TPP – Trans Pacific Partnership

  • 40% of world GDP
  • Pact would boost growth in the US as well as the Sian economies
  • Against:
    • US people – It would only help American companies send jobs abroad
    • Non- US – It would benefit large corporations, particularly American big pharma, with the common people at the receiving end. It would reduce access to generic medicines in developing countries.
  • Trump has decided to back off from TPP. We will have to wait and watch future of TPP without USA.

About the Trans-Pacific Partnership:

  • The Trans-Pacific Partnership is headed by the US and includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.
  • The agreement covers 40% of the world’s economy.
  • It would set new terms for trade and business investment among the United States and 11 other Pacific Rim nations.
  • It would phase out thousands of import tariffs as well as other barriers to international trade. It also would establish uniform rules on corporations’ intellectual property, open the Internet even in communist Vietnam and crack down on wildlife trafficking and environmental abuses.
  • Attempt to balance China
  • TPP seeks to ease the flow of goods, services, and investment among its members and to strengthen the rules on labour standards, environmental issues, origin criteria, and intellectual properties.
imageTrans-Pacific Partnership

What the supporters say?

  • It would be a boon for all the nations involved. It would unlock opportunities and address vital 21st-century issues within the global economy.

What the opponents say?

  • Opponents in the United States see the pact as mostly a giveaway to business, encouraging further export of manufacturing jobs to low-wage nations while limiting competition and encouraging higher prices for pharmaceuticals and other high-value products by spreading American standards for patent protections to other countries.
  • A provision allowing multinational corporations to challenge regulations and court rulings before special tribunals is drawing intense opposition.

Why the US is interested in this pact:

