Sandeep Jain Writes: Transpacific Partnership has recently caught the World’s attention. Though the mechanism is not new. Its origins can be traced to a little-known four-party free trade agreement concluded in 2005 by New Zealand, Chile, Singapore and Brunei[i]. It has however, gained relevance ever since USA joined the same. It got further attention when China was not included in the partnership. Japan on the other hand has recently joined. The negotiations for the partnership have been going on for some time now. However, exact modalities and status remains unclear. Whatever is known is only through leaked documents.
The TPP is a continuation in the trend of having regional trade and economic forums / agreements over and above the global architectures such as WTO. While the latter remains relevant, it is increasingly deadlocked over aspects such as agricultural subsidies where at times the interests of developed and developing nations do not coincide. Regional forums on the other hand can achieve greater synergy. TPP may thus be seen in this light also.
Some of the provisions of TPP[ii] known through leaked documents are Indicative of a skewed relationship wherein, there are two sets of countries. One set of countries represent the developed nations who will probably provide the skill set, capital and the markets and the other set representing the underdeveloped countries such as Vietnam, Malaysia, Mexico etc which will provide the manufacturing and the industrial base. It is for this reason that there was some opposition to the Japan becoming a member as it is capable of large investments as also considerable R&D thereby posing a challenge to big business in USA[iii].
While, as brought out above, the specifics are not known there are likely to be
stringent provisions for IPR[iv] as also aspects such as environment and labour practices which in turn are likely to be subject to dispute settlement. The host governments may lose rights to place restrictive controls on foreign investors. Similarly preferential treatment may not be available to state owned enterprises. Thus on the face of it the lesser developed countries are likely to be facing certain stipulations in their manufacturing processes imposed by the developed nations.
The developed countries like USA, Canada thus benefit in many ways. Their domestic manufacturing costs can never be as cheap as a third world nation. Thus they are compelled to outsource their manufacturing. There are political costs of doing so to Japan, China and India. The dependence of USA’s economy on China has also been a cause of worry. Moreover, specially China (earlier Japan) quickly adopted the technology and absorbed it into their system. They retain the capability to do so even now. This takes away the edge which western FDI enjoyed.
USA does not enjoy sufficient political leverage today over China. They are thus not in a position to really influence political decision making to give any unfair advantage to their businessmen. They however, can do the same in smaller countries. Therefore USA is no longer keen for further investments in China (one of the reasons for India becoming a top FDI destination) as was the case in early nineties. They also have inadvertently been the vehicle for growth of the Chinese economy. The global recession in 2008-09 forced the Western world to take notice of the fact that China has taken over most of the manufacturing away from Western business houses. The US economy was not adding sufficient value and was highly leveraged to China. Probably that is one of the reasons they started looking for alternatives (USA joined negotiations for TPP in 2008)
While we have examined possible benefits from TPP for developed nations,
what are the likely benefits for the underdeveloped countries. The chief reason could be capital and captive markets. For this reason they are willing to subjugate themselves to larger external controls. They still get to achieve better economic growth thus giving them greater political stability. They also get to hedge their bets between RCEP and TPP.
What has China done to offset the likely losses for not being part of TPP? The
BRI ( belt road initiative ) is a possible mini TPP being affected by China. They aim to integrate all neighbouring economies and inexorably link them to the Chinese economy. Participation in RCEP is also aimed in this direction. China can ill afford loss of markets till its internal consumption grows. It thus wants regional countries as also countries in Africa to compensate for the possible loss of US as also other Western markets. Similarly it wants to continuously develop alternative sources of energy – chiefly the CAR region as also Africa.
Should India join TPP is a topic of debate in the Indian corridors of power.
Large statistical data is being churned out to suggest possible gains / losses of either option adopted by us. The argument is slowly veering towards joining the TPP, more so if invited. However, we will do well to consider the fine print before giving our assent. India is emerging as a big market itself and is akin to USA in this aspect. On the other hand our R&D, manufacturing processes etc are still not of the optimum level and we are akin to many other underdeveloped countries in this aspect. Thus TPP structuring does not fit us well on either end. The membership of RCEP[v] itself may give us the desired Impetus minus the political costs of TPP.
In summation TPP is yet another regional architecture reflective of changing geo-strategic and geo-economic realities. Exclusion of China from TPP may thus be both due to strategic as well as economic motives. India would do well to carefully read the fine print before rushing into any decision. Our fundamental economic indicators seem to be sound thus permitting us to be choosy. We may also exploit other regional structures such as RCEP, SAARC, ASEAN to the fullest before looking for alternatives.
End Notes
[i] The full text of the P-4 agreement is available at www.mfat.govt.nz/Trade-and-Economic-Relations/2-Trade-Relationships-and-Agreements/Trans-Pacific/0-P4-Text-of-Agreement.php.
[ii] “Current Status of the TPP Negotiations”. Canon Institute for Global Studies. 10 July 2012
[iii] Sanders, Bernie (29 December 2014). “SENATOR BERNIE SANDERS: THE TRAN S – PACIFIC TRADE (TPP) AGREEMENT MUST BE DEFEATED”. p. 3
[v] RCEP: Challenges and Opportunities for India, July 25, 2013, RSIS, Singapore
Timely and well analyzed..
I am afraid its not as simple as you make it out to be. Murray Rothbard – a Austrian economist – wrote this about NAFTA (the precursor to TPP) and I quote, ‘The folks who have brought us NAFTA and presume to call it “free trade” are the same people who call government spending “investment,” taxes “contributions,” and raising taxes “deficit reduction.” Let us not forget that the Communists, too, used to call their system “freedom.” https://mises.org/library/nafta-myth
Genuine Free Trade does not need treaty or agreements.