At a recent BRICs meeting in Turkey, PM Narendra Modi called for strengthening the rule-based global trading system and ensuring that new trading blocs don’t divide the global trade regime. He advocated the completion of WTO’s Doha Development Round. A second–best option is to make free trade agreements (FTAs) work to our advantage. The PM is scheduled to attend the 13th ASEAN-India Summit and the 10th East Asia Summit. India can’t have it both ways: either it should ensure that a multilateral trading order prevails or it should shed its defensive mindset and be more favourably predisposed towards regional and mega FTAs.
There are no prizes for guessing that the PM’s remarks had in mind the finalisation of the 12 member Trans-Pacific Partnership agreement. This is the largest mega FTA in two decades that represents 40 per cent of the global economy. This pact puts tremendous pressure on the European Union to conclude its Transatlantic Trade and Investment Partnership with the US. China too will seek to hasten the Regional Comprehensive Economic Partnership (RCEP). With WTO unable to conclude the Doha Round, it is judgement time for our policy makers: Get the Doha Round back on track or be part of FTAs that reflect the new global architecture for trade.
On the Doha Round, India’s position is that its food security concerns must be addressed and a permanent solution found. A special safeguard mechanism in agriculture is also needed to help developing countries like India to cope with surges in imports and a crash in prices. Unfortunately, however, there is opposition to these issues from the US and EU and even Brazil that have big agri-business corporations that seek a more open global market for their products. If issues concerning market access in agriculture are unlikely to figure in the WTO Ministerial Meeting in Nairobi in mid-December, the Doha Round will remain stuck with hardly any deliverables.
What then are India’s interests in the WTO? Even though its prospects appear bleak, India’s policymakers like the commerce minister have stated that we must engage with WTO members and strengthen this multilateral institution. But can India lead the developing world or form other coalitions to ensure that the Doha Round is finally completed? The alternative is equally dismal as India is somewhat diffident on the FTAs it has signed with the 10-member ASEAN, for instance. The NDA government is reviewing some of these FTAs amidst a general feeling that countries like Thailand, Malaysia, South Korea and Japan have benefited more than India.
At the 13th ASEAN-India Summit, the PM and other leaders from this grouping have a good opportunity to take stock of the progress of the India-ASEAN FTA and to discuss its future direction. This is indeed the appropriate time to sort out whatever problems there are for greater intra-regional flows in services trade. Even if this FTA is not optimal from India’s standpoint, the point is that we cannot walk away from signed agreements. To be sure, there is scope for remedial measures which must be negotiated in a spirit of give and take. To get the most out of this deal – or any other FTA, for that matter – India must be more pro-active and less defensive.
There are no prizes for guessing that the PM’s remarks had in mind the finalisation of the 12 member Trans-Pacific Partnership agreement. This is the largest mega FTA in two decades that represents 40 per cent of the global economy. This pact puts tremendous pressure on the European Union to conclude its Transatlantic Trade and Investment Partnership with the US.
India’s big problem is China which complicates its efforts to participate in RCEP or a TPP. In an interview, commerce minister admitted this is a “fear that is justified” because our trade deficit is huge with the dragon. India accordingly has taken a three-tiered position in RCEP talks: “For Asean, we may have an offer because we already have an FTA with them… among the Asean Plus countries, with which you already have an FTA, such as Japan and Korea, you have to look at it from the point of view of what has been agreed with them… And, a third one is … China… You really can’t open up much. So, you are looking at the bottom-line offer,” she added
Whether or not to join up the TPP is theoretical for now but India will have to weigh its costs and benefits. Joining this grouping might benefit the Indian economy as its exports go up manifold. Cheaper imports, in turn, lower inflation. There will also be much greater Indian participation in US and Japanese supply chains in the Indo-Pacific region. Larger export markets would bring new economies of scale to textile and other firms. But there will be an adverse impact on the demand for its products if it does not join. Vietnam thus will gain at India’s expense in garment exports as it enjoys duty free access to the US while India faces duties of 14-30 per cent.
According to Prof S K Mohanty of the think-tank RIS, India’s joining the TPP is indeed a critical question as it has to undertake country-wide reforms. At the same time, India has to take the risk of losing large trade opportunities if it does not join this mega FTA. The estimated loss of trade opportunities are $52.8 billion per annum in 2010 and $69.6 billion in 2012 if China and others join TPP that excludes India. The timing of joining is also critical. If India joins before China does, the boost to its national income is 3.3-5 per cent depending on the depth of liberalisation. This goes down marginally to 3.3-4.9 per cent if India joins TPP along with China.
The upshot is that India must decide which of these agreements – multilateral or FTAs – are in its interests and ensure that they work to our advantage. The PM’s visit to Malaysia and Singapore will of course have other dimensions like security and culture besides the economic. There will be a Plan of Action (2016-2020) to further enhance ASEAN-India cooperation. PM Modi, along with other leaders, will also witness the signing ceremony by ASEAN heads of state and government of the “2015 Kuala Lumpur Declaration on the Establishment of the ASEAN Community” and the “Kuala Lumpur Declaration on ASEAN 2025: Forging Ahead Together.”
(The author is an economics and business commentator based in New Delhi.)
