India’s Trans-Pacific Challenge

Can India integrate more fully into the global economy and energize its trade by joining the Trans-Pacific Partnership? Or will negotiating an entry require significant concessions, not necessarily in India’s interests? These outcomes will depend on how TPP framework itself develops – inclusively or exclusively.

Since U.S. Vice President Joseph Biden’s visit to India in July 2013, many American voices have urged India to join the Trans-Pacific Partnership (TPP).

India’s Commerce and Industry Minister Anand Sharma too recently said, while defending the policy of free trade agreements (FTAs), that India must integrate with the world, it cannot have a “wall around” itself. India’s relative disconnect from the global economy is evident in its low share in global trade – about 2.1% in 2012, less than a fifth of that of China. [1]

However, the real question is not whether India must integrate more with the world economy, but how it can do this. Should India join the TPP? Or should it, for now, only participate in the process of negotiations?

The cumbersome TPP process

The TPP originates in a 2005 FTA among Brunei, Chile, New Zealand and Singapore. These founding partners saw the TPP as a way to expand their narrow pact into a broad deal, which would cover all goods and services. It was to be an inclusive agreement, open to new members and well-aligned with other regional initiatives.

After the global financial crisis of 2008-09, Washington has led talks for a de facto expanded TPP, which includes the ASEAN “tigers” (Singapore, Malaysia, even Vietnam); the NAFTA nations (U.S., Canada, Mexico); Latin American countries (Chile, Peru); Oceania (Australia, New Zealand); and East Asia (Japan, South Korea) minus China.

The TPP has also attracted interest elsewhere in Asia, and even China has shown some interest in eventual TPP membership.

In Washington, the TPP has been driven by the sense that, for two decades, the U.S. has failed to participate in Asia’s rapid growth. It has also been supported by a longstanding strategic quest to shift U.S. military presence from the trans-Atlantic axis to the Trans-Pacific, in order to cope with – or to “contain” – China’s rise. Additionally, the U.S. perspective has been motivated by President Barack Obama’s pledge to double U.S. exports to rejuvenate the American economy.

Other potential members see the TPP as a way to open or widen access to attractive markets; as a hedging device to ensure a U.S. presence in the region amidst China’s rise; and as an instrument to use external trade to execute structural reforms in domestic markets.

Multipolar world, unipolar initiative

But if the TPP is not primarily about trade, what is it about? In December 2009, U.S. Trade Representative Ron Kirk notified the U.S. Congress that the TPP will be a “high-standard, broad-based regional pact.” [2] In practice, U.S. negotiators have included in the TPP non-trade-related issues, including labor matters, environmental laws and intellectual property rights.

An acceptance of such demands should not be a precondition for joining the TPP. This is why Jagdish Bhagwati, a leading free-trade economist, regards the U.S. initiative as a threat to Asia Pacific trade. “If I want to join a golf club, I need to play golf,” he has said. “But I should not have to go to church and sing hymns with the other club members.” [3]

The conditions included in the TPP may be history repeating itself. After the North American Free Trade Agreement (NAFTA) was signed by the United States, Canada and Mexico, and came into force in January 1994, Washington sought to extend the agreement with non-trade-related concessions via the Free Trade Agreement of the Americas (FTAA).

However, Brazil’s President Lula, a popular union leader, rejected the inclusion of labor standards in trade treaties and institutions, which sought to impose U.S. rules and regimes across the Americas. For all practical purposes, the FTAA split South America into two blocs.

Multipolar world, unipolar initiative

Now, a similar process is underway in Asia. Instead of adapting to an increasingly multi-polar world, the current TPP is a kind of a Free Trade Agreement of Asia Pacific. Typically, the negotiations have been clouded by secrecy, which has resulted in protests and calls for transparency. According to U.S. Senator Ron Wyden, “The majority of Congress is being kept in the dark as to the substance of the TPP negotiations.” [4]

Recent WikiLeaks releases of the TPP drafts indicate that the secrecy serves to cover the deepening divisions between Washington and other nations, particularly the “great pressure” being exerted by the American negotiators to move other nations to the U.S. position on a range of subjects including intellectual property rights, pharmaceuticals and civil liberties. [5] Consequently, a successful outcome of the talks will require Asian nations to back down on key national interest issues.

Instead of a de jure multilateral agreement, the TTP’s focus is likely to be on a de facto set of bilateral agreements to accommodate the divergences of the putative members. The TPP will thus resort to exemptions and protection of sensitive sectors (including sheltered U.S. agricultural sectors), which excludes easy accession by other countries. For example, if China seeks to join the club at a later date, its membership will be conditional on the approval of the U.S. Congress.

Participate, but don’t join – yet

However, many American analysts believe that the TPP deal could energize India’s trade with America. [6] While India’s trade deficit has recently declined, there is little room for major trade policy mistakes, especially amidst an economic slowdown.

Negotiating India’s entry will not only be challenging, it will also require significant concessions. Even if New Delhi gains access to the ASEAN, NAFTA and Japanese markets, it would not be necessarily preferential. Moreover, India’s early FTA experiences do not suggest simple positive gains, as exemplified by its trade deficits with Japan and South Korea.

The TPP will establish advanced-country rules in intellectual property, generic pharmaceuticals, local content requirements and liberalization of services, which will not necessarily serve Indian interests.

Geopolitically, the TPP will strengthen India’s hand against Beijing, even though New Delhi’s geo-strategy is more nuanced, seeking closer alignment with the U.S. politically but acknowledging joint economic interests with China.

If, however, New Delhi seeks TPP membership for economic reasons, it will participate in the TPP incrementally and monitor the final template (likely towards the end of the Obama era). In this scenario, membership will eventually follow when the Indian economy stands to gain greater benefits from the TPP.

Meanwhile, the Regional Comprehensive Economic Partnership (RCEP) – the FTA between the ASEAN members and their FTA partners – can serve India as a complementary path to the TPP.

In this incremental scenario, the TPP can promote real regional economic integration. After all, the original TPP concept rested on inclusive, rule-based multilateralism to align the Asia Pacific. The current vision is based on exemptions and exclusive bilateralism, which risks splitting the region into exclusive rival blocs.

The original feature was written exclusively for Gateway House: Indian Council on Global Relations and released on January 24, 2014