The Trans-Pacific Partnership (TPP) is becoming a reality, threatening those outside the 12-country bloc with trade diversion and lost opportunity. The agreement, reached last week among Pacific Rim countries including the US and Japan but excluding China, shows up the World Trade Organization (WTO) as an effete organisation that has not been able to secure a major deal since 1995 and is stuck with an economic framework that has been overtaken by the pace and nature of global integration. The TPP creates a new framework for trade that embraces not just low tariffs but also convergent safety standards, intellectual property rights, labour standards and environmental norms, and a dispute settlement mechanism for investment-related disputes.
How should India respond to the development? By acting simultaneously on three fronts: trying to join the Asia-Pacific Economic Cooperation as a necessary stepping stone to joining the TPP, taking a proactive role in making the multilateral WTO salient again and carrying out domestic reform, including by reducing import duties further. Trade in goods and services add up to roughly 50% of GDP (a little less in 2014-15). How competitive these are matters a lot to the entire economy. Countries like India stand to lose from being left out of dynamic trading blocs like TPP. China will probably become a member soon, though as someone who accepts the rules already set without having had a chance to contribute to the rule-making process. India, too, must join the group. The second task of reforming the working of the WTO is best accomplished by accepting the economic logic that opening up is good for India and abandoning the negotiating logic of diplomats, which holds that giving in is surrender.
India has to cut its tariffs, transit to a goods and services tax and remove infrastructure bottlenecks at the fastest pace, including clamping down on power theft and giveaways. Sectarian politics that creates social schism and violence will, however, make economic reform tough and beside the point.
