Distinguished Lectures Distinguished Lectures

India and The Mega Trading Arrangements

  • Amb (Retd) Ashok Sajjanhar

    By: Amb (Retd) Ashok Sajjanhar
    Venue: Madurai Kamraj University, Madurai
    Date: October 15, 2019

Professor R Sudha, Registrar of Madurai Kamaraj University, Prof ShakilaHarshavardhan, Professor Ramakrishnan, Distinguished faculty members, dear students,

It gives me great pleasure to Address you. I would like to convey my sincere appreciation to the XP Division of Ministry of External Affairs, specifically SqLdr Priya Joshi as well as the management and leadership of MKU for arranging and facilitating my visit to this reputed and important educational Institution.

Before I embark on my Talk on India and the Mega-Trading Arrangements, I would like to briefly touch upon the importance of Economic Development in a country’s journey to realise its strategic aspirations and ambitions. Thereafter I will focus on the causes and significance of recent emergence of Regional Trading Arrangements and Mega-Trade Deals.

Economic development is a process of targeted activities and programs that work to improve the economic wellbeing and quality of life of a community by building local wealth, diversifying the economy, creating and retaining jobs, and building the local tax base.

It is incumbent upon communities to remain attractive places that can stimulate new economic opportunities through all sorts of economic cycles. Communities that are intentional in supporting their businesses communities have better economic and social results than those that don’t. Economic development programming is a prime example of how elected officials and communities can support their businesses.

When we speak of economic growth, we consider the increase in real output (real GDP) over time caused by additional resources (production inputs) and higher productivity of these inputs (more efficient production methods). While speaking of economic development, we consider not only the increase in output but also the structural, technological and institutional changes in production and distribution of product. The latter term is more general.

The main difference is that development includes a number of structural changes (social, institutional, economic and cultural). This is why we may say that less developed economies (relatively low GDP or GNP per capita) "develop” while the developed (or "mature”) economies (relatively high GDP or GNP per capita) that present no significant structural changes "grow”.

Another way of looking at the problem is by saying that development is related to the increase of output while growth does not necessarily mean development. As an example, the increase in oil production may lead to the increase of the economy’s product without implying that this growth will lead to the restructuring of the production, of the technology or the distribution of the final product.

Relationship between economic development and international trade has been debated for long. While there is not a complete agreement amongst all experts and economists, it can be safely said that under most circumstances, there is a direct and positive correlation between the two factors.

It is necessary for common people especially academics, scholars and students to have a good understanding of the principles and fundamental contours of international trade so that they can evaluate, comment on and appreciate the various policy decisions and actions being taken by the government in international negotiations. It is even more crucial for young professionals to have a detailed and in-depth understanding of the relevant issues because multilateral trade negotiations today are a very complex subject. As is said: ‘’Devil is in the detail’’. In all trade parleys, negotiators have to have relevant experts by their elbow to understand the full implications and ramifications of language on any complex issue that is being discussed.

India’s contribution to world trade has been progressively growing over the last many years. Analysis by the well known British economist Angus Maddison conclusively demonstrates that till about 250 years ago, just before India became colonized by the British, it accounted for more than 20% of the world GDP and a similar share of world riches and international trade. Going back in history, at the turn of the first millennium, India accounted for about 33% of world GDP with China coming a close second at about 26%. USA and Middle East accounted for a little more than 10% each.

India’s production, manufacturing and growth saw a rapid decline as a result of colonization in the 18th century with India being reduced to an exporter of only raw materials and all manufacturing of fine textiles and other products having been taken away to UK. At the time of independence, India accounted for just around 2% of international trade. As a result of economic and industrial policies of import substitution and creating tariff and non-tariff barriers around the country pursued by successive Indian governments, India’s share of international trade further declined to 0.6% by 1990. This was just before the launch of the economic reform programme in wake of the disintegration of the Soviet Union and the worst economic crisis experienced by the country when it stared at the prospect of having to default on re-payment of its international debt. To obviate this eventuality and to develop some cushion to meet its import needs as the import cover had dwindled to barely 10 days, India had to physically transport its gold by aircraft loads to Bank of England in London and to Bank of Tokyo to borrow adequate funds to pay off its debts and ensure uninterrupted supplies of essential industrial and consumer imports. Today as a result of the economic reforms initiated in the early 1990s and the judicious policies pursued by the government since then, India has amassed a comfortable foreign exchange reserve of around US$ 400 billion which is just a tad shy of India’s total imports entering the country in 2018-19.

