The Trans-Pacific Partnership (TPP), a trade agreement among 12 Pacific Rim countries—Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam—was reached on October 5, 2015, after seven years of negotiations. Since then, a lot has been written on whether India should join TPP or not. Most articles focused on two aspects of TPP—tariff liberalisation and intellectual property rights (IPRs). But one important aspect that remains neglected is services liberalisation. As a common feature of other comprehensive agreements, services are an integral part of TPP. There is not only an overarching chapter dealing with opening up of services, but also specific chapters devoted to financial services, telecom services, e-commerce and temporary entry of business persons.
Joining TPP will require India to make significant changes to its domestic regulatory framework, affecting various services to align them with TPP standards. This may not be warranted at this point of time, given regulatory framework in most of the services in India is in evolving stages and thus requires some room for experimentation, but TPP does not allow so. TPP specifies binding existing liberalisation and mandates that any future liberalisation will also be automatically binding (ratchet mechanism). Binding of existing liberalisation and ratchet mechanism will significantly reduce policy space for India and the ability to experiment with liberalising regulatory measures will get compromised.
Transparency provisions would put pressure on domestic rule-making, as it will be subject to not only advance publications, but also reviewing by foreign service providers. There could be lobbying and intense social media campaigning for or against proposed regulations. It will increase administrative burden on the government as foreign service providers may hire a battery of professionals to raise questions on proposed regulations. The government may not have enough resources to respond to all.
RBI considers providing national treatment to foreign banks from the financial stability perspective, but such stability may get compromised if TPP provisions on financial services are to be followed. At present, foreign banks, if eligible, are allowed by RBI to set up business in India through a single mode of presence, i.e. either branch mode or a wholly-owned subsidiary mode. Restrictions would be placed on further entry of new wholly-owned subsidiaries of foreign banks, when the capital and reserves of foreign banks in India exceed 20% of the capital and reserves of the banking system. TPP does not allow such restrictions. There are other RBI regulations, such as minimum capital requirements, which do not adhere to the level of commitments sought in TPP. The financial stability may further be compromised if the TPP article on Senior Management and Boards of Directors is to be followed by India. The article says no member shall require financial institutions of another member to engage natural persons of any particular nationality as senior managerial or other essential personnel. TPP also prohibits requiring more than a minority of the board of directors of a financial institution of another member be composed of nationals or persons residing in the territory of the country.
The chapter on Temporary Entry of Business Persons doesn’t have provisions on issues often raised by Indian IT industry. For instance, working of dependent members is not incorporated. The provision to apply reasonable fees for processing applications for temporary entry and stay of service providers is positive for India, though interpretation of the word ‘reasonable’ is subjective.
TPP talks about opening up legal services and allowing transnational legal services on a temporary fly-in, fly-out basis; through the use of web-based or telecommunications technology; by establishing a commercial presence; and through a combination of these modes (not mandatory but only best endeavour at present). As the Advocates Act, 1961, does not allow foreign law firms to practise law in India, suitable regulatory changes may need to be brought in to comply with these requirements.
India should be okay with selected provisions of the e-commerce chapter such as online consumer protection, personal information protection, unsolicited commercial electronic messages, electronic authentication and electronic signatures, and international cooperation. But provisions related to movement of information, transfer or access to source code, location of computing facilities, etc, require detailed discussion with appropriate bodies. It seems diverse positions are taken by various stakeholders on these issues.
The analysis indicates the pertinent question is not whether India should join TPP or not, but whether India is in a position to join TPP or not? Prima facie evidence suggests we are not in a position as far as services are concerned. Nonetheless, India needs to prepare itself for regulatory coherence and should gradually liberalise services not yet opened on its own. This is likely to improve efficiency in these services by bringing in competition without compromising autonomy or policy space available to the government.
The author is with the Centre for WTO Studies, IIFT, Delhi. Views are personal
pralok@iift.edu
