The timing of the conclusion of the Trans-Pacific Partnership on October 4 coincides with a continuous slump in export growth in India which will definitely be a major deterrent to India's high and sustained growth ambitions. India's next-generation trade reforms should be linked to the changed global trade landscape, which integrates goods, services and technology to connect with a world dominated by global value chains (GVCs). This linkage to GVCs will boost our exports of goods and services and FDI; raise GDP growth and sustain it; and create jobs (through SMEs and labour-intensive professional services) to make growth inclusive. We don't need a sole focus on manufacturing since it is linked to services and technology. We are in the world of tasks - not goods. The WTO "silo" approach on agriculture, manufacturing, and services do not really fit into this new trade landscape. This is going to be a world of mega-regionals, with the TPP leading the way.
To link to the TPP's GVCs covering over 40 per cent of the global economy, we need to be better placed to first reduce the massive trade transactions costs in India through trade facilitation and logistical facilitation reforms. Along with it the business environment has to make doing business a breeze. This will allow SMEs to link to global supply chains (43 per cent of jobs in the emerging countries comes from SMEs). This ease of doing business will also encourage a larger flow of efficiency-seeking FDI with the aim of making India a competitive hub in the supply chain process. This will create jobs and make inclusive growth real. We still have some way to go in trade facilitation reforms, and India has slipped by two places in the latest World Bank's Doing Business rankings to 142 out of 189 countries.
The WTO trade facilitation agreement is necessary for trade facilitation, but not sufficient. It focuses just on at-the-border issues, but ignores behind-the-border (logistics and regulatory) issues and across-the-border issues that plague India.
Behind-the-border transaction costs are largely dependent on India's poor logistics capacity. Logistics reforms that impact transactions costs behind the border include: transport infrastructure such as road, rail, ports, and airports; reliable communications and technology infrastructure; and quality logistics services such as transport operators. Quality logistics behind the border allows for efficient and reliable movement of goods and services throughout the country, which translates into lower transaction costs (as well as greater SME market access by removing costly barriers). For example, the WTO estimates that the doubling of a country's paved roads can boost trade by as much as 13 per cent. While logistics is a key driver of internal (or behind-the-border) transactions costs, other policies will also have a significant impact, including introduction of a first-rate goods and services tax which will unify the Indian market. This will sharply reduce the massive truck waiting time at state borders.
Across-the-border issues we need to focus on are standards harmonisation, business mobility and creation of the trade information and e-business infrastructure. The last item calls for effective public-private partnerships to help businesses, especially SMEs, connect to global markets. All these policies along with the highest trade policy standards in goods and services, competition policy, public sector reforms, IPR, labour and environment standards will facilitate the development of GVCs, and seamless trade enhancing efficiency, and supporting cross-border integration, as well as opening domestic markets. The TPP will also promote innovation, productivity and competitiveness by addressing the new issue of development of the digital economy which is a major focus of the prime minister.
With the recent signing of the TPP deal in Atlanta by the trade ministers of Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States and Vietnam, we will soon have in place, after this deal is approved in the national legislatures, and along with the TTIP, the largest and most diversified global value chain in the world. Countries that want to be major trade players must conform to the gold standards of TPP in the stipulated trade policy areas, which are all WTO++. In fact, there will soon be a scramble for joining the TPP in the next round. Several Asean countries are busy preparing to join - Korea, the Philippines, Thailand, and Indonesia. Even China is fully geared up to conform to the TPP's standards.
India has no choice but to ensure that it is not left out of this large group that constitutes its major trading partners. Just reliance on non-TPP/TTIP countries is not an option. According to a recent study by the Peterson Institute, Indian exports will gain $500 billion a year by being an active member of TPP, which will also allow it to benefit from TTIP. We need to ensure that very soon we are a member of Apec, which is a requirement for joining TPP, and simultaneously work towards meeting the trade standards of TPP. This is indeed a wakeup call for India.
India's regionalism efforts so far were largely uncoordinated and FTAs were put into motion with modest success. India also invested a lot of negotiating energy in FTAs with industrialised economies like Japan and the EU. These agreements follow the old 20th-century model of trade negotiating strategy, i.e. a focus on tariffs and trying to keep the sectors that are most sensitive (or have the most lobbying power) out of the tariff reduction schedule. Deeper engagement on technical standards and related barriers, trade facilitation, or on the regulatory aspects of services market access - the issues that define effective market access in this integrated global economy - are not a part of such agreements.
Given the current global scenario, it would make sense for India to look to a deeper regionalism that incorporates the 21st-century trade negotiating mandate. TPP clearly sets the model for that.
Membership of TPP however is not automatic. India will have to fulfill the strict requirements of elimination of tariffs and other barriers to trade and investment, a WTO++ IPR regime and the other behind- and across-the-border issue enumerated earlier. Labour and environment policies are also on the agenda, though how far these will be enforced is not yet clear.
Given the diversity of membership in TPP, the same rules obviously will not apply to all countries. Also, India does need to move swiftly on most of these policies on its own, to fulfill its objective of becoming a major global player. It is high time that India develops a bold and well-focused 21st century trade strategy to regain its lost export momentum. The TPP gold standards should be seen as a window of opportunity for helping to achieve that.
The writer is a former economic advisor in the commerce ministry
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