Significance and relevance of international trade has continued to grow over the last more than 25 years since the country started opening up its economy. In 1991 India’s foreign trade in goods and services accounted for only 17% of its GDP. Today it accounts for around 45% of its GDP.

For all the above reasons and more, it is essential for young scholars to have a good understanding of the international trading system.

Agreement was reached in 1994 to establish the World Trade Organisation (WTO). It came into effect on January 1, 1995. It is a successor Agreement to the General Agreement on Tariffs and Trade (GATT) which was established soon after the Second World War. To better understand and appreciate the functioning of WTO it is essential to have a good knowledge of the operation and evolution of GATT as this Agreement and its principles have themselves been incorporated into the WTO.

General Agreement on Tariffs and Trade (GATT) was a multilateral agreement regulating international trade. Its purpose was the "substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis." It was negotiated during the United Nations Conference on Trade and Employment to establish the International Monetary Fund and the World Bank and was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO). GATT was signed by 23 nations in Geneva on October 30, 1947 and took effect on January 1, 1948. It lasted until the signature by 123 nations in Marrakesh on April 14, 1994 of the Uruguay Round Agreements, which established the World Trade Organization (WTO) on January 1, 1995.

Mega-Trading Arrangements: A large number of Mega Trading Arrangements have sprouted all over the world because countries have got frustrated by the slow progress in negotiations under the Doha Development Agenda (DDA). Developed countries have been demanding that large developing economies known as the Emerging Economies should rapidly open up their markets to foreign imports. Developing countries are not agreeable to this as they maintain that the underlying philosophy of DDA was the opening up of developed country markets for benefit of developing countries. Developed countries feel that circumstances today are radically different from 2001 when DDA was launched. International economic and financial crisis intervened in 2007/2008 followed by the Eurozone sovereign debt crisis. This has severely depleted the possibility, developed countries claim, of their opening up their markets to developing countries. Moreover these countries are plagued by challenges of refugee crisis and terrorist attacks. On the other hand economies of emerging markets like China, India, Indonesia, and Vietnam have expanded rapidly and they should be pressurized to accept more responsibilities in giving an impulse to international trade. The number of countries which are participating in these negotiations is unprecedentedly high. All these countries have their own concerns and interests and it becomes extremely difficult to harmonize and manage all of them simultaneously.

In response to these inordinate delays and unending discussions under the DDA, several countries have got together to negotiate Mega-Trading Agreements in which the level of rights and obligations is much higher than those assumed under the WTO in 1995.

Some important MTAs are:

Regional Comprehensive Economic Partnership (RCEP): Negotiations for the Regional Comprehensive Economic Partnership (RCEP) were launched by leaders from ASEAN and ASEAN's free trade agreement (FTA) partners in the margins of the East Asia Summit in Phnom Penh, Cambodia on 20 November 2012.

RCEP is an ASEAN-centred proposal for a regional free trade area, which would initially include the ten ASEAN member states and those countries which have existing FTAs with ASEAN – Australia, China, India, Japan, Republic of Korea and New Zealand. RCEP has the potential to deliver significant opportunities for regional businesses. The 16 RCEP participating countries account for almost half of the world’s population, almost 30 per cent of global GDP, about 40% of world trade and over a quarter of world exports.

The objective of launching the RCEP negotiations was to achieve a modern, comprehensive, high-quality and mutually beneficial economic partnership agreement that will cover trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement and other issues.

RCEP forms part of the regional strategy for lowering trade barriers and securing improved market access for exporters of goods and services, and investors of member countries.

Key interests and benefits:

RCEP will provide a basis for more open trade and investment in the region. This will help address concerns about a ‘spaghetti bowl’ of overlapping bilateral agreements and derive additional benefits (eg. through supply chains) from regional liberalisation.In 2017, prospective RCEP member states accounted for a population of 3.4 billion people which is more than 45% of world population, with a total Gross Domestic Product (GDP, PPP) of US$ 49.5 trillion (nominal GDP of US$22.3 trillion), approximately 30% of the world's GDP with combined GDPs of China and India making up more than half that amount. RCEP countries also account for about 40% of world trade and foreign direct investment.

