On the eve of its second anniversary in office, the government faces choices in the area of trade policy no less important and problematic than those in the area of foreign and security policy.
India accounts for 2.1 per cent of global trade. International trade, however, accounts for nearly 50 per cent of India's GDP. Exports have fallen for 15 consecutive months. Apart from domestic factors that have inhibited the revival of India's manufacturing sector, India's multilateral trade policy negotiating stance is viewed by our trading partners as inward looking and counterproductive.
Multilateral trade negotiations, anchored in the WTO, are stalemated. Developed countries are simply unwilling to pursue 'Doha' except on their terms. This has facilitated a shift of the action to two fronts: one, plurilateral agreements within the WTO and two, Regional Trade Agreements (RTAs)/Free Trade Agreements (FTAs). The trouble for India is that it is not a player in either.
The Trade in Services Agreement (TISA) under negotiation has India missing presumably because it will not provide for movement of natural persons. We are also not in the Information Technology (ITA-2) Agreement concluded recently in Nairobi. It is infinitely preferable to be part of a negotiating process to safeguard our interests and shape the outcome rather than express disappointment later.
On RTAs/FTAs, India's dilemma lies in the fact that we have found it difficult to accept inclusion of issues in the WTO relating to trade related intellectual property (TRIPs), environment, labour standards, investment and regulatory matters, all perhaps for valid reasons. Having resisted a WTO-plus approach inside the WTO, it goes without saying that we find it difficult to accept such an approach in RTAs which are all WTO-plus.
Three RTAs are in play today. One, the Trans Pacific Partnership Agreement (TPP), concluded at the official level, although a number of political obstacles remain. This excludes both China and India although there is speculation that China may eventually join. The TPP is based on a new template for international trade relations which, if implemented in full, will affect the way trade is conducted in the world. Since we are not a party to this, we have had no role in the formulation of standards and rules governing this.
It is by no means certain that the incoming US administration, post-January 2017, will be enthusiastic about the TPP. We cannot, however, afford to ignore the eventual coming into force of such an arrangement down the road.
The second, the Transatlantic Trade and Investment Partnership Agreement between the US and the EU, has got stuck and is not likely to conclude before a new US President takes over.
The third is the Regional Comprehensive Economic Partnership Agreement (RCEP), which involves Asean and all its FTA partners: India, China, Australia, New Zealand, Japan and Korea. This is making slow progress.
If RTAs progress dramatically without India getting involved, we will most likely face a fait accompli in areas such as technical barriers to trade (TBT), sanitary and phytosanitary (SPS) and environmental regulations, investor state dispute settlement, TRIPs-plus standards and labour standards, just to mention a few.
India thus faces two options at the end of the day: one, to engage and expedite the RCEP so that at least a good part of its trade is covered by preferential arrangements. Along the way, our goods and services will also hopefully become more competitive. Or, we must autonomously adjust to world-class standards on TBT, SPS, environment, regulatory standards, etc. In either case the answer would appear to lie in autonomously undertaking domestic reforms for which both government and industry have to work together. The role of industry is particularly crucial. Unless industry steps up and assumes responsibility, there will be limits to what government can do.
We should make a beginning by fully implementing the Trade Facilitation Agreement which the Cabinet has approved. We must then decide on a 'road map' which will bring our goods and services largely into conformity with the best TBT, SPS, labelling, packaging and best or next best environmental regulations, the best or next best labour regulations and the best customs, clearance and freight procedures.
Doing so will by itself ensure that India becomes a significant part of the global supply value chain.
There are signs that India is seriously looking at APEC membership.
Anxieties relating to job losses and trade diversion have made trade a touchstone issue in US Presidential elections. Donald Trump, the Republican front runner, promises to slap prohibitive tariffs on imports from China and Mexico. Bernie Sanders wears his opposition to trade as a badge of pride. Hillary Clinton has backed away from her previous support for the TPP, a trade deal negotiated by President Obama.
It is, however, one thing for a $17 trillion US economy to adjust to and determine changes in global trade relations and quite another for a $2 trillion Indian economy to adjust and become part of the global supply value chains through which the bulk of global commerce is conducted. A democratically elected government has no choice but to take a good hard look at the implications of RTAs/FTAs and other global trends in the external economic environment. It has the responsibility to address the need for employment generation for the 12 million-plus youth that enter the jobs market every year. The economy at present barely provides a fraction of the jobs required.
The writer is a former diplomat
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
