07 Oct 2015 16:48 IST

Why India needs to watch out for the Trans Pacific Partnership

For India, which has been grappling with major issues at the WTO, the finalisation of the TPP is a cause for worry

Even as the Doha Round of negotiations under the ambit of the World Trade Organisation drags on, a small but significant group of powerful nations announced a landmark agreement that could change the dynamics of world trade when it is implemented.

The United States, Japan and 10 other nations from the Pacific Rim announced the successful completion of negotiations for the Trans Pacific Partnership (TPP) on Monday, which had been under negotiation for the last five years. Canada, Australia, New Zealand, Chile, Peru, Vietnam, Singapore, Malaysia, Brunei and Mexico are the other partners to the deal.

The TPP will cover two-fifths of the global economy and knock down tariffs in significant measure across products ranging from beef and wheat to textiles, dairy products, automobiles and pharmaceuticals. Thus, while dairy products from New Zealand will now find their way into Canada, a country with its own strong dairy industry, Japan will open up its market for automobiles, especially heavy trucks from the US.

The TPP is an integral part of the United State’s “pivot” to Asia, politically, strategically and economically, to counter the rise of China. It’s not surprising then that China does not form part of the TPP. President Obama left no one in doubt when he declared after the successful culmination of negotiations on Monday: “When more than 95 per cent of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy. We should write those rules, opening new markets to American products while setting high standards for protecting workers and preserving our environment.”

Easing tariffs

According to the Office of the US Trade Representative, the TPP would end as many as 18,000 tariffs placed on American exports by the TPP member countries. Even as the US has opened up markets abroad for its companies, it has been smart enough to negotiate a 30-year window for easing tariffs on its own car imports, thus protecting its automobile industry.

The negotiations were the toughest when it came to pharmaceuticals. Australia and New Zealand managed to successfully hold on to their position that no more than a five-year protection could be granted for drug patents against the 12 years that the US wanted.

The TPP is some way off from becoming a reality as it has to be approved by national parliaments in each of the 12 partner-countries and there could still be many a slip between the cup and the lip. Some lawmakers in the US, for instance, are already calling it a sell-out of American interests and say that they would oppose the TPP when it is moved before Congress by President Obama. Crucially, the opposition is bi-partisan, which means that the President has his task cut out in chaperoning the deal through Congress before the end of his term.

The text of the 30-chapter deal will be released to the public only later which has given rise to allegations that it is a secret deal negotiated in favour of major business corporations. Indeed, one particular clause gives investors the power to sue governments and bring them to arbitration. Those opposed to the TPP feel that this power will compromise the ability of governments to regulate big multinational corporations effectively.

Biggest trade agreement since Uruguay Round

If the TPP manages to successfully surmount all obstacles and is cleared by the national parliaments of all the 12 countries, it will be the biggest trade agreement since the Uruguay Round of the then GATT which created the WTO in 1994. The TPP is one of two major regional trade agreements that the US is pursuing, the other being the Trans Atlantic Trade and Investment Partnership which is under negotiation now with major European countries. The conclusion of the TPP negotiations is expected to give a push to the Trans Atlantic talks.

India and China must be closely watching the developing scenario. For India, which has been grappling with major issues at the WTO, the finalisation of the TPP is a cause for worry. The country might find itself isolated as the world splits into two major regional spheres — TPP and Trans Atlantic Trade and Investment Partnership — with even countries in its neighbourhood joining the TPP. The consequence will be a weakening of negotiating power for India at the multilateral WTO.

In fact, the emergence of these major regional partnerships is a comment by itself on the failure of the WTO to emerge as a successful multilateral trade body. Regional partnerships deal a severe blow to multilateralism, which is important for smooth global trade especially in these troubled times. The upcoming Nairobi ministerial of the WTO is, thus, critical for the continued relevance of the multilateral trade body. Developing countries, including India, that are not part of either of the two grand partnerships being forged by the US need to coordinate their strategies and actions in Nairobi.