A number of countries are parties to both the Trans-Pacific Partnership Agreement (TPP), about which I will speak a little later, and the RCEP viz. Australia, New Zealand, Vietnam, Brunei, Malaysia, Japan, Singapore and Thailand.

Over the last six plus years, 24 rounds of talks at expert level and 13 ministerial meetingshave been held. In addition, two Summit level meetings at Head of State/Government have been held on the side-lines of the East Asia Summit meetings in Manila, Philippines in November, 2017 and in Singapore in November, 2018. The third Summit Meeting in which PM Modi is expected to also take part will be held on the margins of the next East Asia Summit in Bangkok on 4th November, 2019.

Several chapters have already been finalized, including economic and technical cooperation, customs procedures and trade facilitation, and government procurement.

It was initially expected that the negotiations will be concluded by 2015. This did not materialize. The matter was discussed in detail at the East Asia Summit in Vientiane, Laos on 8th September, 2016 and it was decided that all participating countries should endeavour to conclude negotiations without any delay. Pressure on participating countries to finalise Talks had risen because they did not wish to be left behind after the conclusion of Talks on Trans Pacific Partnership (TPP) in 2016..

India’s interest lies mostly in services, the removal of technical barriers to trade such as those taken under sanitary and phyto-sanitary measures, and trade in goods such as pharmaceuticals and textiles. India has been negotiating hard to liberalise the free movement of professionals in the services agreement (mode 4), in order to offset the revenue loss from goods liberalisation.

India thinks its best bet is in exporting services, through which it can supply its burgeoning skilled professionals to other countries, thus partially meeting the demand for jobs from a million people joining the labour market every month. But at the same time there are serious limitations to this. Many complain that India’s service trade with ASEAN is insignificant, and moreover India faces stiff competition on services from countries like the Philippines.

Issues of temporary movement of professionals, market access, intellectual property rights, agriculture and some sectors of services trade are proving to be bottlenecks in finding common ground amongst all participating countries. It is however being hoped that some progress in this could be registered soon.

India’s hopes for retaining the right to implement data localisation laws remain alive as Indian negotiators have declined to agree to the e-commerce chapter of theRCEP. The e-commerce chapter contains clauses that, if India had agreed to them, would have prevented it from implementing data localisation rules on companies doing business in India. The negotiations on the chaptercontinued during the Intersessional Ministerial meeting held on October 11 and 12. Negotiations have entered a frantic phase because there were still several uncertainties related to the cross-border transfer of electronic information that remained.Adding to the urgency is the fact the meeting in Bangkok was the last Ministerial meeting before the agreement is deemed to have been concluded in November.While the e-commerce chapter has some clauses that affect data localisation, India has been trying to water these down. Clouding the issue further is that the annexe on financial services, already agreed upon by all the RCEP countries, says that the domestic laws of a country regarding keeping financial data within a country supersede the RCEP agreement.

Transfer of information: The section on transfers of information and processing of information says that "a party shall not take measures that prevent transfers of information, including transfers of data by electronic or other means, necessary for the conduct of the ordinary business of a financial service supplier.”However, the same section also says that "nothing in paragraph 2 [the paragraph containing the previous clause] prevents a regulator of a party for regulatory or prudential reasons from requiring a financial service supplier to comply with domestic regulation in relation to data management and storage and system maintenance, as well as to retain within its territory copies of records.”This basically means that India cannot be prevented from asking financial companies to maintain a copy of their data within India, but it is unclear still whether India can mandate that such data must only reside within the country. Discussions on this and the other pending issues will continue till the finish.

In a clear indication of India’s intentions ahead of the final ministerial meeting of RCEP in Bangkok on 10-12 October, 2019,Commerce minister Piyush Goyal on Thursday defended the Agreement holding that India cannot remain isolated in a globalized world.Prime Minister Narendra Modi held a meeting with his senior Cabinet colleagues just prior to the Bangkok discussions which lasted for four hours to decide India’s final stand on the trade agreement. "The direction given is to negotiate hard to protect India’s interests. The negotiations are likely to go down to the wire," a senior government official said on the condition of anonymity. Commerce Minister said: "If India remains out of RCEP, we will be left isolated from this large trading bloc. The trade among RCEP countries is about $2.8 trillion. If India sits outside RCEP, whether it is in our interest or against our interest, it is also the responsibility of the government to see. You will want us to engage to find solutions which is in national interest."He, however, assured that the government will not allow the country to be flooded with cheap Chinese goods as a result of the RCEP agreement. "We are not going to open any gate that will allow Chinese goods to flood Indian markets. But we also appreciate that the way the world is rapidly globalizing and inter-dependencies are being created. In such a scenario, standing outside the room will not benefit us. India cannot stop its engagements and trade with the rest of the world. We need to develop capability to prevent unnecessary influx of Chinese goods," he added.

