Countries that are members of Trans-Pacific Partnership (TPP). Source: FPRI

Countries that are members of Trans-Pacific Partnership (TPP). Source: FPRI
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Trans-Pacific Partnership (TPP), India And Asian Regionalism – Analysis

Dr. Ram Upendra Das 0 Comments

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Though the Trans-Pacific Partnership is still the most ambitious of all plurilateral free trade agreements (FTAs), it is far from the ‘gold standard’ originally envisaged.

By Ram Upendra Das* and Nitya Batra**

Regionalism by way of bilateral and regional free trade agreements (FTAs / RTAs), as well as comprehensive economic partnership agreements has gained momentum in recent times. It has also displayed immense dynamism in terms of intra-regional economic linkages getting deepened and increased intra-regional trade shares accounting for total trade of the regional groupings, so much so that the world trading system is characterised by preferential trade rather than the ‘Most-favoured Nation (MFN)’ trade. Almost all countries are part of one or the other regional trading arrangements, and in many instances multiple arrangements.

This “regionalism renaissance” coincides with the evolution of the multilateral trading system through multilateral trade negotiations, including the WTO Doha work programme. Multilateralism and regionalism can coexist, as such arrangements are allowed in the erstwhile GATT Article XXIV; Enabling Clause and Article V of the GATS, applicable to WTO.

The composition of RTAs is changing. The arrangements have moved beyond geographically described traditional zones to cover countries across different regions and continents. The one such regional trade arrangement that has been in headline recently is the Trans-Pacific Partnership (TPP). It took more than five years when the trade ministers from the 12 participating Asia-Pacific countries met in Atlanta and finally concluded the negotiations surrounding the TPP on October 5, 2015. Reports suggest that there is a lot that needs to be done before that happens by way of ratification of the agreements, and there is no certainty that it will happen in very near future. So the non-member countries need not press the panic button, as the TPP has not arrived as yet.

The TPP may pride itself as being the most progressive agreement ever because it explicitly deals with additional issues such as labour and environment standards. Though TPP is still the most ambitious of all plurilateral free trade agreements (FTAs), it is far from the ‘gold standard’ originally envisaged. Even when it comes to the most basic of reforms – tariff liberalization – there are some inordinately long implementation periods. For instance, the current 2.5 per cent tariff on imported Japanese cars to the US will take 15 years to go down to 2.25 percent and a further 10 years to go down to zero. Reportedly, for trucks, the US has no gradual phase-out, with the full 25 percent tariff staying in place until its elimination in 30 years. The special safeguard between the two countries in automobile sector can be applied during the “transition period,” which is defined as the period between entry into force and ten years after the tariff is eliminated. This is too stringent and can be captioned as reverse Special and Differential Treatment. With regard to the rules of origin, reports suggest that the Mexican and Canadian governments reject the rules of origin in the TPP, citing unacceptably low regional value content threshold than the one US, Mexican and Canadian industries proposed to their governments, apprehending that they will deter investment in the region.

It has widely been covered in press as to how TPP is being driven by large transnational corporations. There are fears of it favoring investors’ interests while eroding national sovereignty and interests of individual consumers and even nations. This suggests global action for individual or corporate level welfare. In contrast to this, ethos must be to ensure individual action aimed at global welfare.

It is in this sense that the Regional Comprehensive Economic Partnership (RCEP) could prove to be a model regional cooperation agreement, ensuring that the weaknesses of the TPP agreement do not spill into its negotiation process. This could happen if the RCEP includes trade in goods, trade in services and investment in a comprehensive manner but does not include IPRs, Competition policy, labour and environmental standards. These could be left to countries to upgrade in consonance with their respective stage of development.

The subject of joining or not joining TPP has been a debatable issue. A study by Peterson Institute for International Economics shows that if China and the rest of the Asia-Pacific Economic Cooperation (APEC) forum join a second stage of the TPP that continues to exclude India, India’s annual export losses will approach $50 billion. By contrast, India could experience huge export gains of more than $500 billion per year from joining an expanded TPP or participating in a comprehensive Free Trade Area of the Asia Pacific (FTAAP), now being considered by the APEC.

