Saturday, 21 November 2015

The coming trade storm

On 5 October, the nature of global trade was radically transformed.Twelve countries around the Pacific Rim signed the Trans-Pacific Partnership (TPP) ­ a free trade agreement covering 870 million people, 40% of global GDP , and accounting for $2 trillion in merchandise trade.

TPP is not just another tariff eliminating mega regional trade pact. It is about developing a `new normal' for conducting international trade ­ encompassing lower benchmarks for non-tariff barriers, more stringent labour and environment regulations, stronger intellectual property rights (IPR) protection, and greater transparency in government procurement limiting advantages to state owned enterprises.

Therefore, TPP when ratified by all 12 countries would, for the first time, take multilateral regulatory oversight over measures by sovereign governments beyond their borders. It may be, however, a year before ratification is completed.TPP is likely to face serious opposition in US Congress.

Another mega deal is currently being negotiated, the Transatlantic Trade and Investment Partnership (TTIP) between the US and European Union. This could become operational in the next couple of years. TTIP has a similarly ambitious agenda as TPP, going much beyond WTO.

Thus, India faces the grim prospect of being frozen out of major global markets and trade flows in case TPP and TTIP become operational. The two mega pacts together will cover more than 70% of global GDP and about 60% of world trade. It is pertinent to ask if India can take steps to mitigate the likely negative impact on its exports, investment inflows and technology imports of this new generation of mega regional pacts.

Delhi could respond in several ways to prevent isolation. It could try and secure an invitation to join TPP. It could also try and accelerate on-going negotiations under the Regional Comprehensive Economic Partnership (RCEP) and raise its ambition levels in these negotiations.

RCEP negotiations cover 16 countries including the 10 Asean economies and six partner countries: Australia, China, India, Korea, Japan and New Zealand.These 16 members together cover more than 3 billion people, a GDP of about $17 trillion and more than 50% of world trade.However, unlike TPP and TTIP , RCEP doesn't aim to cover `behind the border' measures because both India and China, Asia's two giants, don't support that.

RCEP , if concluded, would give India more leg room for negotiating its entry into mega regional pacts at some later date. It is worth recalling that of the 16 RCEP countries, seven are also members of the far more ambitious TPP . In addition to concluding RCEP negotiations India could also accelerate its on-going negotiations with EU, which if concluded would give it some comfort when TTIP comes into force.

Unfortunately , none of these responses are likely to materialise. Recent pronouncements from Udyog Bhawan are estimony to this. India-EU negotiations have effectively been put on hold. India s planning a three-tier offer under RCEP, which will surely complicate our already complex import regime, thereby encouraging rent-seeking by customs officials. Moreover, the Department of Commerce reportedly commissioned a study by a JNU professor, which has concluded that free trade agreements FTAs) signed by India have an overall negative impact on India and should therefore be carefully reviewed! This is a defensive response to evolving institutional changes in world trade.However, large swathes of Indian industry remain globally uncompetitive, as revealed by continuous decline in our exports for the last 11 months. Thus, the defensive response is understandable as Indian policy makers, with constant lobbying from industry interests, fear over-exposing our domestic industry to global competition.

But a protectionist policy stance is not an optimal solution, especially when India wants to maximise employment generation for its 12 million new entrants to the workforce every year. India has to expand its exports of both goods and services as these are relatively employment intensive. It would be far more practical for Udyog Bhawan to focus on measures to make Indian industry globally competitive, rather than reviewing FTAs already in place or continuing to rely on temporary interest rate subventions or fiscal handouts that do nothing to improve competitiveness.

Measures to make Indian industry more competitive requires focussed attention on improving physical infrastructure, especially for medium and small industries that contribute nearly 60% of our exports. It would also require further simplification of processes and procedures and a revamping of the export promotion regime that has become dysfunctional.

India should seriously push for finalising new bilateral FTAs with some TPP members to dilute the impact of trade and investment diversion due to TPP.Lastly , there is an overlap of members of RCEP and TPP which raises concerns that standards of RCEP will eventually converge to that of TPP.

This calls for urgent reforms in India's domestic policies to close the gap with the `new normal' global standards.Otherwise India will be cut off from global supply chains and lose precious job generating opportunities. There is an urgent need to improve and revitalise Indian manufacturing and services like tourism to ensure that India can exploit the opportunities offered by global trade.

The writer is Senior Fellow Centre for Policy Research, New Delhi 


Data that may be helpful:
Important Points:-
  • TPP :- The Trans-Pacific Partnership Agreement ("TPP") is a free trade agreement currently being negotiated by nine countries: The United States, Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam.
  • Intellectual property (IP) :- Is a term referring to creations of the intellect for which a monopoly is assigned to designated owners by law. Some common types of intellectual property rights (IPR) are copyright, patents, and industrial design rights; and the rights that protect trademarks, trade dress, and in some jurisdictions trade secrets: all these cover music, literature, and other artistic works; discoveries and inventions; and words, phrases, symbols, and designs.
  • TTIP :- The Transatlantic Trade and Investment Partnership (TTIP) is a proposed free trade agreement between the European Union and the United States, with the aim of promoting multilateral economic growth.
  • RCEP :- Regional Comprehensive Economic Partnership (RCEP) is a proposed free trade agreement (FTA) between the ten member states of the Association of Southeast Asian Nations (ASEAN) (Brunei, Burma (Myanmar), Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, Vietnam) and the six states with which ASEAN has existing FTAs (Australia, China, India, Japan, South Korea and New Zealand)
 Source : Times Of India, 20-Nov-2015

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