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Monday, 06 July 2015 01:00
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Trade pacts like TPP will change the rules of the game

With the US Senate voting in favour of allowing President Obama to fast-track negotiations on the Trans Pacific Partnership—the member countries account for 40% of global output and a fourth of trade—and the TPP likely to be in place in the next 18-24 months, India will have to take a long and hard look at her policies, and not just those relating to trade. While India’s exports are not doing well—indeed, they are contracting—they could face a serious threat once the TPP is in place since many of India’s trade advantages could get hit. Right now, India enjoys duty-free access to US markets under the Generalised System of Preferences (GSP) scheme for a large number of goods—once the TPP is in place, these advantages will be available to other trade partners in the TPP. Indeed, exporters to the US and other TPP-countries will have duty-free access to non-GSP exports as well, once again hitting at India’s advantages. In this post-WTO world—trade and investment pacts under the TPP will all be WTO-plus—India’s only option will be to sign on to other trade pacts such as the Regional Comprehensive Economic Partnership (RCEP) involving the Asean along with China and some members of the TPP.

 

Perhaps more important than the concessions India will have to make on the trade front will be those relating to domestic policies. If, for instance, RCEP countries want India to allow 100% FDI in B2C e-commerce, it is difficult to see how India can resist this. Ditto for stricter rules on intellectual property or opening up the market for government procurement as FE columnist Amitendu Palit pointed out recently. The advantage of the WTO-world was that, by and large, policies were tailored keeping in mind the needs of developing countries—this allowed India to protect its domestic markets and carry on with policies that rich countries like the US did not like. The slow nature of progress at WTO, however, is what has got the richer countries to work on their own TPP-type agreements. Unlike in the WTO-world, nothing will be achieved by grandstanding and blocking talks like India has done so successfully in the past. All that will happen is that potential trade partners will tie-up with each other and move on. Leaving India far behind.

 

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