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How India Is Navigating Global Trade Agreement Trends
Indian Prime Minister Narendra Modi (second from right) greets fellow leaders during the second RCEP summit in Singapore (November 14, 2018).

How India Is Navigating Global Trade Agreement Trends

 
 

The advancement of the global trading system, as proponents of multilateralism stress, rests on fair competition, increased transparency, improved technical assistance to developing countries, and gradual reduction of trade barriers. Yet around the world, national policies seemingly fueled on populism are contesting multilateralism and engendering protectionism. The concerns of unemployment, growing inequality, and economic stagnation have contributed in creating a disillusion about economic globalization. This is not just a recent trend; the Financial Crisis of 2008 stirred the  “deglobalization” narrative a decade ago, accompanied by inward-looking tactics and shrinking economic interdependence.

The recent advent of the so-called U.S.-China “trade war” and the bizarre display of nationalist economics comes across as yet another manifestation of protectionism in disguise. The U.S.-led trade war started with the unilateral impositions of increased tariffs (which China retaliating in kind). Trade commentators argue that such acts may lead the world back to mercantilism, even comparing the move to the Hawley and Smoot Tariff Act of 1930 that helped trigger the Global Depression during the 1930s.

Proponents of liberal trade contend that the rule-making for international trade under the auspices of the World Trade Organization (WTO) is increasingly being impaired; among other things the United States seems to have opened a warfront at the WTO by paralyzing its dispute resolution mechanisms (through blocking appointment of its Appellate Body judges) and threatening to withdraw from the organization entirely. Combined with the long-stalled Doha Round and increased tariffs, there is apprehension about sustaining multilateral global economic relations.

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While some lament that the WTO is not moving ahead, the onus is on free trade agreements (FTAs) and regional ventures to be the torchbearers for evolving a rule-based international economic law outside of the WTO. In today’s world, FTAs handle more than 50 percent of international trade; in India in particular, FTAs play an increasingly important role in the shift to multilateral trade pacts, though India sustains its focus on multilayered trade governance. Certainly, regional agreements today are not only driven by economic factors; security, geostrategic and political alliances are turning out to be deciding elements, too. The pattern of India’s trading has also changed; whereas earlier Europe and North America accounted for 50 percent of India’s exports, the number has come down to 35 percent as India has diversified its trading with many other partners regionally and otherwise.

In the last couple of years, the world of preferential trading has seen plentiful action. The United States’ decisions to abandon the Trans-Pacific Partnership (TPP) in January 2017 surprised its trade partners. Nonetheless, other 11 TPP partner countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam) moved forward with a new agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

U.S. President Trump also followed through on a campaign promise to renegotiate the agreement between Canada, Mexico, and United States, the North-American Free Trade Agreement (NAFTA). That resulted in another new trade pact, the United States–Mexico–Canada Agreement (USMCA), which addresses Trump’s concerns about the U.S. automotive and agricultural industries.

Interestingly, the USMCA replicates a number of TPP’s chapters, especially on intellectual property, labor, and the environment. For example, the USMCA proposes that the global banks, who would otherwise be required to house servers in the country of business, have the freedom to dispense with data localization requirement. Likewise, the TPP’s five-year exclusivity on biologics requirement on intellectual property is reproduced in USMCA in the shape of a 10-year exclusivity protection. In this backdrop, one can fathom that the Obama-led negotiations over TPP have carried over to subsequent U.S. trade negotiations. Indeed, certain USMCA chapters are even characterized as “TPP-plus.”

Although thousands of miles away from these developments, India may not remain unaffected for long.

Like the erstwhile TPP, the USMCA features a number of labor and environmental standards. It is widely known that many developing countries including India have not been too keen on having such standards on the trade negotiations platter. Going by the USMCA case, it is likely that the United States, despite abandoning the TPP, will still seek to place greater labor and environmental standards on its other partners — including India. For instance, the USMCA requires an increase in the local content requirement and mandates a minimum hourly wage of $16 within the North American region. Developing countries are considered to have a comparative advantage in terms of low-cost labor and any such comparable measure in a trade pact with India or other developing country would certainly affect their export competitiveness.

The United States is also not too happy with India’s excessive guard on its agriculture and dairy sectors and the licensing and control mechanisms on medication and medical equipment. Some time back Trump called India “the tariff king.”

India’s standpoint in regard to the CPTPP begs consideration of a number of aspects. At first blush, the CPTPP promises a variety of rewards should India join. The CPTPP as a bloc constitutes approximately 16 percent of the world economy, which may present India the possibility of being a manufacturing hub and export platform for the Pacific region with access to duty-free, quota free trade. Despite the United States abandoning the Pacific Rim partnership, the other 11 countries have moved on with CPTPP’s ratification and a number of other countries — including the United Kingdom — have expressed an interest in partnering with the group. Indeed, even the United States has sent signals that it is not averse to renegotiating an entry into the trade bloc at a later stage. Any prospect of securing a preferential trade relation with the United States and 11 other economies is certainly an outlook that beckons to India.

India already has steady trade relations or is negotiating new agreements with various CPTPP countries such as Canada, Mexico, and Chile. Furthermore, once the Regional Comprehensive Economic Partnership or RCEP (a trade alliance currently in negotiation among 16 countries in Asia and Oceania) materializes, India will have a trade pact in place with at least six countries that are part of both RCEP and CPTPP (Australia, Japan, Malaysia, New Zealand, Singapore, and Vietnam).

Despite the benefits that may ensue from CPTPP, scholars have cast aspersion on certain aspects of the pact. Professor of international economic law Diane Desierto noted that in comparison to RCEP, the CPTPP draft includes narrowly detailed qualifications on standards for investment protection, provisions to protect the host state’s right to regulate, and the imposition of detailed transparency requirements. India and other countries from the global South may face certain obstacles while embracing CPTPP.

The majority of the existing CPTPP members, which boast either developed or reasonably advanced economies, must have prudently concluded their accession considering their regulatory and domestic policy advantages. However, the agreement is devoid of any framework for special and differential (S&D) treatment for developing or least developed countries, making it less attractive for India (incidentally, RCEP subscribes to a WTO-like S&D mechanism to assist developing economies). Eminent third world scholar Professor B. S. Chimni brings attention to the unfairness and inequity stemming from the fact that the underlying formative framework of trade agreements is generally biased in favor of the global North. Chimni argues that the submissive participation of the global South in such pacts does not necessarily make these agreements as fair and legitimate.

Whether or not the United States has taken a pounding as a reliable trade partner, rising currents of isolationism and protectionism and signs of revival of import substitution and neomercantilism certainly point to a phase of trumped globalization. Nonetheless, preferential alliances such as RCEP are on the horizon whereby India and other countries of the global South can actively contribute in rule-making within the realms of international trade. At the same time, these negotiations must preserve a sound balance between sovereign commitments in the international economic arena and maintaining crucial domestic policy space, especially for the marginalized and oppressed sections of society.

Divesh Kaul is is currently enrolled in a doctoral study (SJD) at Tulane University, US. His interest areas include international economic law, law and development, human rights, and comparative law.

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