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TPP trade deal not good for India

TPP trade deal not good for India
Professor Jagdish Bhagwati described the Tans-Pacific Partnership (TPP) as “a political response to China’s new aggressiveness, built in a spirit of confrontation and containment, not of cooperation”. In other words, it’s more of a political arrangement than about the economy.

 The formation of the TPP seeks to bruise Chinese expansionism in Asia-Pacific region and thwart Beijing’s grandiose strategic expansion plan called ‘One Belt, One Road’.

Divergent opinions have been expressed over the impact of TPP on India. Some argue that by not joining the TPP, India may suffer. They fear that TPP will negate India’s prime exports of textiles and pharmaceutical products to the USA, the main market for India. Others, however, contend that India is well insulated by the stringent conditions, mandated for the TPP members to avail of the benefit of preferential duties.

 Further, India will be out of the USA’s clutch for stringent patent regulations and high labour, which do not favor India’s trade and manufacturing activities.

The Trans-Pacific Partnership (TPP) is a massive trade agreement among twelve Pacific Rim countries. It includes the USA, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

 It is an attempt by the USA to establish political hegemony and rebalance its pivot towards the globe’s most populous continent. Through TPP, USA has multi-faced economic interests in trade and investment in Asia-Pacific.

 There are three important issues within the TPP--market access of goods and services, labour standards and standardization of environmental commitment. The TPP proposes to link trade, economic and investment with labour standards, environmental protection and intellectual property rights.

India is not a member of the TPP. It also showed any real interest in becoming a member. Paradoxically, the countries that have played a big part in accelerating India’s Act Asia policy are prominent members of TPP. They are Singapore, Malaysia, and Vietnam.

 Given the active membership of these three countries in TPP, concerns loom large over the negative impact on India’s exports to the USA. Analysts have raised threats of trade and investment diversion, spearheaded by the losses of trade competitiveness due to preferential tariffs in the intra-region trade via TPP. The USA accounts for 14 percent of India’s world exports.

The biggest threat of trade diversion for India could fall on its textile sector. It is a major export item for India. It accounts for 10-11 percent of India’s world export. The USA accounts for 40 percent of India’s total export of textiles. With the duty preferences provided to TPP members in the US market, India’s textile exports could suffer. Vietnam will be the biggest beneficiary.

 The southeast nation will unleash tough competition to India’s export of textiles in the USA. Vietnam is the second biggest exporter of readymade garments to USA (after China). It accounts for 12 percent of US imports of garments. The surge in Vietnam competitiveness due to duty preference will decimate India’s exports, the trade analysts point out.

But, there is a lag in this threat. In TPP, the duty preference for textile trade is governed by the yarn forward rule. This rule will act as a barrier to Vietnam. Under the rule, it is mandatory for TPP members exporting textiles to its members, to procure yarn, fabric and other inputs from any or combination of TPP partner countries.

 At present, Vietnam procures most of its yarn and fabrics from China. Given the existing structure, it will not be easy for Vietnamese exporters to divert its procurement to the domestic market or to any other TPP member countries. Further, none of the TPP members are globally known as manufacturers of yarn and fabrics.

Besides, India’s basket of exports and bilateral and multilateral agreements (free trade agreement) with some TPP members will insulate it. Nearly 45 percent of India’s export to the USA consists of those products that are unlikely to be castigated by duty preferences in TPP.

 India exports those products that warrant special preferences by the USA consumers, because of their high-value additions. These products are gems and jewelry, textiles and petroleum products. Together, these three product groups accounted for 43 percent in exports to the USA in 2014-15.

India has FTAs with Singapore, Japan, and ASEAN, which comprises of Malaysia and Vietnam. India is already gaining market accessibility in these countries with the duty preferences under FTAs. The threat of investment diversion has been overemphasized. A recent survey by Ernst and Young forecasted India as the most attractive investment destination over the period of next three years.  Owing to India’s enhanced potential, which has been triggered by Make in India, TPP is unlikely to outnumber India, even though the major foreign investors in India are TPP members, such as the USA, Singapore, and Japan.

It will be a blessing in disguise if India does not join the TPP. India will have an upper hand in challenging US insistence on patent rights, giving priority to the national interest. There was pressure to do way with Section 3(d) of Indian Patent Law. USA and Western countries claimed that it is an embargo on the business-friendly patent regime. Section 3(d) empowers India to reject the patent rights of a new product, which does not embrace many changes in the substances by discovery. If it is removed, India’s poor will be deprived of their essential drugs at affordable prices. Rejecting patent rights of Swiss firm for “Glivec” – a cancer drug – was a case in point. Had India joined TPP, it would have been a tough task to stonewall the US pressure.

By not joining TPP, India need not succumb to the pressure of linking its trade and investment with stringent patent rights and high labor standards. Staying out of TPP club gives the flexibility to provide essential drugs at affordable prices to its poor people and accelerate Make in India, without succumbing to high labor standards. 

IPA
(The views expressed are strictly personal)
Subrata Majumder

Subrata Majumder

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