India must consider CPTPP membership amid global trade uncertainties

In Trump 2.0's uncertain trade landscape, India must act now to secure its place in the open, rules-based, and potentially largest trade bloc in the world

The recent statements by President-elect Donald Trump about imposing higher tariffs on imports from Mexico and Canada cast a shadow over two important aspects of global trade — friend-shoring and the United States-Mexico-Canada Agreement (USMCA). The former has clear implications for all US allies that may have assumed they would get an easier pass through the transactional bilateralism characteristic of Mr Trump’s tariff hikes. The latter reveals a review and perhaps even an unravelling of institutions and legislation under Trump 2.0, even if they have been crafted to serve US interests in the past.  Higher tariffs on US and Mexico would violate the USMCA, which is a preferential trade agreement among the three North American economies that substituted the North American Free Trade Agreement in 2020. The Inflation Reduction Act of 2022, which offered preferential rules of origin to Mexico and Canada to promote regional supply chains, particularly in the electric vehicles (EVs) sector, too would stand challenged with this tariff hike.  Clearly, therefore, under Trump 2.0, uncertainty will loom large over the global trade environment. From an Indian trade policy perspective, this necessitates a risk-diversification trade strategy through participation in stable, alternative institutional arrangements and/or agreements.  In the present context, India’s options are from among the three mega-regional trade arrangements—that is, the Indo-Pacific Economic Framework for  Prosperity (IPEF), the Regional Comprehensive Economic Partnership (RCEP), and the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). Participation in all three would, of course, be the most optimal path for risk diversification and ensuring access to greater possibilities of trade and global value chain (GVC) integration.  In the case of the IPEF, India is a member of three pillars of the IPEF — supply chain, clean energy, and tax and anti-corruption — while opting out of the fourth pillar on trade. Although, given the trade-investment nexus underlying GVCs, there is sufficient economic ground to push for India’s participation in the trade pillar, this may not be the most appropriate time to do so.  The absence of specific tangible outcomes and the non-binding and recommendatory nature of the IPEF agreements make it a potentially weaker instrument of economic integration compared to an FTA or a mega regional trade agreement. More importantly, the IPEF is an executive agreement and Mr Trump, in the course of his campaign, has indicated his dislike for the Indo-Pacific arrangement, declaring that he would “knock out” the IPEF when elected. The survivability of the IPEF itself, therefore, remains uncertain.    As for the RCEP and the CPTPP, India has been rather emphatic about not joining the former after withdrawing from the agreement in 2019. This is notwithstanding the RCEP being open for India’s accession and the potential advantages emanating from its cumulative and common rules of origin, fostering deeper GVC integration. The CPTPP, on the other hand, has thus far received little, if any, policy attention in India.  The CPTPP was established in 2018 as an Asia-Pacific trade bloc with 11 member economies, including Japan, Singapore, Vietnam and Australia. The UK, having acceded earlier this year, is its 12th member. Seven members of the agreement overlap with the RCEP. China is not a member at present, though it applied for membership in 2020. There is a long queue of formal applicants and several other economies, including South Korea, Thailand and Indonesia, have informally expressed their interest to join the agreement. The constituent provisions are World Trade Organization (WTO)-plus, and apart from providing a tariff-free market for almost all goods and services and investment liberalisation among member economies, they ensure high standards and enforcement of, inter alia, investor protection rules, intellectual property rights, broad e-commerce commitments and a dispute settlement mechanism.  While membership is open to all, formal applications are considered only after existing members arrive at a consensus to form a working group for the initiation of the accession process. Furthermore, the applicant nation has to be willing and prepared to abide by the higher standards of the agreement as well as demonstrated success in upholding commitments of past trade agreements.  The fact that in the last six years there has been only one new member while many other interested economies have been left waiting has led many to question the long-drawn out entry process. Given the increasingly uncertain global context, there are already suggestions for a review of the entry process, and proposals for a “one-time” collective entry for all applicants are in the air.  It would be worthwhile, therefore, for India to put in its application at this time. In case of a change in process, India will not be left out of the potentially largest, open, rules-based trade bloc. In case of no change in the entry process, the present geopolitical circumstances may actually favour India’s early entry as against some other regional economies.  A formal expression of interest in joining the CPTPP would, in addition, be a signal of India’s intent and commitment to undertake necessary reforms and upgrade its domestic regulations in alignment with the highest global standards. An expression of interest to join the CPTPP would be a positive factor in India’s pursuit of attracting relocating multinational company investments away from China. This has been evident in the case of Vietnam, which, being a member of the CPTPP and having an FTA with the EU, is a lead beneficiary in the China+1 MNC strategy of GVC diversification.   Finally, while it is true that the trade rules under the CPTPP are already set and India will not be a rule-maker in the agreement, it is worth pointing out that the CPTPP provides sufficient flexibility for each country to negotiate its path and time period for attaining the necessary standards in different trade-related domains.  So, there is flexibility, as well as scope for domestic reforms for new members of the agreement. In the case of the UK, for example, where there was internal diversity of opinion on the consequences of accepting certain investment-related provisions, side letters have been signed with some existing members, keeping in view the provisions of their existing bilateral FTAs and investment relations. A careful study of the UK’s negotiations for CPTPP membership will be helpful in this context.  Overall, in the increasingly uncertain global trade context of Trump 2.0, a formal application for CPTPP membership by India at this point has the potential to offer  access to a stable, rules-based trade order and opportunities for increased economic integration with a trade and GVC dynamic trade bloc.  The author is senior fellow, CSEP; professor of economics, School of International Studies, JNU; and author of India’s Trade Policy in the 21st Century, Routledge: London, 2022. The views are personal