Sandeep Jain Writes:Trans Pacific Partnership (TPP) 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 have also been recently declassified[ii].
The TPP is a continuation in the trend of having regional or plurilateral 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.
Provisions of TPP[iii] known now 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[iv].
In the TPP text there are stringent provisions for IPR[v] as also aspects such as environment and labour practices which in turn are 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. The predatory nature of the TPP is fully understood by the Indian establishment. As per some estimates the losses to India by not joining TPP may be miniscule, not exceeding 3-4 billion USD. Yet the paradox is that India is concurrently a FDI destination as also an investor. Indian business houses have been quite aggressive in acquiring interests in foreign locations an example being Tata’s acquisition of Jaguar. Thus even as there is a need to protect our domestic industries from a zero tariff regime envisaged in TPP, there are sections of Indian industry which are aiming to take advantage of the same elsewhere. The Indian official establishment is therefore soon likely to come under pressure from certain vested interests to seek out membership of the TPP club. Some in the establishment are also uneasy about the fact that India has so far not been given an invite to join-this makes the allure to join even more overpowering as the forbidden fruit is always sweeter. There is also a chorus from Western think tanks bringing out the potential losses India would suffer by not joining TPP. Patterson’s Institute has brought out in Sep 15 in a paper by C. Fred Bergsten that India will gain 500 billion USD by joining TPP. They of course conveniently forget that India would lose almost the same amount in lost revenues from imports. This clamour from Western institutions is likely to grow in slowly nudging India towards joining TPP. Because Indian markets are eagerly sought after by even Western production houses.
India therefore must resist joining TPP unless the contours become clear through the experience of other countries. However, for varied reasons mentioned above India may get nudged into joining TPP in spite of all the drawbacks. In that case, we must try and drive a hard bargain and have certain India specific provisions, if possible, providing protection to our weaker sectors. The most important one being provision of long term work visas to our professionals and in general providing more access to our businesses. In the long term we may also diversify towards RCEP, expand our footprint in unexplored areas such as Africa.
Conclusion
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] https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/tpp-full-text
[iii] “Current Status of the TPP Negotiations”. Canon Institute for Global Studies. 10 July 2012
[iv] Sanders, Bernie (29 December 2014). “SENATOR BERNIE SANDERS: THE TRAN S – PACIFIC TRADE (TPP) AGREEMENT MUST BE DEFEATED”. p. 3
@Brigadier Sandeep Jain is a Senior Research Fellow at USI.
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