India has proposed to put in place an auto-trigger mechanism to appropriately safeguard any sudden surge in imports from RCEP countries, especially China with which it suffers a US$53.6 billion trade deficit. However, most analysts believe the volume-based auto-triggers on 100-200 items is unlikely to safeguard the country against a sudden surge in imports from RCEP members.

Bangkok meeting was the last ministerial before the 3rd Summit which will be held in the city early next month. The 9th Intersessional Ministerial Meeting came at a crucial stage where the RCEP was scheduled to be announced as concluded in November 2019.Till the 28th round of RCEP negotiations at the expert level held at Da Nang, Vietnam in September, 2019, 21 out of 25 chapters were concluded. Crucial chapters of investment, electronic commerce, rules of origin and trade remedies are yet to be settled.Coinciding with the RCEP meeting, PM Modi also hosted the Chinese President Xi Jinping for an informal summit at Mamallapuram, Tamil Nadu on 11-12 October where the two leaders discussed bilateral trade issues including RCEP.

Forum For Trade Justice, a non-profit organization in a statement, said India is going through a major economic slowdown and going ahead with RCEP will only aggravate the crisis."Across manufacturing sectors, be it automobile, steel, electrical and electronics, garment, textiles and leather industries hundreds and thousands of workers are being retrenched. It is very worrisome that since the RCEP negotiations were launched in 2012, this is the first time that India seems to be closest to signing RCEP despite continued lack of consultation with ordinary people," the statement added.

The all-powerful Trade Negotiating Committee (TNC) which consists of the chief negotiators of all the participating countries is likely to meet on October 17 and 18 to look at India's concerns over electronic data sharing and demands for local data storage requirements.India had proposed certain tweaks in the negotiating text of electronic commerce during the 9th Intersessional Ministerial Meeting in Thailand. India wants the RCEP agreement to allow member countries to retain their rights to protect digital data generated from their respective territories to achieve legitimate public policy objectives and to protect its essential security or national interests. Under such conditions, the country wants the freedom to direct commercial entities to locate their computing facilities within the country itself and stop cross border flow of data generated by them to ensure security and confidentiality of such communications. India's position is that such decisions should not be allowed to be questioned by other RCEP members on any ground.While its approach is laudable, experts who are closely watching the developments are not sure whether RCEP members initiating such controls are meant to serve the national interest or essential security concerns. The burden of proof can itself be counterproductive if the national security interest in protecting data is sensitive in nature. Further, there is no certainty that India's proposal will be accepted by other negotiating countries.E-commerce, rules of origin and trade remedies are the only chapters among the 25 chapters of RCEP text that remain to be finalised by the members.

While India's official position is that RCEP negotiation will lead to a modern, comprehensive, high quality and mutually beneficial economic partnership agreement among the ASEAN member states and ASEAN's FTA partners, there are several sections of the domestic industry including dairy sector and automobiles that strongly fear that the deal may harm their interests.

Auto industry bodySociety of Indian Automobile Manufacturers (SIAM) cautioned the government that the proposed mega trade deal should not lead to job losses, and hurt the government's Make in India initiative. 12.According to SIAM, while there has to be give and take being a part of the global economy, under such trade agreements imports of completely built units (CBUs) of automobiles must not be allowed.SIAM has been maintaining thatFTAs with competing countries do not benefit Indian automobile industry.

