Impacts of Trans-Pacific Partnership on India

The TPP is an economic arm of United States’ Rebalance to Asia Policy. Since India has been an important part of the Asia policy, and is not a signatory to the TPP, there are widespread speculations as to how the TPP will impact India. While several opine that the overall impact is uncertain at this point, there are various channels through which the TPP can affect India.

  1. A large proportion of India’s exports are in services. With the anticipated reduction in barriers to trade in services among TPP members, there is the possibility that some of India’s services exports to those countries will be replaced by services trade within the TPP.
  2. Critics argue that the TPP would set a precedent to high global standards and the standards set by TPP are too high for India to join. This requires India to revitalize its manufacturing industry, and induce efficiency in its export sector, otherwise it would be increasingly difficult for India to be able to compete.

Apart from goods; labor, environmental regulations and intellectual property rights (IPR) protection is a significant component to the TPP negotiations. The IPR standards are much more demanding than those of WTO. Most of the standards in the TPP negotiations are to converge to US standards or to the standards of developed markets.

India may not be able to meet many of the commitments given its history of intellectual property rights issues.

Further by not being a part of TPP, India is going to lose the preferential access to the US market which is a big market for Indian exports, however, the extent of the impact from trade diversion would depend on the concessions finally agreed.

While the US and India has started negotiating a bilateral investment treaty (BIT), and these negotiations may shelter India for some of the adverse impacts of the TPP but these negotiations is going to be slow. This is because there is vast divergence between the two countries’ model BITs, especially on issues of IPR and market access commitments. Thus, significant foreign investment diversion, including a deceleration in foreign investment flows to India, is a possible consequence of the TPP. In addition, the TPP reduces India’s bargaining power in its BIT negotiations with the US, as it expands the set of options available to the latter.

However ,India’s bilateral free trade agreements (FTA) with some of the TPP members – Japan, Malaysia, and Singapore – and FTAs, which are underway with Australia, Canada and New Zealand, may dilute the impact of trade diversion caused by TPP to some extent.

With the TPP in place, Indian industries are likely to face trade diversion effects in some of the key sectors such as textiles and clothing industries. The United States accounts for 30-35% of India’s ready-made garments exports and the TPP is expected to affect India’s textile and clothing sector in two ways: First, TPP member countries will get preferential access in the US market vis-a-vis exporters such as India. This would disadvantage India as US import duties on ready-made garments are high; Secondly, the ‘Yarn– a key feature of the TPP — makes it mandatory to source yarn, fabric and other inputs from any or a combination of TPP partner countries to avail duty preference and could impact yarn and fabric exports from India to countries such as Vietnam etc.  This would change the dynamics of the existing global supply chain in textile and clothing sector. This is one instance of the adverse impact of TPP on India. Similarly, the loss of market access may also impact other products such as grains and other crops, processed food and heavy manufacturing.

Concluding Remarks

Even though the magnitude of impact from trade diversion on India when the TPP is in place can be debated, it is certain that trade and investment diversions hurting the Indian economy is most likely to occur. Some of this impact may be mitigated due to a combination of inclusion in RCEP and other bi-lateral agreements. India should also re-engage the US in advancing BIT negotiations. However, a new ‘trade order’ is expected with much higher standards congruous to TPP standards and hence, efforts are required on the domestic front for India to acquire preparedness across industries to be able to compete globally. Moreover, TPP should be regarded as a challenge because it offers an opportunity to India to raise its standards and trading competitiveness.

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