Occasional PapersPublished on Jan 12, 2015 PDF Download
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The Changing Global Trade Regime and Emergence of Mega FTAs: Strategy for India’s External Sector Sustainability

This study discusses three major mega free trade agreements (the TPP, TTIP and the RCEP) and attempts to develop a strategy for India to navigate the repercussions engendered by these groupings and thereby safeguard India?s trade and sustain its economic growth.

The global trade regime has undergone significant changes in recent years. The emergence of BRICS and growth of other developing countries has created a multipolar world, immensely increasing competition in world markets. There is a demand by many, particularly the developed economies, to create a 21st century template for trade and investment rules. With slow and tardy movement in the WTO negotiations, the 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 main focus is on non-tariff measures, and the results of these negotiations will lead to a rise in technical standards and other onerous conditions for market access. Recognising this, China has begun to modify its own regime to meet the eventual higher standards. But China as of now is nowhere close to meeting the demands of multilateral agreements like the TPP.

These eventual high standards in markets covering two-thirds of world trade will mean that India, which is not a part of the TPP, will find it difficult to access the bulk of global markets unless its domestic capacity and standards improve. This would also make it difficult for India to sustain or increase its growth rate.

Government officials and policymakers in India need to be sensitised about these likely changes, and linked up with experts who can help upgrade domestic standards and systems. In terms of sectoral market shares, with the enactment of the TPP, RCEP and TTIP, India stands to lose out to Southeast Asian economies like Malaysia and Philippines in the services sector, which drove much of India’s recent growth, and in which India competes with these economies for market share. The manufacturing sector will also be hit in different ways.

Against this backdrop, this study attempts to develop a strategy to deal with the adverse impact of mega free trade agreements (FTAs) like TPP and TTIP, and thereby safeguard India’s trade and sustain its economic growth. The study suggests reform measures that India needs to take to negotiate membership of these mega FTAs in the near future and deal with their trade diversion effects.

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