In the first week of October, what was hitherto only looming large over the trade horizon became a disturbing reality. Twelve countries announced the inking of the controversial Trans-Pacific Partnership (TPP) after years of clandestine negotiations. Though the partnership has not yet been ratified by lawmakers from the member countries of the Pacific Rim that constitute the bloc, it is likely to cause a flutter in global trade equations. And affect India’s already-declining exports, too. Whether that would be substantial or marginal is still being debated since details of the treaty have not been revealed yet.
There are two issues that emerge as an upshot – that of India’s trade prospects, and that of TPP being a major step in the United States (US) propping up alternatives to the World Trade Organization (WTO).
The first is not very encouraging, given both India’s dismal track record with free trade agreements (FTAs) particularly and its inability to clinch deals. According to the WTO database, India has 15 existing trade agreements and is at present negotiating another 11 in various forms. Not all have been working in India’s favour. In 2013, the trade in goods with various FTA partner countries was only 35 per cent of total trade, and the figure has remained stagnant for the last 10 years. Moreover, the utilisation rate of India’s FTAs varies between 5 and 25 per cent, reckoned to be one of the lowest in Asia. When this is seen in light of the latest exports statistics, there are reasons to be worried — overall exports fell 20.7 per cent to $21.3 billion in August compared to the corresponding month last year.
One particular FTA that Indian exporters had been looking forward to in these trying times was the one with the European Union (EU). But when the Narendra Modi government called off talks after the 28-nation bloc banned 700-plus pharmaceutical products from India, it did the country more harm than good. Efforts are on to salvage the EU-India Broadbased Trade and Investment Agreement (BTIA), but it may be a while before relations thaw, the German Chancellor’s well-hyped India visit notwithstanding.
The other big option that India has is the Regional Comprehensive Economic Partnership (RCEP) which would include more than 3 billion people, have a combined GDP of $17 trillion, and account for 40 per cent of the world trade. The RCEP will include 10 member states of the Association of Southeast Asian Nations (ASEAN) (Brunei, 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). Incidentally, seven of these countries are already partners in the TPP.
So, can it work? It would be too early to predict that since India does not have a history in steering such parleys, and often leaves open conflicts of interest. For instance, India has a pact with Malaysia, and also a separate one with ASEAN, of which Malaysia is already a member country. India has also not made the best of the South Asian Free Trade Agreement (SAFTA). The Parliamentary Standing Committee on Commerce is currently studying how India has been engaging with FTAs. Irrespective of what it recommends, India needs to wriggle out of what is called the ‘spaghetti bowl’ of trade agreements.
Sure, the TPP and its preferential access mechanisms do affect India, but not to the extent many are insisting. Among others, Indian textiles and apparel exporters would be affected. The TPP’s yarn-forward rule makes it mandatory to source yarn, fabric and other inputs that are used in making clothes from TPP partner countries for availing duty preference — this would make garment manufacturers in TPP countries to source their input only from TPP countries. So, India would not be able to export yarn to Vietnam, which would in any case continue exporting to the US. The TPP also includes clauses on services which are intended to benefit Philippines and Vietnam. This aspect can harm India’s outsourcing business. More can be said only after the text of the deal is issued.
The TPP itself needs to be seen in a geo-political light. It is the biggest trade agreement to be struck since the 1994 completion of the Uruguay Round which created the WTO, and excludes the countries that the US perceives as hurdles in its effort to formulate rules that favour American corporations — the BRICS nations. The Doha Round of talks which began in November 2001, incidentally a month before China became a WTO member, has made no progress since 2008. Serious negotiations over the TPP began at the same time. It, therefore, should be no surprise to know that most of the Doha bottlenecks have been excluded from the purview of the TPP, including the subject of farm subsidies.
There are innumerable problems with the TPP. It will create a parallel judicial system that will allow corporations to sue governments if they feel profits are under threat — be it because of laws or even protests. It is effectively a corporate rights regime, which is being opposed in member-countries for affecting the lives of ordinary people on counts ranging from education to health.
The insidious TPP, together with the Transatlantic Trade and Investment Partnership (TTIP) and the Trade in Services Agreement (TISA), constitute the unholy trinity of the Barack Obama administration. The TTIP is the European version of the TPP, while TISA is a proposed international trade treaty between 24 parties, including the EU as a bloc and the US. The agreement seeks to create a group of 52 countries that would effectively circumvent the General Agreement on Trade in Services (GATS) of the WTO.
The US sees the BRICS economies as a threat to its economic suzerainty, and is particularly apprehensive of China which has steadfastly stayed out of the TPP loop (It is a Pacific-Rim country and part of the Asia-Pacific Economic Cooperation, of which the TPP is a subset). Which way trade winds will blow in the years to come will depend on how the American ploy to revise the rules of the global economy is resisted — by the so-called emerging economies.
(Author: Subir Ghosh, a Bangalore-based journalist and researcher)