Straddling the Pacific, a giant trade blockhttps://indianexpress.com/article/explained/straddling-the-pacific-a-giant-trade-block/

Straddling the Pacific, a giant trade block

Indian Express explains the Trans-Pacific Partnership that 12 Pacific rim nations agreed upon last week, and how this trade pact is likely to impact India.

What is the Trans-Pacific Partnership (TPP)?

Over a decade ago, on June 3, 2005, on the sidelines of a meeting of Asia-Pacific Economic Cooperation (APEC) ministers in Jeju, South Korea, representatives from Brunei, Chile, New Zealand and Singapore agreed to enter into a trade pact, the Trans-Pacific Strategic Economic Partnership Agreement. Two and a half years later, in January 2008, the US decided to enter into talks with these four Pacific rim countries on trade liberalisation in financial services, a move that eventually set the stage for the Trans-Pacific Partnership or TPP.

The TPP was subsequently broadbased to include 12 Pacific rim countries. Apart from the US and the four original APEC members, it includes Japan, Malaysia, Vietnam, Australia, Canada, Mexico and Peru. The agreement, one of the most ambitious free trade agreements ever signed, aims at slashing tariffs on most goods traded between these countries, and the creation, over time, of a unified market like in Europe. The scale would be much bigger — the 12 countries are together home to nearly 800 million people — close to double the EU’s single market — and already account for 40% of world trade.

Which goods and services have been included?

A full range — tariffs will be removed immediately in some cases, and phased out over time in others. Japanese carmakers like Toyota, Nissan and Honda will benefit from cheaper access to the US, their biggest export market. US vehicle exports too would find new markets if tariffs of up to 70% in countries such as Vietnam and Malaysia are slashed. US farmers and poultry firms stand to benefit; other foods that would see lower taxes include dairy, sugar, wine, rice and seafood, with exporter countries such as Australia and New Zealand benefitting. Liberalised free trade is likely in services. The challenge for negotiators was to find meeting ground on concerns raised by disparate stakeholders from Canadian dairy farmers to Japanese rice cultivators. An adverse impact could be seen in the biotech sector.

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What needs to be done to ratify the deal?

Finer details of implementation will be debated in the legislatures of individual countries in the coming months. According to reports, the pact is likely to come before the US Congress in the midst of the presidential primaries, and trigger a major political slugfest. Congress had, however, granted the President “fast-track” authority over the deal, which allows lawmakers to review the agreement without being able to change it.

What is the opposition to the deal?

The five-year talks have been largely secret, and campaigners have criticised the lack of transparency. There is speculation that the negotiations focussed on keeping China at bay — President Barack Obama commented after the pact, “When more than 95% 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.”

The TPP will intensify competition between countries’ labour forces. Labour groups are worried it would result in jobs moving from economies such as the US to countries with lower wages and less strict labour laws. Vietnam is being seen as a big winner — analysts predict the deal would boost its growth by over 10% in the next decade — while economies such as Peru might suffer.

How will the larger WTO negotiations be impacted?

WTO negotiations have been plagued by missed deadlines and a lack of consensus. The Doha Development Round is clearly dead, and the outlook for upcoming talks at Nairobi in December is not promising. WTO Director-General Roberto Azevedo has been guarded on the TPP breakthrough — calling on WTO members to “accelerate their work” even as he congratulated ministers and negotiators from the 12 countries. As a forum, the WTO is clearly crumbling, considering there are two other large regional trade agreements currently under negotiation — the Transatlantic Trade and Investment Partnership (TTIP) between the US and the European Union, and the Regional Comprehensive Economic Partnership (RCEP) between the Association of Southeast Asian Nations (ASEAN) and its four free-trade partners, including China and India.

What can be the impact of the TPP on India?

Pacts like the TPP and TTIP could erode the demand for Indian products in traditional markets such as the US and EU, benefitting the partners to these agreements. Vietnam is expected to gain at the expense of India in the garments business in the US market, as it will have zero-duty access to the US for textiles as against the 14-30 per cent duties that Indian exporters will have to pay. A yarn forward provision in the TPP, which requires clothing to be made from yarn and fabric manufactured in one of the free trade partners to qualify for duty-free treatment under the trade pact, could impact yarn and fabric exports from India to countries such as Vietnam. The Peterson Institute for International Economics (PIIE) in a report released in September said that if China and the rest of the APEC forum join a second stage of the TPP that continues to exclude India, India’s annual export losses would approach $ 50 billion.

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Some analysts want India to calibrate the impact of the TPP fineprint, and then get its act together on regional pacts that it is part of, including the RCEP. The agreement, according to Amitendu Palit, a senior research fellow at the Institute of South Asia Studies at the National University of Singapore, is taking off at a time when India is aiming at greater integration with the Asia Pacific. In a report on ‘TPP and India’s Emerging Challenges’, Palit has urged India to “study the TPP carefully for anticipating its possible impact on its RCEP negotiations”. India will gain from speeded-up RCEP negotiations, given that the agreement will offer its exports greater access to several Asia Pacific markets, including China.