Beyond borders

Trans-Pacific Partnership launches new global trade regime

After long negotiations, 12 major trading countries have reached an agreement on the Trans-Pacific Partnership or TPP. The final text of the agreement is not yet known, and will have to be ratified by each country; but, if and when that process is completed, it will create a trade bloc that includes economies producing over 40 per cent of the world's output. This is a new-age trade agreement. Unlike those of the past, it does far more than just reduce tariffs; most importantly, it aims to harmonise regulations and procedures, and reduce sovereign risks, enabling companies to move more freely between jurisdictions. For President Barack Obama of the United States and Prime Minister Shinzo Abe of Japan, reaching an agreement has been a priority, and they have pushed it through in spite of the fraught process it had to overcome. Mr Obama will face troubles selling any deal to the US Congress - particularly to the many anti-trade legislators of his own party - but this agreement does buttress the argument that he has not abandoned the idea of a US global leadership. It has been reported that many troublesome issues - such as protection for Japanese rice - have been simply set aside. Those government officials participating in the process have suggested that most countries and interest groups have got less than they wanted. The logic of international negotiations, of course, is such that this means that the final TPP may be economically sound.

The TPP, as and when it comes into force, will add a new dimension to the current global trade regime. Negotiations will be less about tariffs and more about "beyond the border" issues such as local regulations and dispute regulation. There will be a distinct advantage to first-movers in such a regime. The harmonised regulations of the TPP will impact the Transatlantic Trade and Investment Partnership, or TTIP, between the US and Europe. More to the point, it will also inevitably affect the base positions of various countries negotiating the Regional Comprehensive Economic Partnership, between Southeast Asia, Australia, Japan, Korea - and China and India. The provisions of the TPP that will impact trade in services - including those on intellectual property - are most likely to concern Indian producers and thus negotiators. The environmental and labour standards built into the TPP, which India has stiffly resisted at the World Trade Organization, will also inevitably become part of the conversation.

India has stood aloof, by and large, from such "beyond the border" negotiations, stuck in a backward-looking, tariff-focused mode. Further, trade negotiations are driven by entrenched interest groups and industries, and any hint that domestic regulations may need to be overhauled to meet the demands imposed by freer trade is met with much protest from New Delhi's establishment. It is clear, now, that the world has moved on, and such a mindset is no longer tenable. Countries such as Vietnam have, through the TPP, signalled their willingness to undergo painful internal reform to update labour, environmental, and services standards. Whatever may be the merit of India's claims that first-world expectations of such standards cannot be applied to its producers, a strategy of staying aloof cannot help in today's environment. If India is to reverse its sliding exports, it must work to become part of the new global trade order. And that will require it to be open to the need for internal reform.