A Little Less Talk & Much More Action: India in The Emerging World Order

08th Jun 2015 Global-Trade

The recent breaking leak from Wikileaks of Trade in Services Agreement (TISA)has taken the international trading circle by storm. While Americans worry about the job loss scenario and question the democratic foundation of the Obama Administration for negotiating these Mega-regional trade deals in secret, it appears that the U.S. is actually pursuing a very far-sighted and nuanced economic agenda in order to secure its existing hegemonic space in the world order. In essence, the mega-regional trade deals such as Trans-Pacific Partnership(TPP) and Trans Atlantic Trade and Investment Partnership(TTIP) and TISA[1] are being pursued,notably, to curtail the rise of emerging Asian giants such as China and India. It is unfortunate that the Indian government fails to see the bigger picture and does not actively pursue counter strategies. Such strategies might assist in offsetting the damage that a US-centric trade order will create for an emerging economy such as India.  Let us examine the strategic game that is being played by the U.S. to discomfit the ostensible world order goals of the Chinese, where India merely figures as a pawnbut will end up jeopardizingher interests should she not act swiftly and decisively. The second part of the article in going to focus on three trade deals-TPP, TTIP and TISA to highlight the stakes involved for India and to advocate for more expeditious response in the form of counter strategies.

U.S. has categorically stated that it wishes for India to play the role of an anchor in its pivot to Asia. It is interesting to note that at the same time much scaremongering in the Indian strategic space has resulted in burgeoning anti-China sentiments. The spillover effect of this fear has been that India constantly views China’s rise with suspicion. It must be added that China’s adventurism has not helped in allaying such fears, making them legitimate to a certain extent. However, India’s obsession with Chinese policies has completely distracted her from the counter strategy being pursued by U.S., which will result in immediate shocks to the Indian economy. It appears that India finds comfort in the fact that the U.S. may be finally warming up to her and there’s much potential for deeper economic and strategic integration between the two countries. While that may be true to an extent, India must look at her foreign policy from a theoretical perspective as well and judge U.S. on its historical posturing on India. If U.S. support (overt and covert) for Pakistan in terms of foreign aid, arms supply and development of nuclear weapons teaches India anything it is that U.S. will always remain a fair-weather friend to India and may not be the trusted ally that she hopes for. Machiavelli has argued that the public and private sphere of morality are two distinct concepts where the threshold for the former must be much lower, in order to maintain power. His treatise, arguably, led to the emergence of the most sacred tenet of foreign policy- national interest. Thus to expect the U.S. foreign policy to showcase morality and offer India a larger pie in the emerging world order would be at the least, disingenuous. In fact, what we are witnessing through the rapidly changing international trade regime is the exact opposite of what is being promised to India.

TPP, TTIP and the “Malthusian Trade Catastrophe”

Harsha V. Singh, former Deputy Director General of WTO and currently the Senior Fellow at IISD, has very cogently assessed the adverse effects that a successful Trans-Pacific Partnership deal may have for India. While observing India’s deep integration with the Global Value Chains (GVCs), a phenomenon where different stages of production are located in different countries for optimization of the production process, he relies primarily on OECD data, which looks at increases in foreign content of exports in India from 1995 to 2009. It is seen that India’s domestic value added content in 1995 was 90%, which fell to 78% in 2009, suggesting fragmentation of production and greater integration into global value chains. A successful TPP, he argues, will have three major implications for India. First, reduction in tariffs among member countries would make such destinations more attractive for inclusion in value chains. Second, the rules of origin under the TPP coupled with the tariff reduction would further favor products from member nations leading to greater inclusion in GVCs. Third, the emergence of technical and other standards, which are more favorable to developed countries and will diminish the India’s share in GVCs. Finally, he presents a scenario that of merging of TPP and TTIP, which may result a Malthusian version of international trade order particularly when looked at from the perspective of developing countries. Malthus predicted that population growth will outpace agricultural production and we would essentially be return to subsistence level production. His critics claim that Malthus misjudged the intelligence of human beings, who have been able to outsmart the vagaries of nature and their own reproductive tendencies. The “Malthusian Trade Catastrophe” for developing countries such as India in this trading scenario is such that deeper economic integration of member countries of TPP and TTIP will outpace and severely diminish India’s growth trajectory. A combined TPP and TTIP regime will lead to greater market access for products of member countries due to the developed standards, a potential uniform legal and regulatory framework and preferential tariff commitments. It must be added here that while India can consider joining the TPP to maintain her position in GVCs, certain terms within the agreement, in light of the leaked IP chapter of TPP, are in direct conflict with India’s stated policies.[2]Further, despite this knowledge, if India decides to join the TPP, she would need to forego several policy goals, which are currently beneficial to her and significantly expedite her domestic reforms to match the standards.How India outsmartsthe combined intelligence of developed countries, which are privy to these deals will essentially determine, her place in the economic world order.

India mayhave a tool, albeit still to evolve to a weapons grade platform, in the form of BRICS. However, the internal competition within the BRICS bloc, particularly between India and China, casts a shadow over how successful this partnership will prove in the long run. The New Development Bank and proposed Contingency Reserve Arrangement may be challenging the hegemonic development financing regime but BRICS is nowhere close to ironing out its internal trading concerns, look at the larger picture and work towards executing a preferential trading agreement. Further, the Regional Comprehensive Economic Partnership (RCEP), which has certain negotiating members of TPP, partaking in the deal (7 out of 16) will not be able to establish similar standards as those envisaged in these TPP and TTIP. Moreover, the presence of these 7 countries in RCEP may also propel other RCEP members to become a part of TPP.

