow, Institute of South Asian Studies (ISAS), National University of Singapore. e-mail: isasap@nus.edu.sg. Views are personal

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