New Delhi has stayed mum about the Trans-Pacific Partnership, a just-concluded trade pact covering much of the Asia-Pacific. The TPP still has many loops to jump, including legislative approval by all of its 12 signatories.
But the Narendra Modi government should worry. Led by a protectionist commerce ministry, India is increasingly marginalised in global trade negotiations.
The fallout of the TPP on India has four elements.
1. By abolishing 98% of the tariffs among TPP members, there will be significant goods trade diversion — replacement of Indian exports by those of TPP members. Says Pradeep Mehta of the think tank CUTS, “TPP members will inevitably trade with each other as tariffs will be zero. By our calculation, Indian exports will face a diversion of about 1%.” Another study has said India will lose $2.7 billion in exports, with additional billions being lost as more countries join TPP.
2. Worse may happen. India is most competitive in service trade and TPP has wide-ranging clauses on services, including the inclusion of intellectual property, internet regulation and other standards.
Bipul Chatterjee, co-author of a TPP study, notes: “The TPP includes rules on outsourcing, like time and language”. These are there to help TPP members such as Philippines and Vietnam to eat into India’s outsourcing exports.
3. The most damaging, however, may be in the area of foreign investment.
Many foreign firms in India use it as an exporting base, for example automobiles. It may now make sense to put their new investments in a TPP member to get unfettered access other TPP markets.
Hemant K Singh, professor at the Indian Council for Research in International Economic Relations, said, “More than trade, India will be impacted in terms of investment. Investment will definitely be attracted to TPP member-states.”
4. Perhaps most damaging is India’s influence on global trade rules. New Delhi’s anti-trade posture has meant negotiations at the alternative Regional Comprehensive Economic Partnership (RCEP) trade bloc have ground to a halt. Some Southeast Asian officials half-jokingly wonder if they can expel India from RCEP. India’s trade policy remains centred around the World Trade Organisation, a body of declining relevance.
There are many objectionable aspects about TPP standards, but being outside the room New Delhi had no say in their setting. One official noted, “India was deliberately not invited to the TPP. Washington wanted to both isolate China and marginalise difficult countries such as India.”
Modi has repeatedly said he want to join the Asia Pacific Economic Cooperation forum, a TPP prerequisite. After an initial yes in January, in the past three high-level meeting with New Delhi, Washington has said nothing about India joining.
What should be India’s response? Says Singh, “To minimise the impact of the TTP, India should complete its bilateral investment treaty with the US and free trade agreement (FTA) with the European Union. It must also be more realistic about its RCEP stance.”