Looking at different possibilities of welfare and trade gains our estimates suggest that out of the various scenarios of TPP with or without India and RCEP with or without India, maximum economic gains accrue from RCEP which includes India. If India puts its weight in RCEP, this may be economically more welfare enhancing as compared to TPP. So, it’s not much of a loss if we don’t join TPP as South Korea and China are also not a part of it and are members in RCEP.

India could also supplement its strategy of supporting the RCEP, which is potentially the biggest mega-grouping, by increasing its investment-presence in the Cambodia, Laos, Myanmar Vietnam (CLMV) region, whereby it can access the TPP market via Vietnam and the rest of dynamic TPP members via the RCEP.

Thus, the focus on what India is missing from not being a member of TPP is a partial approach towards the overall picture. By not having India in TPP, the grouping also misses something that India could have brought being a member. Also, since RCEP is open to all, we can think of inviting US and Russia to the RCEP process, to make the Asian economic regionalism, a process which is truly inclusive.

* Professor and **Researcher, respectively at RIS, New Delhi. Views are personal.

Dr. Ram Upendra Das

Dr. Ram Upendra Das is Professor at the Research and Information System for Developing Countries (RIS), New Delhi. He is also Honorary Fellow at the Academy of World Watch, Shanghai, China; Honorary Professor at the New Delhi Institute of Management and Member, Academic Advisory Council of the Birla Institute of Management and Technology, Noida. His broad areas of specialisation include International Economics and Development Policy. During his research experience spanning more than 25 years, he has conducted and supervised a number of studies for various institutions including the ADB, Commonwealth Secretariat, ILO, EXIM Bank of India, SAARC Secretariat, UNDP, UNESCAP and the World Bank. He has conducted various studies, including for the inter-governmental Joint Study Groups (JSGs), and international negotiating processes on behalf of the Government of India in the context of India’s economic engagements with other countries and groupings. These include Sri Lanka, Pakistan, Nepal, Maldives, SAARC, Thailand, ASEAN, Singapore, GCC, Indonesia, Malaysia, Australia and New Zealand. He also represented India to the Track II Study Group of the CEPEA under the East Asia Summit process. He contributed to drafting of the SAFTA Treaty and SAARC Agreement on Trade in Services (SATIS) for the SAARC Secretariat. He also contributed to resolving complex issues during the India-ASEAN trade negotiations. More recently, he is involved in an inter-governmental study on FTA between India and the Eurasian Economic Community comprising Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan. He has also handled the issue of rules of origin negotiations for all the countries with which India has been engaging under trade agreements with countries mentioned above, as well as the EU, MERCOSUR, Japan and South Korea. He has been member of various committees and expert groups of the Indian government. He was invited as a State Guest by the US Department of State under the IVLP and the Government of Indonesia under the Programme viz. Presidential Friends of Indonesia; and was given a Certificate of Appreciation by the Government of Maldives for his Capacity Building Modules on Macroeconomic Modelling for the Maldivian government officials. He was invited to give special address on ‘Regional Economic Integration in Central Asia’ during the 2012 SPECA Economic Forum, organized by UNESCAP and UNECE held in Bangkok. He has written several invited research papers and presented them at international conferences held in India and abroad at institutions of eminence in the US, Europe and Asia. He has numerous publications to his credit on issues relating to international economics and development, including peer-reviewed journals and books. The most recent books include Perspectives on Rules of Origin, Palgrave-Macmillan: UK (2011) and Regional Trade and Economic Integration, World Scientific: Singapore and New Jersey (2012) and Meaning of India Economic Dynamism for East Asia, RIS and ERIA: Jakarta. He has written articles in leading national and international newspapers/magazines and has been interviewed in both print and electronic media. He obtained his Ph.D. and M.Phil degrees in Economics from the Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University, New Delhi.

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