India’s Experience with FTAs:In a meeting held on September 10, 2019, at Bangkok in Thailand, India and the group of ten members of Association of Southeast Asian Nations (ASEAN) decided to initiate the review of the ASEAN-India Trade in Goods Agreement that has been in operation since January 2010. The main objective of the proposed review is to make the agreement more ‘user-friendly, simple, and trade facilitative for businesses’. It is an important development for India as there has been a growing concern indifferent quarters including the industry that the benefits for India have been very limited from the Free Trade Agreements (FTAs) that the country has signed and implemented so far, including that with the ASEAN.It is imperative to note that India has viewed FTAs as an important tool to enhance its trade and investment, and signed a number of trade agreements with various countries or groups. In fact, India is one among top countries in Asia with the maximum number of FTAs either in operation or under negotiation or proposed. According to the Asian Development Bank Institute, as of now, India has 42 trade agreements (including preferential agreements) either in effect or signed or under negotiation or proposed. Out of this, 13 are in effect, one is signed but not yet implemented, 16 under negotiation and 12 are proposed/under consultation or study. Most of India’s existing FTAs are with Asian countries which are quite different from each other in terms of the level of their economic development.

At the time when India is negotiating FTAs with a number of countries/groups, including the mega Regional Comprehensive Economic Partnership (RCEP), and has decided to commence the review of India-ASEAN FTA, it is pertinent to examine the progress of trade between India and its key FTA partners. The major FTAs that India has signed and implemented so far include South Asia Free Trade Agreement (SAFTA), India-ASEAN Comprehensive Economic Cooperation Agreement (CECA), India-Korea Comprehensive Economic Partnership Agreement (CEPA) and India-Japan CEPA.

A broad analysis of trade between India and its major FTA partners, mentioned above, shows a significant increase in trade since the agreements have become operational. The SAFTA became effective from January 01, 2006 and as per Ministry of Commerce and Industry data the bilateral trade between India and other SAFTA member countries has increased from US$ 6.8 billion in 2005-06 to US$ 28.5 billion in 2018-19. India’s trade with SAFTA has grown faster than its total trade with the world. As a result, the share of SAFTA countries in India’s international trade rose from 1.6% in 2005-06 to 2.5% in 2018-19. During the same time, Indian exports to SAFTA countries haveincreased faster than its imports from them leading to a significant rise in trade surplus with these economies from about US$ 4 billion to US$ 21 billion. The maximum growth in exports to SAFTA region has been recorded with Bangladesh and Nepal.

ASEAN is one of India’s most important trading partners. The CECA with ASEAN became effective from January 01, 2010 and the bilateral trade between the two sides has surged from about US$ 43 billion in 2009-10 to US$ 97 billion in 2018-19. As in case of India’s trade with SAFTA, the bilateral trade between India and ASEAN has also increased faster than that ofIndia’s overall trade with the world, leading to an increase in ASEAN’s share in India’s global trade from 9.4% to 11.5%.However, contrary to India-SAFTA trade, India’s imports from ASEAN has increased at a significantly higher rate than Indian exports to ASEAN. Another important point worth to be noted is that the imports from ASEAN grew much faster than India’s imports from the world. The faster growth in imports has resulted in a significant increase in India’s trade deficit with ASEAN from less than US$ 8 billion in 2009-10 to about US$ 22 billion in 2018-19. The share of ASEAN in India’s total trade deficit has increased from about 7% to 12% during the same period.

Along with India-ASEAN CECA, the India-Korea CEPA also became operational from January 01, 2010. During 2009-10 to 2018-19, the bilateral trade between the two countries hasincreased from about US$ 12 billion to US$ 21.5 billion andgrew at a pace more or less similar to that of India’s trade with the world. However, Indian imports from Korea have surgedmuch faster than the exports to that country. While India’s imports increased at a CAGR of around 8%, the exports to Korea rose at a CAGR of less than 4%. Also, while the imports from Korea have grown faster than imports from the world, the growth rate of exports to Korea has been much slower than India’s exports to the world. This again has led to a considerableincrease in India’s trade deficit with Korea from US$ 5 billion in 2009-10 to US$ 12 billion 2018-19 and a sizable increase in the share of Korea in India’s overall trade deficit from 4.7% to 6.5% during the same period.

The India-Japan CEPA became effective from August 01, 2011. The bilateral trade between the two countries witnessed sharp growth in the year of its implementation e.g. 2011-12 compared to that in the previous year, 2010-11. However, the bilateral trade flow has not only contracted afterwards but witnessed a lot of volatility during 2011-12 to 2018-19. Also, while exports to Japan continued to increase during the year of implementation e.g. 2011-12, they have contracted afterwards. Imports from Japan, on the other hand, have increased but witnessed a lot of fluctuations. As in the case of ASEAN and Korea, however,India’s trade deficit with Japan has not only increased during2011-12 to 2018-19 but grown faster than India’s trade deficit with the world.

