Friday, 9 October 2015

Trans-Pacific Partnership | Implications for India

Why in news?
  • Twelve Pacific rim countries have finally agreed on TPP, the largest regional trade agreement ever, which covers countries that account for 40% of the global economy. 
  • The partnership between economic powerhouses like the US, Japan, Australia, Canada and Singapore on the one hand, and Vietnam, Malaysia, Peru, Chile and Mexico on the other, is part of an attempt to balance China, which isn’t part of the deal, and sets a new benchmark for trade agreements. 
  • Final compromises  of the deal covered commercial protections for drug-makers’ advanced medicines, more open markets for dairy products and sugar, and a slow phase-out — over two to three decades — of the tariffs on Japan’s autos sold in North America.
  • The Pacific accord would phase out thousands of import tariffs as well as other barriers to international trade. It also would establish uniform rules on corporations’ intellectual property, open the Internet even in communist Vietnam and crack down on wildlife trafficking and environmental abuses.
Concerns about the TPP treaty
  • Reduced access to generic medicines in developing countries; 
  • Internet freedom campaigners see it as a big threat.
  • Joseph Stiglitz has pointed out, the TPP would hardly meet either its declared commercial goals or its undeclared strategic ambitions, and could turn counterproductive.
Implications for USA

Implications for India:
Trade is almost never just about trade. Trade has always been about geopolitics. Trade also defines the nature of states. - Pratap Bhanu Mehta
  • American hegemony and effectiveness were not just functions of its raw power, but of its ability to create enduring institutions. 
  • Benefits of creating institutions
    • Institutions require long-term vision, capacity, power and some normative underpinnings. 
    • Institutions serve the interests of power. 
    • They set the rules of the game, even the rules of legitimacy
    • China is taking tentative steps in thinking institutionally. Faced with the challenge of a rising China, the Americans have quickly moved to create new institutions and structures that will give them greater ability to set the rules. 
    • It is a win-win for USA: If it is able to successfully set the rules, and China has to adapt to them, it is a win. If China does not, locking in many more economies into the rules you prefer is a good idea. But for institutions to succeed, they have to appear to be more than transactional. You have to focus on the long-term framework and rules, not get bogged down in haggling over the worth of every single transaction. India’s approach to trade, often within our own region, has been so transactional that it can miss the forest for the trees.
  • Negative:
    • likely affect India’s exports to the 12 Pacific countries. 
      • According to one estimate, trade worth $2.7 billion will be diverted away from India. 
      • could increase to $3.8 billion if South Korea joins the club. 
    • The costs could be even higher if India is unable to participate in global supply chains due to the TPP’s rules on standards, labour and environment policies. 
    • Further, standardisation of intellectual property regimes across the TPP countries and rules on expropriation may make it more difficult for India to attract foreign investment over, say, a Vietnam. 
    • The TPP has altered India’s bargaining power and negotiating positions. 
      •  Take for instance, the bilateral investment treaty under negotiation with the US. The TPP has set a benchmark of sorts for this agreement. 
    • Spillover effects of this will be evident in the Regional Comprehensive Economic Partnership negotiations between the ASEAN and six other countries, including India. 
Way Forward:
  • With the WTO floundering — the Doha Development Round has been stuck for years and a breakthrough doesn’t seem imminent — regional and bilateral pacts assume greater significance. But India’s progress on concluding trade negotiations hasn’t been great. Take for instance, the EU-India Broad-based Trade and Investment Agreement, under negotiation since 2007 — in contrast, the TPP has been concluded in five years. Sending a bad signal to other prospective trade partners, India had petulantly called off the talks over the EU banning the sale of some generic drugs. But by dithering on such negotiations, India risks costly isolation from important trade clubs. 
  • Now, Delhi must help industry understand how to adapt to a post-TPP world. Further, it needs to urgently strengthen its negotiating teams and re-establish its credibility to conclude big-ticket agreements. 

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