DELHI WILL HAVE MORE FLEXIBILITY IN TRADE TALKS
By Subrata Majumder
The important thing of Mr Donald Trump is his inconsistency. He said in the election campaign that he would pull back USA from Paris Agreement for climate change. It was a “hoax”, he clamoured. After the victory, he said he had an “open mind”. He no longer intended to prosecute Hillary Clinton and abandon Obamacare.
But, his assertiveness to dump TPP (Tans-Pacific Partnership) is not a part of his inconsistence. On November 21, in a short video message, he said “On trade, I am going to issue a notification of intent to withdraw Trans-Pacific-Partnership, a potential disaster for our nation”. USA did not ratify TPP. Obama administration wanted to wait for ratification till the November election was over, assuming a sweep by Hillary Clinton in the election.
TPP is a 12 nations Pacific free trade block, comprising USA, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Together the block accounts for 40 percent of global trade.
India is not the member of TPP. Threats of negative impact of TPP on India trade was looming large, since the lead countries to accelerate India’s global trade are prominent members of TPP. They are USA, Singapore, Malaysia and Vietnam. Together, these four countries account for one-fifth of India’s export. . Analysts spook threats of trade and investment diversion, spearheaded by the loss of trade competiveness due to preferential tariffs in the intra-region trade in TPP.
The biggest trade diversion would have been in India’s textile exports. Textile is the single major item of India’s export. It accounts for 10-11 percent of India’s world export. USA accounts for 40 percent of India’s total export of textiles. With the duty preferences provided to TPP members in USA market, concerns were shrouding over India’s export of textiles to USA. Vietnam would have been the main obstacle to India’s export of textile to USA. Vietnam is the second biggest exporter of readymade garments to USA (after China). It accounts for 12 percent of USA imports of garment. The spike in Vietnam competitiveness due to duty preference would have stonewalled India’s export of garments to USA.
With USA exit from TPP, India will be the net gainer. It is near impossible for TPP to go ahead without USA. This is because, according to the original pact, TPP can be formed provided it is ratified by at least six signatory countries which form 85 percent of the TPP combined economic output. USA alone constitutes 60 percent of the combined economic output. Hence, without USA, TPP cannot be formed. With TPP extinguishing, the threat over India’s textile trade will be lessened. India will be able to maintain its earlier status-quo of its exports of textiles to USA.
Dumping of TPP will also be a shot in arm to RCEP (Regional Cooperation of Economic Partnership). RCEP is a trade block of 16 countries – ASEAN +6 (China, Japan, S. Korea, Australia, New Zealand and India). India is a member of RCEP. Now, the issue is how strong RCEP will be and what will be the impact on India visa-a- visa China becoming stronger.
There are two important benefits to India which will stem from RCEP. First, it will supplement India’s FTA with ASEAN. So far, India-ASEAN FTA in goods could not make much headway in India’s export to ASEAN. Later, with the engagement of India – ASEAN FTA in services, ample opportunities were churned out to buttress service trade between India and ASEAN. FTA in services will open up new vistas for India’s export of IT services, professional services such as lawyers, accountancy, medical doctors etc and banking services.
According to FICCI-Deloitte study, India has greater competitive advantages in service sector than ASEAN member countries. Sectors such as IT services, telecommunications, e-commerce and engineering services showed greater advantages for India. IT services is expected to make a dent in ASEAN market with the relaxation in employment visa rules. In ASEAN, service sector has been languishing because of its thrust on manufacturing sector to make export based economies
Second, India is likely to gain from the potential of “regional production network”, emanated from the stronger RCEP trade block. Given the low labour cost in India and duty preferences provided by member countries, India can provide a turf for production of cheap component and parts and act as supporting country to the assembled units in RCEP countries. Automobile and electronic industries are the areas, where India can gain prominence with the advantage of duty preferences and low labour cost of manufacturing in the country
Abandoning TPP is a blessing in disguise. India will have an upper hand in challenging USA insistence on patent rights and drafting its own policy of Intellectual propriety rights, giving priority over the national interest. There was a pressure to do away the Section 3(d) of Indian Patent Law. USA and Western countries claimed that it is an embargo on business-friendly patent regime. Section 3(d) empowers India to reject the patent rights of a new product, which does not embrace much changes in the substances by discovery. If it is done away, the poor people will be deprived of their essential drugs at affordable prices. Rejecting patent rights of Swiss firm for “Glivec” – a cancer drug – was a case in point. Had TPP become realty, it would have been difficult for India to stonewall the US pressure.
On China front, the demise of TPP will leave more space for China’s flexing muscles. This means India losing USA’s Asia Pivot policy support to counterweight China. TPP was viewed more of a political arrangement than economy by USA. There were two aims of USA to engineer TPP. One, it is to bruise Chinese expansionism in Asia pacific region and two, to thwart Chinese grandiose One Belt One Road project in 21Century through economic partnership.
However, Trump has to be careful about dealing with China. Trump may not strike hard at China with punitive tariff on imports from China and declaring China a “currency manipulator”. Reasons leveled were the large trade volume between USA and China, significant investment by US firms in China and China holding of large volume of US treasury securities. China is third biggest importer of US goods outside NAFTA countries. This may lead Trump to soften his economic retaliation, viewing a large damage to USA. (IPA Service)