Tis’ A season to be Decisive

In the midst of these developments, a plurilateral deal, the Trade in Services Agreement (TISA), is being negotiated secretly and proposes widespread services liberalization covering almost 70% of the global services industry with a focus on sectors such as banking, healthcare and transport. There are currently, 23 countries/blocs, which are negotiating the deal, including the US and the EU. The recent Wikileaksreflects that there would be far reaching impact on the regulatory space of the governments, and public services will not be able to sustain the competition. It also highlights the advanced stage of negotiations and the beneficial market access scenario for member countries. Like TPP and TTIP, even the TISA reflects the potential for a uniform services sector being developed under this regime, to the disadvantage of non-members. India has arguably enjoyed an inherent advantage in the services sector. In 2013-14, the sector constituted 57% of her GDP and she exported services worth $ 157.14 billion in the same year. Being a plurilateral agreement under the aegis of WTO, India has the option of joining the negotiation and steering the talks in her favor. However, despite the stakes involved, India has not yet decided whether to join the TISA or initiate its own services proposal, though it has so signaled for the past 2 years. While the latter may have helped India in countering the strategy adopted by TISA negotiating members, the advanced level of negotiations have given TISA an unsurpassable head start. All conditions point towards the inevitable though perhaps uncomfortable fact that India must join the TISA negotiations even at this stage, and attempt to bring in other developing countries onboard, which would support her stance and secure their and her interests. BishwajitDhar has noted in the past that India must join the TISA negotiations albeit with a caveat, “… But unless we clearly mark out our offensive interests, it will be disastrous if we get into such negotiations and start playing defensive.”We propose that India still has time to join TISA negotiations and galvanize support of the developing bloc in order to ensure that the emerging services regime does not leave out the concerns and interests of the developing world which has thriving services economy and fosters development of new services markets not limited to a small group of advanced economies.

The developments and the imminent tectonic shift in the international trading regime are essentially going to come down to Darwin’s theory of survival of the fittest. The fittest in this context is not one who possesses impressive economic prowess but one who has greater ability to adapt to change. The process of adaptation for India must begin at home. There is awareness in the Indian bureaucratic, political and policymaking circuit that the world is moving towards a new trade order and India must respond to the same. This is reflected through, the statements of Commerce Ministry officials, the Prime Minister as well as the President. In fact, the need for a counter strategy has also found a mention in the Economic Survey 2014-15. However, the response has either been slow or marked by a classic case of bureaucratic ambivalence.While efforts have been made in both the Economic Survey and new Foreign Trade Policy for 2015-2020 in terms of identifying reforms needed to make India a favorable destination for doing business , these reforms are yet to be initiated in full flow. For example in the Economic Survey 2013-14, it was identified that India must look towards trade diversification, building export infrastructure and focus on useful FTAs, which can address inverted duty structure, rationalize export promotion schemes and ensure trade facilitation in order to realize her medium term goals. On all these fronts, India’s progress has been extremely tardy. India is currently negotiating 10 FTAs, which are at different stages of negotiation but the agreements are far from seeing the light of the day. The Economic Survey 2014-15 highlights the issues identified by Harsha V. Singh and explores the option of integration with TPP, while recognizing that such integration may be ambitious, as the terms of the deal remain uncertain. However, judging by the leaked TPP IP Chapter, it is clear that the terms as they stand currently are not in favor of the India’s stated policies. For India to respond effectively to these changes, she must begin at home.

The pace of domestic reforms in labor, export infrastructure, environment, banking and taxation will determine how deep India can integrate herself in GVCs through foreign investment and trade. A deeper integration it the GVCs will allow India to sustain the immediate shocks that the economy may face in the event of a successful outcome of the TPP and TTIP. Needless to say, it is imperative to expedite the reformation processes. At the same time, India must look at bridging the gap with other markets bilaterally through free trade agreement. A preferential trading agreement under the BRICS will also act as an effective counter strategy. Despite, a troubled past, India must seek deeper trade integration with China in order to prevent the existing powers from maintaining the status quo hegemony.

Since 1991, India has come a long way in the international trading circuit, becoming one of the largest trading countries and is poised to become the world’s 3rd largest economy by 2030. It has also maintained a reputation as being the voice of developing countries in the international trade forum. It is time that India not only protects her interests through calculated risks and sound policies but simultaneously shield other emerging economies from the impending trade shocks that these deals will cause. A little less talk and much more action should be the mantra for the Indian trade pundits and practitioners, if they wish for India to reclaim her once prized place in the world economy.

This article appeared first in Global Policy Journal. The article reflects the personal views of the author and not necessarily those of the Foundation, its affiliates and partners.

[1] TISA is a plurilateral agreement being executed by 23 countries under the aegis of WTO. China has applied to join the negotiation but is currently being kept out of the deal, while Hong Kong is one of the negotiating parties. The negotiations are based on the General Agreement on Trade in Services (GATS) under the WTO and are being pursued with the intention of complying with WTO rules, so it can be “multilateralized” at a later stage. This is contrast with the provisions under TPP and TTIP, which are pushing for WTO plus measures, which includes inter alia, measures relating to environment and labor standards etc. See Generally Pierre Sauve, Towards a plurilateral Trade in Services Agreement (TISA), 5(1) Journal of International Commerce, Economics and Policy, 2 (2014).

[2]See Raghu Ram, Jayant; Crouching Tiger, Hidden Dragon: The TPP’s IPR Chapter- Issues and Concerns for India; available at http://wtocentre.iift.ac.in/workingpaper/TPP%20IPR%20WP.pdf, See also Bhardwaj et al. ,The Trans-Pacific Partnership Agreement: Implications for Access to Medicines and Public Health, March 2014, UNAID; available at:  http://www.unitaid.eu/images/marketdynamics/publications/TPPA-Report_Final.pdf;