Overall, with the exception of SAFTA, India’s experience intrade with its major FTA partners has not been very encouraging. While India has gained substantially in terms of exports from its FTA with SAFTA countries, CEPA with Korea and CECA with ASEAN have been more beneficial to those economies. In the case of CEPA with Japan, however, bilateral trade has either declined or stagnated after the 1st year of implementation but there has been a substantial rise in trade deficit with that country also. Apart from a range of domestic factors that have draggedthe competitiveness of Indian exports and prevented India to leverage the preferential market access in these partner countries, there exist a number of FTA related issues that are seen to be responsible for less than favorable development in India’s trade relations with ASEAN, Korea and Japan. Some of these issues include faulty commitments, stricter rules of origin,lack of awareness about the FTAs and high cost of compliance. It is important, therefore, that India should not remain satisfied with the initiation of a review of India-ASEAN FTA but the existing provisions of CEPAs with Korea and Japan should also be evaluated to make them more trade and business-friendly. It is equally important, however, for India to simultaneously takeall the necessary measures to remove the obstacles that hinder the overall competitiveness of exports in the country.

Trans Pacific Partnership: The Trans-Pacific Partnership (TPP) or Trans Pacific Partnership Agreement (TPPA) is a trade agreement among twelve Pacific Rim countries - notably not including China. The finalized proposal was signed on 4 February 2016 in Auckland, New Zealand, concluding seven years of negotiations. It could not come into force because Donald Trump during his campaign had vowed that he would get the US out of the Agreement were he to be elected. He did exactly that and withdrew from TPP in 2017. The remaining 11 countries however decided to go ahead with the concluded Agreement. Name of the Agreement was changed to Comprehensive and Progressive Trans Pacific Partnership (CPTPP) Agreement and came into force on 30thDecember, 2018. Trump stated in March 2018 that USA may also consider joining the CPTPP at a later date. It appears that Trump withdrew from the Agreement because iy was seen as a success of the Obama regime and he was determined to undo most major policy decisions taken by his predecessor.

The 30 chapters of the agreement aim to "promote economic growth; support the creation and retention of jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty in the signatories' countries; and promote transparency, good governance, and enhanced labor and environmental protections." The TPP/CPTPP contains measures to lower both non-tariff and tariff barriers to trade, and establish an investor-state dispute settlement mechanism.

The TPP began as an expansion of the Trans-Pacific Strategic Economic Partnership Agreement (TPSEP or P4) signed by Brunei, Chile, New Zealand, and Singapore in 2005. Beginning in 2008, additional countries joined the discussion for a broaderagreement: Australia, Canada, Japan, Malaysia, Mexico, Peru, the United States, and Vietnam, bringing the total number of countries participating in the negotiations to twelve. Current trade agreements between participating countries, such as the North American Free Trade Agreement will be reduced to those provisions that do not conflict with the TPP or provide greater trade liberalization than the TPP. The earlier United States government had consideredf the TPP a companion agreement to the proposed Transatlantic Trade and Investment Partnership (TTIP), a broadly similar agreement between the U.S. and the European Union.

Participating nations aimed at completing negotiations in 2012, but the process was prolonged by disagreements over contentious issues, including agriculture, intellectual property, and services and investments. They finally reached agreement on 5 October 2015. Implementing the TPP was one of the trade agenda goals of the Obama administration in the U.S.

The agreement cut over 18,000 tariffs. Tariffs on all U.S. manufactured goods and almost all U.S. farm products were to be eliminated completely, with most eliminations occurring immediately. According to the Congressional Research Service, TPP "would be the largest U.S. FTA by trade flows ($905 billion in U.S. goods and services exports and $980 billion in imports in 2014)". The signatories represented roughly 40% of global GDP, and one-third of world trade.

In addition, the agreement mandated expedited customs procedures for express shipments and prohibited customs duties from being applied to electronic transmissions. It also required additional privacy, security, and consumer protections for online transactions and encouraged the publication of online customs forms. These provisions were expected to be particularly beneficial to small businesses.

