It may be better for India to keep out of TPP and negotiate with the rest of the world by going along with RCEP
With the signing of the Trans Pacific Partnership (TPP) agreement, one of the biggest and most significant trade deals in recent times, there is widespread speculation on how the TPP will affect India. The majority view is that this deal would adversely affect India’s trade and welfare.
Experts say it would be increasingly difficult for India to export to the majority TPP partners even if it becomes a part of RCEP. Most significantly, the TPP may isolate India from being a significant export partner with the US, with whom it enjoys a preferential access.
Cost-benefit analysis
India’s total trade with TPP countries has increased over time, reaching $152 billion in 2014, with $78 billion exports and around $74 billion imports, making a trade surplus with these countries.
But the trade diversion during the post-TPP situation would adversely affect India’s exports to these countries by an estimated $190 million annually.
The highest market loss would be in the US ($94 million), followed by Malaysia ($36 million), Mexico, Japan and Vietnam. If India keeps out of the TPP, the trade diversion will hit the textile sector the most, along with organic chemicals, iron and steel, vehicles other than railway or tramway, tobacco products, footwear, gaiters and the likes.
In the US market, textile products would incur the highest market loss for the Indian exporter, by an estimated $56 million annually, followed by organic chemicals ($5.5 million), nuclear reactors, boilers, machinery and mechanical products ($5 million). On the contrary, if it joins the group, India’s exports would rise by around $5.3 billion annually as against the rise in import by $10.4 billion leaving a net deficit in balance of trade of $5.1 billion.
India will experience the highest trade deficit with the Japan followed by Australia, Singapore and Malaysia.
On the other hand, India is likely to experience a trade surplus with countries like Vietnam, Mexico, Peru and Chile, if it joins the bloc. Hence, the cost of participating in the TPP is much higher than not participating in the bloc.
Yet India not becoming a party to the agreement is a right choice at this stage.
Currently, India has signed or is in the process of signing a number of bilateral and regional Free Trade Agreements (FTAs) including the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), South Asian FTA (SAFTA), Indo Asean FTA, etc.
Whether these FTAs will result in gains to the country or not is still an issue for discussion. At present, India enjoys FTAs with only three countries amongst the present TPP signatories.
There is an increased likelihood that with US at the helm of the affairs, this could eventually limit India’s trade prospects with these Pacific Rim countries.
TPP can be avoided
India needs to expedite ongoing free trade negotiations on a priority basis.
It needs to identify the countries where it can enter into new trade agreements, both bilateral and multilateral, along with the new investment destinations, particularly in manufacturing.
Strong coordination amongst TPP parties may increase their capacity to influence WTO outcomes and weaken India’s capacity to affect WTO outcome.
To prevent such a scenario, the negotiations on RCEP should be accelerated as this could serve as a potential alternative to the present TPP in terms of the trade and prospects. India also needs to watch the changing policy and regulatory regime of the present TPP countries and explore the policy space it enjoys with respect to many of the restrictive provisions of TPP.
The restrictive investor-state dispute settlement can be completely avoided making it easier for India to invest in these countries without signing-in on obligations. Other existing domestic regulations with respect to intellectual property rights, government procurement, IT etc. can be maintained.
With 40 per cent of the global economy tied with the present TPP, India should mark it as a beginning for reaching out to the rest of the world with aggressive policy measures and reform agendas.
The writer is a Senior Lecturer at Multimedia University, Malaysia.
(This article was published on March 11, 2016)
