There is not much time before we face a new paradigm of trade regulations
The WTO negotiations have been given a new lease of life with the recent agreement between the US and India on food security issues. People hope that the WTO as a whole would endorse the assurance given by the US to India for what it was seeking since earlier this year: instead of the four years agreed at Bali in December 2013, India wanted a permanent waiver from trade disputes for its food security support programmes, and a clear engagement plan for negotiating a permanent solution for these schemes. With this agreement, the Trade Facilitation Agreement (TFA), which India had blocked till now, would get implemented, and the WTO negotiations can become active again by taking up other post-Bali issues.
No one expected the US to provide India what it sought. In fact, many had started considering ways of implementing the TFA without the participation of India. As a very senior and knowledgeable trade policy personality told me a few days ago: “With or without India, the TFA will be implemented at the WTO.”
Therefore, this move by the US should be seen as a sign of its engagement with the WTO system, and the ability of India to get the strongest economy in the world to the negotiating table with a mindset different from what was otherwise expected. Indian negotiators and her political leadership effectively changed the expected situation. They negotiated and reached out with good effect, and the US negotiators and political leadership have shown sensitivity and commitment to the multilateral trading system. The meeting of Indian PM and US President was a turning point, where they showed statesmanship and growing friendship. This has been a job well done.
However, in terms of the larger developments taking place in the framework of trade regulation, this is a small step for India. In the not so distant future, neither the sensitivity nor the friendship of the US will provide India with the requisite trade policy space. The global trading system will change in the next few years as some of the ongoing mega-regional negotiations are concluded. The main are the Trans-Pacific Partnership (TPP), Transatlantic Trade and Investment Partnership (TTIP), and Regional Comprehensive Economic Partnership (RCEP). Each of these covers large parts of global trade. Their new rules for conducting trade will fundamentally alter the conditions for getting access to the large markets covered by mega-regionals.
Of these, TTIP is a negotiation only between the EU and the US. Developing countries are involved in the other two. The US is a dominant negotiating party in TPP, and China in RCEP. In fact, in RCEP, the ten ASEAN countries aim to build upon their existing agreements with other six countries in the negotiations. India is part of RCEP, and many feel that this participation is adequate to prepare India for the trading system likely to emerge through the mega-regionals. Some salient points are worth considering in this regard.
Trade-related standards and other topics being addressed in TPP envisage more onerous conditions than RCEP. Further, seven out of 16 countries negotiating RCEP are also part of TPP negotiations, and one more (Korea) has already applied for membership. From RCEP, that leaves six from ASEAN and China and India at present outside the TPP fold. If four ASEAN countries agree to different and higher trade-related standards of TPP, the other six will also strongly consider upgrading their own standards. ASEAN is an economic grouping emphasising interlinked value chains, and they cannot afford to fragment their current similar trade policy system by having different and much higher standards in only a part of that group. In this context, it is noteworthy that since the US is in both TTIP and TPP, the results of TTIP will have a bearing upon some of the disciplines agreed in TPP, particularly for standards, thus expanding the scope of market conditions in effect covered by TPP. Many commentators feel that China too is preparing for the post-TPP world because it needs to continue to link with the trade and investment systems of the TPP/TTIP economies. My own assessment also suggests that China is preparing for such a move, having begun negotiations of bilateral investment agreements with the US and the EU, already applied for membership of the large services negotiations (which include the US and EU) under Trade in International Services Agreement (TISA), and begun introducing new TPP-consistent rules and standards in parts of its economy such as the Tianjin Economic Zone. That would leave India out of step with the evolving trade regulation regime applicable in about two-thirds of global trade. This will potentially cause major loss for India’s exports, including through loss of opportunities to link up with global value chains.
TPP will lead to major tariff reduction, particularly industrial tariffs. With rules of origin that would favour TPP members, Indian exports will face difficulty in accessing those markets. However, a much larger adverse impact on access to these markets will be due to the higher standards arising on account of the TPP agreement, and possibly exclusionary or difficult conformity assessment procedures to determine acceptability of India’s product standards. TPP standards will largely reflect the US standards, embodying technical, environmental and social considerations. Since the US standards regime is prominently based on private standards, and because private standards keep evolving over time to reflect both consumer value systems and competitive pressures, the relevant standards in TPP markets will also keep evolving.
Under these new market conditions, flexibilities will not be available for India. It is not part of the negotiations, and the tariff reductions in areas of India’s export interest are being sought in TPP by its global competitors. With standards too, there is no relief; exporters have to meet the requisite standards to be able to sell in export markets. This implies improving domestic capacity of both policy-makers and business, and managing a quick response time to meet the requirements of the global value chains. India has begun some steps in this regard, but there is a long way to go. And not much time before we face a new paradigm of trade regulations.
By Harsha Vardhana Singh
The author is former deputy director general, WTO; senior associate, ICTSD; and senior fellow, IISD