India will have to decide what the TPP means for its domestic reforms agenda. India need foreign markets to grow and it cannot presume that the size of its domestic market will force others to come to its terms.
With slow and tardy movement in the WTO negotiations, global focus has shifted to bilateral or multilateral agreements such as the Trans-Pacific Partnership (TPP), the Trans-Atlantic Trade and Investment Partnership (TTIP) negotiations and the Regional Cooperation Economic Partnership (RCEP), which together account for nearly three quarters of global trade. The key outcome of these free trade agreements (FTAs) is the evolution of high and dynamic standards for trade and investment which are most likely to seriously affect both trade and investment of emerging economies. With this backdrop, ORF hosted a panel discussion on "Emergence of New Trading Regimes: Options for Emerging Economies" on 29 October 2015.
Moderating the panel, the discussion was kicked off by Mihir Sharma, Opinion Editor of the Business Standard who contextualized what the TPP means for India and how it forces India to make decisions. Firstly, on the strategic aspect where until now India has prided itself on its strategic autonomy to the greater game played by US and China, he argued that India no longer has the comfort to do so. Secondly, India will be forced to acknowledge the changing nature and instrumentalisation of international trade negotiations. Thirdly, India will have to decide what the TPP means for its domestic reforms agenda. India will need foreign markets to grow and it cannot presume that the size of its domestic market will force others to come to its terms.
Taking it forward, Geethanjali Nataraj, Senior Fellow, ORF, said that India has to contend with these mega-FTAs. She argued that India is not geared up for the salient issues of the TPP, namely competition policy, regulatory symmetry, environmental and labour standards, trade in investments, technical barriers to trade, trade in services and especially intellectual property rights (IPR). The process of joining the TPP will call for a painful and difficult reformation of India's economy and therefore India could focus on further regional integration in the Asia-Pacific by joining the APEC and also join regional FTAs like RCEP which will help India undertake domestic reforms and build a platform to join the TPP in the future. This needs exigent attention as the TPP will have a major impact on the cash flows of the manufacturing industries in India, noted Shailesh Pathak, Executive Director of the Bhartiya Group. He said that with textiles and fashion in leather among the top 5 employers in India, this would severely affect Indian jobs which would shift to Vietnam due to cheaper production costs and will also affect the employment and cash flows of Indian industries. He stressed the need for India to improve contract enforcement, reduce costs of production and improve logistics and infrastructure efficiency if it hopes to take on countries benefitting from the TPP.
Giving an alternative viewpoint, Sony Kapoor, Managing Director of Re-Define, UK, said that the TPP and TTIP have nothing to do with India. India's failure to bring anything constructive to the table, its reputation for being obstructionist and obstreperous meant that India has already walked itself away from the negotiating table. Subsequently, he made the case that the proliferation of these trade regimes and the expansive interpretation taken in the TPP is sensible and legitimate given how the world is changing. The present rules of engagement between states, between capital and labour, between different blocs, and between investors and states are not fit for purpose and need to be updated to the economic reality of this new century. India, he said, needs to adapt and has to be proactive.
Disagreeing with the other panellists, Ann Lee, a professor of Economics and Finance at New York University disputed the impact of the TPP, stating that it was overstated and overblown. With only the US and Japan being dominant economies and the rest of the countries as window dressing, she argued that the agreement is geopolitical in nature and has the unstated goal to exclude China.
Paul Heibert, Deputy Head, Financial Stability Surveillance, European Central Bank took a step back to present his theoretical considerations on the implications of the TPP on India. Talking about how development is distinct in modern trade theory than from the 1980s and 90s he recalled the tenets of trade theory, particularly discussing the 'unbundlings' of trade. The first, starting from the steam engine revolution until effectively the 1980s had to do with falling trade costs. The second, with the advent of global value chains, was associated with falling transmission costs.
On the topic of the second unbundling he discussed the move from technology transfers to technology lending. The difference is that in the latter, development can occur in a matter of months not decades. But this is reversible and production stages can be moved elsewhere leaving a country with a slice of technology which won't help them at all. He emphasised that multilateral arrangements may provide a sense of stability for these technology lending type of productions. Further he discussed the spatial development of India and some of the implications and public policy considerations of harnessing prospective benefits and allaying some of the prospective costs of the TPP.
In conclusion, it was agreed that India and other emerging market economies needed to push their domestic reforms and gear up for the TPP and plurilateral agreements like it. The rules have been set and future trade agreements will have broader scope just like the TPP does. In contrast, Lee stood by her point that the future will not be TPP-centric. The discussion ended with a question answer session which further explored the subject.
Report prepared by Mridul Mohan, Research Intern, ORF Delhi.
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