If the Transatlantic Trade and Investment Partnership moves ahead after further negotiations were held in July, Indian exporters could be disadvantaged. Instead, India must be ready to use the further opening up of huge markets across the Atlantic, and adopt trade policies that mix regionalism and multilateralism.
On 17 July 2015, the European Union and the U.S. concluded the 10th round of the Transatlantic Trade and Investment Partnership (TTIP) negotiations. The TTIP, an ambitious regional trade liberalisation plan, seems to draw little attention in India, however. From India’s perspective, perhaps other mega trade agreements in process in the Pacific Rim, such as the U.S.-led Trans-Pacific Partnership (TPP) and the China-led Regional Comprehensive Economic Partnership (RCEP), will have a more tangible impact on the country’s fast growing economy.
Since the U.S. and the EU account for 29.6% of India’s exports,
[1] the discriminatory trade diversion effect of the TTIP is evident. After all, any accord that dismantles trade barriers across the Atlantic is bound to alter the dynamics of the commercial decision-making of millions of American and European producers. And the vast trans-Atlantic market, already accounting for nearly half of global demand, will only appear more appealing and lucrative than before.
[2]
In such a scenario, Indian exporters will be disadvantaged—should the TTIP facilitate the emergence of an integrated, and arguably more inward-looking, trans-Atlantic market. Indeed, multiple simulation studies have confirmed that India will suffer from a decrease in both exports and imports, and therefore a dip in GDP growth, if the TTIP comes to fruition
[3,
4].
This should be a wake-up call for those are not quite concerned with the progress made at the TTIP negotiation table.
Some vigilant stakeholders are putting forth proposals about how best India can address this lurking economic challenge. The recommendations typically consist of two elements: unilateral reform aimed at matching the trade cost cut under the TTIP, and a proactive policy alignment with the trade regime that is expected to emerge from TTIP talks.
[5]
This advice is valid to some extent. Enhancing domestic economic competitiveness through unilateral trade liberalisation is a positive move, irrespective of the international trading environment. And if the regulatory convergence under the TTIP eventually evolves into a universal regulatory regime, then by adopting the TTIP trade disciplines early on, India will incur fewer adjustment and opportunity costs.
However, these arguments are also flawed, for two reasons. One, unilateral trade liberalisation, despite its widely-acknowledged economic rationale, is a political non-starter in many countries, including India. How can the distant TTIP, largely ignored in the public sphere in India, constitute a forceful enough political impetus to justify painstaking domestic reforms? Two, will the TTIP really be able to set any global standards? The EU and the U.S. cannot decree such standards without the buy-in of other economic powers,
[6] and whether China, or even Russia and Brazil will agree remains unknown.
Instead of accommodating the TTIP unreservedly, India’s interests will be better served if it adopts multipronged trade policies that mix regionalism and multilateralism.
For this, India can further the regional forums and frameworks of which it is a part, notably RCEP and the BRICS grouping—this will also be an effective balance against the TTIP (and the TPP). The RCEP and BRICS both work on an incremental consensus-based mechanism, and this gives India greater strategic space and leverage to assert leadership to cultivate a geoeconomic as well as geopolitical order that is conducive to its unique development and growth realities.
In contrast, conforming to the stringent, complex, and intrusive WTO-plus rules being negotiated by advanced economies without consultation with developing countries may not be in India’s best interests. Instead, India can participate in the RCEP, the “developing countries FTA”, more constructively to push for a comprehensive deal that covers trade not only in goods but also in services, where India’s traditional comparative advantages lie.
India must also forge a closer economic relationship with China, another global economic giant that is being excluded from both the TPP and TTIP. Admittedly, freer trade with China has always been a controversial issue for India, not least because of India’s persistent trade deficits with China and the recurring spats at the contested borders. But connecting itself to the booming transnational production networks in East Asia and taking advantage of China’s economic transition, which favours consumption over exports under the RCEP, will undoubtedly do more good than harm to India.
In the context of BRICS, the newly-established New Development Bank will also help address India’s infrastructural bottlenecks and boost Prime Minister Narendra Modi’s ambitious ‘Make in India’ schemes.
But trade agreements, as long as they are not multilateral, can facilitate the economic isolation of participants from the rest of the world. Therefore, ultimately, inclusive multilateralism as opposed to exclusive regionalism will work better for the world and India. After all, only around 5-25% of India’s external trade is covered by shallow regional trade deals with low preferential margins.
[7]
Many perceive the WTO’s Doha Development Agenda as moribund, but the current stalemate arose partly because developing countries, suffering from an unfair deal after the Uruguay Round, adopted a rather rigid and defensive stance in the Doha Round. However, developing countries, including India, must now reconsider their strategy at the WTO and decide wisely if continuing to filibuster the DDA while watching the rise of preferential mega-FTAs is genuinely a better option for themselves than striking a less-than-optimal balance at the WTO.
At the same time, the TTIP, as an unprecedented FTA between the world’s largest economies, has important implications for India. India should be ready to exploit the opportunities that result from the further opening up of gigantic markets across the Atlantic, and carefully hedge against the negative economic as well as political externalities that comes with a more fragmented global trading system.
Ji Xianbai is a PhD candidate at S. Rajaratnam School of International Studies, Nanyang Technological University, Singapore. He holds the prestigious Nanyang President’s Graduate Scholarship, and is an associate fellow at the European Union Centre in Singapore.
