India needs to gear up to tackle TPP

By Rajiv Kumar and Geetima Das Krishna
Engineering Export Promotion Council
14 December 2015

The Trans-Pacific Partnership (TPP) trade agreement between 12 Pacific Rim countries is not just another tariff-eliminating mega regional trade pact, but it is about developing a higher global standard for international trade – encompassing lower benchmarks for non-tariff barriers, more stringent labour and environment regulations, higher intellectual property rights (IPR) protection, greater transparency in government procurement and limiting advantages to SOE (state-owned enterprises). In this paper, we compare the TPP agreement with other mega regional trade agreements both existing and in the pipeline and examine the implications for India. We find that it will be difficult for India to join the TPP at this stage even if it is invited because of the high standards for behind-the-border measures like labour, environment, etc. India is unlikely to experience any significant export diversification in the short-term but it cannot be denied that some trade and investment diversion will occur as a consequence of the TPP in the medium-term, thereby hurting the Indian economy. India needs a multi-pronged approach to mitigate this negative impact of which the most critical is to implement urgent reforms in India’s domestic policies to close the gap with the ‘new-normal’ in global trade-related standards. Otherwise, India will get isolated from the global supply chain. The best option for India will be to finalise the ongoing trade negotiations while implementing necessary domestic reforms. The government should use the threat of isolation from major trade flows to bring the political opposition and domestic industry on board for implementing necessary institutional and structural reforms. Domestic industry and the government, working in partnership, could then look at these trade agreements as opportunities, which if exploited would give the much needed push to growth and employment generation.