Environmental protection

According to the Office of the United States Trade Representative, the "TPP includes the most robust enforceable environment commitments of any trade agreement in history". According to the USTR, TPP was the first trade agreement to prohibit harmful fisheries subsidies, such as those that contribute to overfishing. The USTR asserted that TPP signatories are required to "combat illegal fishing", "promote sustainable fisheries management practices", and "protect wetlands and important natural areas", "combat wildlife trafficking, illegal logging, and illegal fishing" and "protect the marine environment from ship pollution, including by implementing their obligations under MARPOL (an international agreement to prevent marine pollution)".

The Peterson Institute for International Economics argued that the TPP was "the most environmentally friendly trade deal ever negotiated." A September 2016 report by the Institute for Agriculture and Trade Policy (IATP) predicted that "as countries take action to protect the climate, conflicts between trade rules and climate goals will escalate". The report went on to say that trade agreements like the TTP set broad-reaching rules for the economy and government policy, thereby expanding trade, often in extractive sectors, and protecting corporations and financial firms from future measures to stabilize the climate.

Good governance

According to the Office of the United States Trade Representative, signatories were required to join the United Nations Convention Against Corruption (UNCAC); criminalize bribery of public officials; have in place a code of conduct for public officials; take measures to decrease conflicts of interest; effectively enforce anti-corruption laws and regulations; and involve private organizations in the fight against corruption.

Human rights

According to the Office of the United States Trade Representative, the TPP prohibited exploitative child labor and forced labor; ensured the right to collective bargaining; and prohibited employment discrimination. The USTR asserted that "research by the International Labor Organization and the World Trade Organization finds that combining expanded trade opportunities with strong protections for workers can help workers move from informal-sector jobs into formal work in wage-paying, regulated export industries which offer a minimum wage, benefits, and safety programs". The USTR asserted that "research also shows that trade improves human rights conditions by fostering pluralistic institutions and increasing open exchanges of information."

Intellectual property

The intellectual property section laid out a minimum level of protection that parties to the Agreement must grant for trademarks, copyright, and patents. Copyright is granted for a length of life of the author plus 70 years, and requires countries to set criminal penalties for violating copyright protections such as Digital Rights Management.

According to the Office of the United States Trade Representative, the TPP would have spurred innovation by requiring signatories to establish strong patentability standards and adopt strong copyright protections.


In May 2015, Nobel Memorial prize winning economist Paul Krugman expressed concern that the TPP would tighten the patent laws and allow corporations such as big pharmaceutical companies and Hollywood to gain advantages, in terms of increasing rewards, at the cost of consumers, and that people in developing countries would not be able to access the medicines under the TPP regime. However, Walter Park, Professor of Economics at American University, argued that it is far from clear in economic research that this would necessarily happen: clarifying intellectual property rights on drugs has for some developing countries not led to greater prices and less access to drugs. Park also argues, based on the existing literature, that the pharmaceutical protections in TPP would have potentially enhanced unaffiliated licensing in developing countries, led to tech transfers that would contribute to local learning-by-doing, stimulate new drug launches in more countries, expand marketing and distribution networks, and encourage early stage pharmaceutical innovations. The Office of the United States Trade Representative noted that the TPP "aligns with the Doha Declaration on TRIPS and Public Health", which allows developing countries to circumvent patent rights for better access to essential medicines.

An investor-state dispute settlement (ISDS) mechanism, which grants investors the right to sue foreign governments for treaty violations, was included in the TPP. For example, if an investor invests in country "A", a member of a trade treaty, and country A breaches that treaty, then the investor may sue country A's government for the breach. ISDS is meant to provide investors in foreign countries basic protections from foreign government actions such as "freedom from discrimination", "protection against uncompensated expropriation of property", "protection against denial of justice" and "right to transfer capital":

ISDS cannot overturn local laws (unlike the World Trade Organization) which violate trade agreements, but can grant monetary damages to investors adversely affected by such laws. As pointed out by the Office of the United States Trade Representative, ISDS requires specific treaty violations, and does not allow corporations to sue solely over "lost profits".

The TPP specifically excluded tobacco industries from the ISDS process. The carve-out came as a response to concerns about ISDS cases against anti-smoking laws. The exemption of tobacco from ISDS is a first for an international trade agreement.

