India should not be complacent because of the current uncertainty surrounding TPP. We must fully understand the implications of the various TPP disciplines and how we should strategise ourselves in response to the very many ways they can impact us.
Election rhetoric underway in US is leading many to conclude that the Trans-Pacific Partnership (TPP) is dead in the water. The Republican nominee Donald Trump has termed it ‘a rape of our country‘ and claimed that it will ship millions of American jobs overseas. Not in such dramatic terms, but Democrat contender Hillary Clinton has also vowed to oppose TPP if elected to power.
It is not unknown for presidential candidates to say one thing on the election trail but act differently if elected. Bill Clinton himself faulted the negotiated NAFTA text as falling short during his campaign but, once elected, fought hard for its passage in Congress with some side agreements done on labour and environment for rationalising his action.
Is that likely to happen again? It may be difficult particularly for Trump to do so given the non-negotiable perch of his stance even as Republicans are generally regarded as more trade and business friendly. His criticism that the TPP will lead to giving up congressional power to an international commission touches on the sovereignty question, not dissimilar to Brexit, that no further cosmetic dressing can overcome. Trump has in fact vowed to change the way US trades with other countries in order to bring about an ‘America First‘ economy.
Hillary Clinton who once called the TPP the gold standard in free trade agreements has now said that TPP does not live up to her high standards. A specific criticism she has levelled is that it does not do a good job of countries that manipulate their currencies for trade gain. Her running mate Tim Kaine, who earlier voted in favour of the fast track bill in the Senate to give Obama the authority to negotiate TPP enabling only a ‘yes’ or ‘no’ for it in the Congress, has also turned around now to oppose TPP. He has said it gives companies the right to enforce provisions but the labour and environmental provisions in TPP cannot be effectively enforced.
The Obama administration that has expended a good deal of time and effort in navigating the six year long negotiations for the game changing TPP is still trying hard to see if it can get it passed in the lame duck session of the US Congress after the election. Obama can then sign and present it to the new administration as a fait accompli. But this will mean getting a large chunk of Republican votes that may not be easy to come by now ( The fast track itself was narrowly passed last year with a vote count of 218 vs 208 in the House with 190 Republicans and 28 Democrats in favour). With partisan politicking at a high, the Republicans may be in no mood to hand Obama another victory. The Republican platform, adopted by their convention last month, has stated that no significant trade bills should be passed during the lame duck session. The prospect therefore looks increasingly dim even as the US Chamber of Commerce and the US business community generally regard it as a good deal that must pass.
Should the lame duck session slip by with no legislative action, can the TPP be presumed dead? Much will depend on the post-election political scene and how the two parties score in the congressional elections. A Clinton victory and a more trade-friendly Congress may still be able to turn things around but will need hard work and political capital to hammer out a favourable congressional vote.
That may also need some renegotiations with TPP members to work out some cosmetic and perhaps even some not so cosmetic changes that help in securing a ‘yes’ vote. This is even as other TPP members have repeatedly pointed out that the prospect for renegotiations by them is ‘nil’. But such renegotiations also happened in the case of Korea-US FTA and the US-Colombia FTA. That however meant a delay of over four years for them to come into force even as there were only single parties in each of them to negotiate with. In TPP it will be eleven others and it won’t be easy. And if such a renegotiated TPP comes about, considering the various demands on it, it may carry even more obligations than at present.
Of what import are these developments for India? Will TPP that may face a delay or even doom lead to a re-energising of the Doha round and the multilateral track?
What is certain is that if and when TPP comes into force India will be affected by trade and investment diversion. Trade analysts differ on the extent but India’s access in TPP markets will get dented with TPP members like Vietnam and Malaysia leveraging their concessional access.There is also an indirect but greater potential impact that may see TPP members, particularly the developed among them, pushing for TPP-like rules even in WTO. A preview was already on display at the Nairobi WTO ministerial last December when several developed WTO members pushed for an expansion of the Doha mandate.
Indeed it can be surmised, TPP or no TPP, pressure will mount on this front sooner than later. What should put our trade negotiators on alert is the ready availability of model drafts on labour or environment or other issues like state trading enterprises that figure as separate chapters in TPP that can quickly be pushed as the basis for negotiations elsewhere. Normally, emergence of such drafts is a time consuming process even within a country that will require extensive inter-agency consideration and endorsement. But possession among clout wielding countries of such vetted drafts that have also gone through a multi-country negotiating process can facilitate rapid action.
Initiatives can also pop up on other fronts like the ‘Digital 2 dozen’ initiative on electronic commerce, based on the TPP chapter on the subject. Deputy USTR Robert Holleyman ,during his recent visit to India, suggested that US and India could work together on them (for adoption?). The chapter on electronic commerce which requires free movement of data and non localisation of servers, among other disciplines, is regarded as one of the most transformative features of the TPP.
It will therefore be important for India to remain alert and not get complacent because of uncertainty about TPP. A delay may at best give some reprieve for getting our act together but it will be important to fully understand the implications of the various TPP disciplines and how we should strategise ourselves in response to the very many ways they can impact us.
Strategising is however easier said than done. It is an arduous process that will mean identifying core interests that we feel are non-negotiable and building coalitions of like-minded countries. Secondly, it will require identifying areas and disciplines which can do with adaptations and alternate drafts. The provisions on e-commerce should perhaps figure among this category in view of our keen interest to have a leadership position in the IT services sector. Ensuring security, protection of privacy of our citizens and enabling sufficient space for our own e-commerce players should no doubt be key considerations. But these need to be balanced with providing an assured business friendly environment for IT and IT enabled services to continue growing in an era of Big Data and the Internet of Things.
Thirdly, certain TPP provisions could also merit consideration for incorporation in our own bilateral FTAs some of which are under review.They could for example relate to how best we can introduce enforcement mechanisms for being able to more effectively deal with non-tariff barriers in the markets of our FTA partners.
All these will need to be accompanied by a further building of our FTA network (RCEP, EU, Australia and New Zealand and others) that can help mitigate any negative impact from TPP or TTIP or any other future mega RTAs of which we are not a part. But concluding these FTAs will require agreeing to lower tariffs for these partners which will not be possible without a significant improvement in India’s competitiveness.
An essential part of strategising therefore will require reduction of transaction costs and ensuring that our competitively produced products don’t lose their cost advantage in transit and transaction costs due to inadequate trade infrastructure or inefficient logistic linkages or delayed clearances. Many East and South East Asian countries have worked hard in these areas and have succeeded (also with the help of APEC) that have enabled them to reduce tariffs. There is no reason why we cannot make it happen. It would however mean facilitating not only make in India but also make and trade from India.
V S Seshadri is Vice Chairman of Research and Information for Developing Countries. The views expressed in this article are his own.