Here's how TPP affects India!

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Here's how TPP affects India!
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Recently the trade landscape underwent a dramatic change as twelve major nations reached an agreement on The Trans-Pacific Partnership (TPP) deal on 5th October 2015. The agreement is one of the few mega-regional trade agreements (MRTA) that has come to be signed in years. The other major MRTA is the Transatlantic Trade and Investment Partnership (TTIP) (Between the U.S and the European Union) and not signed as yet.

The twelve countries of the TPP include twelve major Pacific Rim countries like The U.S., Canada, Mexico, Peru, Chile, Australia, New Zealand, Japan, Singapore, Brunei, Vietnam and Malaysia. The historical roots go back to 2006 when four countries introduced a four-way FTA called Pacific-4 or P-4 for short. Post this in 2010 additional five countries joined and in 2013 three more were allowed to join the agreement.

These 12 nations together constitute approximately 40 percent of the world GDP. The agreement is estimated to bring in a net benefit of around 223 billion U.S. Dollars to the world economy by 2025 according to Peterson Institute for International Economics (PIIE), an International think tank.

China and India are not part of the agreement, and it could have several alarming repercussions for both China and more so for India. India's market access and competitiveness could be significantly affected if the TPP does go through after countries have ratified it domestically. Some calculations estimate that the diversions in Indian exports could be 1%. Others estimate that India is set to loose 2.7 billion dollars annually due to this agreement. Some believe India's inward investment vis-a-vis trading partners within the TPP like Vietnam and Brunei will see a decline. India has been keen to join Asia-Pacific Economic Cooperation (APEC) but will have to undertake reforms and further liberalization of its trade policy regime to benefit from trade.

So what all does this mean for India? While the agreement may have short-term negative effects, India must strategize to gain from the changing trading system in the world economy. First, India must look at joining TPP if and when newer members are being considered for being part of this MRTA. Second, it must start looking at trade and foreign policy goals in conjunction as well as look to resolve issues at the negotiation table with major partners. It includes re-looking at the bilateral investment treaty with the U.S. and India's free trade agreement with the EU. It also means reassessing its stance on the sixteen member Regional Comprehensive Economic Partnership that is between the Asian countries and Australia and New Zealand. Also, as outlined in the New Foreign Trade Policy, bilateral agreements must be signed for greater access to markets. Third, India must also pursue domestic as well as trade reforms for becoming a member or having access to the changing international trading system. Some of these domestic reforms include a nationwide Goods and Service tax, changes in land and labour laws as well as reducing subsidies. The trade reforms would include reducing tariff barriers for partners and ensuring a more level playing field for international partners including in protection of Intellectual Property Rights, etc. It would also include a more open and concerted effort on the part of the negotiators to look at net benefits of trade policy reforms. Fourth, there is a need to develop research capability and expertise in providing insights to negotiators on the trade policy front. Steps on this are underway but must be pursued quickly, so that decisions can be arrived at relatively easily.
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Overall given India's falling exports over the past nine months or so signals an increasing need for India to re-look and restrategize its trade policy goals and means to achieve them. India's attitude must shift in gaining international competitiveness from benefits that accrue from international trade instead of protectionism towards domestic industry. The goal set in the new trade policy of doubling exports to a level of 900 billion dollars cannot be achieved in the absence of a robust trade policy and strategy.