Economists Joseph Stiglitz and Adam S. Hersh criticized the ISDS provisions of TPP for interfering with the ability of governments to prevent public harm, alleging that if asbestos had been discovered today, governments would have been unable to impose regulations without creating grounds for an ISDS suit. Stiglitz also claimed that the TPP would give oil companies the right to sue governments for efforts to reduce carbon emissions and global warming.

In November 2015, Columbia professor Jeffrey Sachs concluded that the ISDS system of the TPP grants huge power to investors, and damages the judicial systems of all the member countries. He alleged that ISDS has been already used by corporations to upset governments so as to weaken the regulations that have negative effects on their profits.

The Peterson Institute for International Economics (PIIE)argues that "the ISDS provisions in the TPP are a significant improvement over those in previous agreements". PIIE notes that the ISDS mechanism in the TPP respects environmental, health, and safety regulation; ensures the transparency of dispute proceedings; and eliminates forum shopping

Labour standards

According to the Office of the United States Trade Representative, the TPP imposed "binding and fully enforceable obligations" on signatories to "protect the freedom to form unions and bargain collectively" and "eliminate exploitative child labor and forced labor protect against employment discrimination". The obligations include "laws on acceptable conditions of work related to minimum wages, hours of work, and occupational safety and health." The USTR insists that if countries like Malaysia and Vietnam do not enforce provisions relating to forced labor, human trafficking and collective bargaining, they will cease to get the economic benefits of the TPP agreement.

Economic impact - According to The New York Times, economists are sharply split over the positive and negative effects of TPP. For example, research by the U.S. International Trade Commission, the Peterson Institute for International Economics and the World Bank find that the agreement will lead to net positive economic outcomes for all signatories, while an analysis by two Tufts economists finds that the agreement will adversely affect the signatories.

TPP was much more than a mere trade agreement. It was a strategic agreement designed to check and curtail the rising power and influence of China in Asia and other regions of the world. While notifying the Agreement to the US Congress in 2015 Obama said that United States cannot allow countries like China to write future rules of international trade, innovation and production. It is designed to ensure continuation of US dominance over global trade. The Agreement established ambitious and far-reaching rules on issues encompassing labour, environment, competition, government procurement several of which have never been captured earlier in trade agreements. TPP represented the economic element of Obama’s pivot to Asia to counter China’s economic growth and rise. It was also a key component of economic reforms launched by Japanese Prime Minister Shinzo Abe. The Agreement was a reflection of the growing influence and importance of multinational corporate houses. The Investor State Dispute Settlement provision of the Agreement provided many more rights and possibilities to big corporate as compared to any other international accord. In fact the right to sue a foreign government which was provided in the Agreement was the first of its type in any agreement of this nature.

Several more similar trading Arrangements have been launched all over the world which are in different stages of progress. In addition, China has launched its Belt and Road Strategy as a response to the TPP. This is also much more than a mere trading arrangement and has strategic ramifications. China has drawn more than 60 countries in its fold to isolate the USA. These countries include the region of South Asia, Central Asia, South East Asia, Middle East, Europe and Africa. It is a highly ambitious project and the jury is still out whether it will be able to achieve its objective.

India’s Interests: India has always been a purist in matters relating to the multilateral trading system with the conviction that a fair, open, inclusive, comprehensive, transparent and balanced trading regime is in the interest of developing countries as it constrains the economic power of big and powerful countries and ensures that they follow international rules on the subject. As a result, India till recently was not supportive of regional trading arrangements or free trade pacts or custom union agreements as it felt that they detract from the viability and credibility of the multilateral trading system. Moreover it has never been conclusively proved and demonstrated convincingly that such agreements are in conformity with Article XXIV of GATT so that they result in trade creation and not trade diversion. India has not been convinced that these Agreements are building blocks to a more free and open multilateral trading system. However, seeing the rush amongst major world trading powers towards entering into FTAs and delay in concluding the Doha Round, India also embarked on such negotiations apprehensive that it might be left behind.

In addition to discussions on RCEP, India is engaged in several other negotiations with Canada, with Australia, with BIMSTEC countries, with MERCOSUR, with SADC and others. So far it has signed FTA or CEPA deals with ASEAN, Japan, Malaysia, ROK, Thailand, Singapore and some others. India is vigorously pursuing the conclusion of negotiations under the DDA while also pursuing negotiations in bilateral, regional and multilateral trading arrangements.

Thank you for the kind attention.

I will be happy to take questions.