Trans-Pacific Partnership Trade Deal

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According to Union Commerce Minister Nirmala Sitharaman, the 12-nation Trans-Pacific Partnership (TPP) trade deal announced early this month is a significant agreement that accounts for 40 per cent of global economy.

The US, Japan and 10 other Pacific Rim nations this month reached final agreement on the largest regional trade accord in history.

Seven of the ARSEP (ASEAN Regional Comprehensive Economic Partnership) members which consists of ASEAN and ASEAN FTA countries are party to the TPP.

The Trans-Pacific Partnership (TPP) is a proposed trade agreement among twelve Pacific Rim countries concerning a variety of matters of economic policy, about which agreement was reached on 5 October 2015 after 7 years of negotiations.

The agreement’s goal had been to “promote economic growth; support the creation and retention of jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty in our countries; and promote transparency, good governance, and enhanced labor and environmental protections.”

Canada on World MapAmong other things, the TPP Agreement contains measures to lower trade barriers such as tariffs, and establish an investor-state dispute settlement mechanism (but states can opt out from tobacco related measures).

The United States government has considered the TPP as the companion agreement to the Transatlantic Trade and Investment Partnership (TTIP), a broadly similar agreement between the United States and the European Union.

Historically, the TPP is an expansion of the Trans-Pacific Strategic Economic Partnership Agreement (TPSEP or P4), which was signed by Brunei, Chile, New Zealand, and Singapore in 2005. Beginning in 2008, additional countries joined the discussion for a broader agreement: Australia, Canada, Japan, Malaysia, Mexico, Peru, the United States, and Vietnam, bringing the total number of participating countries in the negotiations to twelve.

Participating nations aimed at completing negotiations in 2012, but contentious issues such as agriculture, intellectual property, and services and investments caused negotiations to continue. They finally reached agreement on 5 October 2015.

A number of global health professionals, internet freedom activists, environmentalists, organised labour, advocacy groups, and elected officials have criticised and protested against the treaty, in large part because of the secrecy of negotiations, the agreement’s expansive scope, and controversial clauses in drafts leaked to the public.

TPP and India

Although the deal aims at sidestepping China in setting rules of international trade, it is also expected to impact India. India’s exports are going to be impacted when the TPP is in place as there would be significant diversion in trade and foreign investments from the Indian market. A large portion of India’s exports are in services.

With the anticipated reduction in barriers to trade in services among TPP members, there is the possibility that some of India’s services exports to those countries will be replaced by services trade with the TPP member countries.

The TPP would set a precedent to high global standards and in the event of India’s failure to mature and revitalize its manufacturing industry, and induce efficiency in its export sector, it would be increasingly difficult for India to be able to export even if it’s a part of RCEP. Even though TPP is open for new members, the standards set by TPP are too high for India to join.

India may not be able to meet many of the commitments, for instance the supply chain management or regulatory coherenceamong others. By not being a part of TPP, India is going to lose the preferential access to the US market which is a big market for Indian exports, however, the extent of the impact from trade diversion would depend on the concessions finally agreed.

India’s bilateral free trade agreements (FTA) with some of the TPP members – Japan, Malaysia, and Singapore – and FTAs, which are underway with Australia, Canada and New Zealand, may dilute the impact of trade diversion caused by TPP to some extent.

Indian exports will be adversely impacted more due to the non-tariff measures rather than tariff measures as the tariff measures are already low in larger markets such as the US and EU.

In addition to labour and environmental regulations, intellectual property rights (IPR) protection is a significant component to the TPP negotiations. The IPR standards are much more demanding than those of WTO.

India has not yet indicated whether it has interest in pursuing TPP membership down the line. This is because no clear consensus has formed in India on whether expanded market access will help the Indian economy grow, and whether the gains will be worth the potential costs to some still-protected Indian industries.

To think about possible TPP membership, India would have to prepare itself for more significant market opening as well as enhanced standards than it has committed to in the past. Indian officials will need to decide whether they wish to position their country for the increased trade flows that participation in a major regional agreement would provide.

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