India’s Future With Respect To TPP

 

America’s influence and  credibility in Asia hung in balance as its legislators cast their votes on a controversial transpacific trade deal last month. A world accustomed to both US economic leadership, premised on free trade and open markets, watched in wonderment as President Barack Obama’s declared Asian pivot faced ignominious defeat at the hands of rebellious members of his own Democratic Party. Ultimately, a deft parliamentary maneuver by the Republicans and some Democrats saved Obama’s most important policy legacy in Asia and reinforced America’s effort to reclaim regional influence from Beijing.

 

The hard work of actually implementing the Trans-Pacific Trade Partnership remains a daunting challenge, but already it is clear that some countries will benefit from this deal while others risk being left on the sidelines of the world’s largest trading bloc. India appears to be among those on the outside looking in.

 

 The final concessions to create a  free trade area under TPP which has been negotiated for the past several years by Singapore, Australia,  Canada, Chile, Japan, Malaysia, the US, Vietnam  and other countries reached a critical point as the US president awaited Congressional mandate – fast track authority -to complete the negotiation and present it for up and down vote by the legislators. Now that Obama has the authority to sign the deal without the thousand cuts of amendments attached by Congress the chance of realizing the agreement is brighter than ever. Although details of negotiations are secret Democratic opponents believe that the TPP will weaken environmental and workers’ rights protection in a bid to boost big business interests. In this they are joined by farmers’ lobby in countries like Japan, South Korea and Canada who would be deprived of habitual tariff protection. US workers’ unions are concerned that duty free entry of goods produced in TPP member countries would help retailers but would lead to massive job loss.

 

China, which views the TPP as designed to block its rise, would perhaps redouble its efforts to woo non-TPP members like India. The kind of pressure China would face was evident in the reported US effort to oblige Vietnam to cut back its import of Chinese textile for apparel it exports to the US and instead import it from low tariff US. Vietnam might avoid the pressure by increasing domestic production of textile with foreign investment but the net effect would be cut in Chinese export. The pressure faced by China as a non-TPP member serves as an example. Like China, India too might feel squeezed out of free trade area created by the TPP. 

 

The Modi government has moderated it initial anti-WTO position and it has been invited  to join APEC, a broader regional trading body. The reforms required for India to be eligible to join TPP involve extensive economic liberalization and openness to foreign investment, steps that may be too painful for even a pro-business government to contemplate. But even before undertaking such measures, India must do more to set its economic house in order, for example by streamlining rules and removing red tape that make it one of the most difficult places in the world to do business (ranked 134th among 189 countries in an annual index compiled by the World Bank). In addition, Indian leaders would have to implement wrenching labor market reform, amend land acquisition laws, among a host of other measures, to facilitate investment and build the infrastructure required to participate in a global free trade bloc.

 

The fact that America’s Asia pivot to blunt Chinese domination survives could eventually bring  India strategic benefit but for now TPP poses a big challenge. 

 

Despite China’s savvy handling of the AIIB launch so far, it has yet to dispel the impression that once underway, the bank will become a vehicle to support Chinese foreign and domestic interests. As its own officials acknowledge, there is an economic rational at play here: facing an economic slowdown at home, China wants to build infrastructure “as a countercyclical measure.” Already Chinese construction firms are canvassing for contracts on the promise of receiving AIIB loans. Only time will tell whether its international directors succeed in keeping AIIB corruption-free and transparent — and whether it succeeds in furthering Beijing’s foreign policy agenda — for now, the bank is ready for launch with a bang. 

 

 

(This story was published in BW | Businessworld Issue Dated 27-07-2015)