  • The pact is a major component of President Obama’s “pivot” to Asia. It is seen as a way to bind Pacific trading partners closer to the United States while raising a challenge to Asia’s rising power, China, which has pointedly been excluded from the deal, at least for now.
  • It is seen as a means to address a number of festering issues that have become stumbling blocks as global trade has soared, including e-commerce, financial services and cross-border Internet communications.
Impact on India:
  • According to one estimate, trade worth $2.7 bn will be diverted away from India.
  • Cost will be even higher if India is unable to participate in global Supply chains due to the TPP rules on standards, labour and environmental policies.
  • Further, standardisation of IPR across TPP countries and rules on expropriation may make it more difficult for India to attract Foreign Investment over, say, Vietnam.
  • TPP will alter India’s bargaining power & negotiation positions. 
  • For India it might signal erosion of the competitive edge its goods and services enjoy especially in the traditional market of EU & US. India might also have to meet the challenge of a new rule bound trade architecture
India – Way Forward:
  • Must act in a proactive manner – exporters need to convert imminent threat into opportunities
  • Policy makers should adopt a more give and take attitude in trade matters without compromising on India’s need for food security
  • It has been reported that China will soon seek membership to TPP, a move India should emulate, if possible
It is said that the Trans-Pacific Partnership (TPP) Agreement, the first of the so-called mega-regional trading blocs that are currently being negotiated, is also the most important economic integration agreement that is being negotiated since the establishment of the World Trade Organization (WTO) two decades ago. Critically analyse the possible implications of this agreement, if it comes into fruition, on India and the world. (200 Words)
The consensus based working of WTO has led to trade powerhouses conclude their own agreements in line with their geopolitical interests. One is the US led Trans Pacific Partnership (TPP) which will have 12 Pacific nations while the other is China led RCEP.
TPP nations cover about 30% of the global trade. TPP is promoted by the US for two reasons mostly.
  • One is to promote US manufactured goods and hence encourage exports from its farmers and small industries.
  • Second is to gain a foothold in the East Asian region which is dynamically most important and if left, China will surely dominate it
The TPP agreement will have significant impact on India and there are questions about whether India should join TPP or not.
Positive impacts:
  1. India will be a part of a trade bloc whose standards are higher than WTO and is aimed at containing China.
  2. TPP is more about services and India has service sectors contributing 70% of GDP.
  3. India will have a duty free access to Latin American markets and increase its exports outreach which India will not have otherwise.
  4. European Union will be forced to conclude agreements with India which seems distant now.
Negative impact:
  1. Covers 30 percent of global trade, so it will undermine WTO. It is seen as an attempt to embark trade barriers and preserve western countries dominance. They might give preferential treatment to each other
  2. Indian economy yet to take off and success of various programmes like Make in India depend on integration with global value chain. It will also enforce good governance, IP laws.
  3. The Economic Survey says that India needs to modify its environmental, labour laws, Intellectual property rights and standards in tune with those of USA. This is big bone of contention given immense fallouts on drug prices, employment opportunities and the fact India is on priority watch list in Special 301 report.
  4. The US agricultural goods will flood our markets so our farmers will be at serious disadvantage.
Hence the compliance cost for India will be high to pay and given our socio economic goals, it is better to stay out of TPP, as has been articulated in our Foreign Trade Policy 2015. India can join RCEP whose standards are not stringent and is more about manufacturing.
But if TPP comes to fruition it would mean erosion of our traditional markets in US and we might have to establish manufacturing base in Latin America.
Critically examine how will India’s participation in the Trans Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP) would affect its trade and strategic interests. (200 Words)
TPP and RCEP represent next form of geopolitical arrangements as different from bipolar world that has existed post Second World War. India with its traditional  nonaligned status has to join one of these blocks to rake up benefits of multilateralism that will effectively integrate it into globalized world.
Positives of joining TPP or RCEP
  1. Will provide more markets for sectors it has expertise in. E.g. pharma, IT products, textiles
  2. Higher levels of quality and IPR protection will incentivize Indian industry and make it competitive
  3. Any of these trade blocks will bring in much-needed investment flow, technology and best practices
  4. Joining TPP will give access to hitherto unexplored markets like Latin America leading to diversification of exports
  5. Joining RCEP will contain any fears from Chinese side that India is actively participating in US Asia pivot strategy and could balance bilateral trade deficit
  6. Participating in TPP, on the other hand, will bring India closer to USA countering any Chinese bullying in Asia
  7. RCEP:
    1. The quality, environment and labour laws are not so stringent. Moreover, China itself is a gross violator.
    2. Timetable for adherence is quite lenient and flexible.
    3. Adequate protection can be provided to domestic industries. On the other hand, there is also possibility that RCEP could become a roundabout passage through which cheap Chinese goods will flood our markets because India is a major player in the RCEP negotiations and is under pressure currently to bring about steep reductions in its tariffs.
  1. Since IPR protection levels are quite stringent to the present WTO levels India complies with, Indian industry, agriculture and cyberspace may reel under strict patent regimes, for which they need a pre-determined transition period and resources
  2. This may also aggravate India’s import dependency as barriers will have to be kept low, affecting India’s unorganized and MSME segments
  3. Strategically, ceding ground to the bloc leader like US (TPP), China (RCEP) will hamper autonomy in decision-making at international level
  4. Programs like Make in India could take a hit due to domestic companies being exposed to efficient, well-capitalized peers abroad
  5. With RCEP, China would aim to increase its influence in Asia pacific as a soft power which might affect Indian interest vis a vis this region.
In resolving this dilemma both economic interests as well as strategic autonomy will have to be factored in for India to take full benefits of trade blocs. So, India can follow Chile’s example where it held steadfast to its demands, while still being involved in the TPP negotiations, so that India is not wholly dependent on China led bloc.
Why Trump is against this deal?
  • He thinks such deals will hurt American workers and undercut US companies. His stance on trade is protectionist: he has vowed to shield Americans from the effects of globalised trade by slapping hefty tariffs on cheap Chinese imports of up to 45%
How will TPP minus USA impacts India?
  • India was not part of the TPP, but it has been an important instrument of realpolitik for Washington and New Delhi as they sought to counter the rise of an assertive China without hurting their economic equations with the country.
  • In the rebalancing of its resources in Asia-Pacific, the US saw India’s role as the “lynchpin” of the strategy.
  • The US’ “Pivot to Asia” and India’s “Act East” policies conflate. Washington sees India as having a greater role in providing security and stability in the region.
  • The two strategies have been shaping the security order in the region as India was reinvigorating its ties with Asian powers like Japan and Australia that has rattled China greatly.
  • Now, 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 strategize ourselves in response to the very many ways they can impact us
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