Rise of mega trade blocs

World trade is in the throes of a transition as two mega deals are being negotiated with a remarkable sense of urgency — the US-led Trans-Pacific Partnership comprising 10 core Asia-Pacific countries accounting for a GDP of about $20 trillion and the China-led Regional Comprehensive Economic Partnership comprising ‘Asean plus six’ countries, including India, accounting for a similar magnitude of world output. That the two formations are competing with each other to set the rules of world trade — if not create geo-political equations — is obvious, with the WTO regrettably fading into irrelevance. But this rivalry, as well as the fact that countries such as Japan, Singapore and New Zealand belong to both groups, could also lead to a certain convergence of agendas. Therefore, it is not surprising that Japan and Korea (an RCEP member and potentially a TPP one) are pushing for the inclusion of ‘WTO plus’ items such as services trade and intellectual property in RCEP talks, which have so far broadly adopted the Doha round approach. India’s discomfiture over Japan seeking to bring e-commerce to the RCEP table should be viewed in this context. The issue here is not whether e-commerce per se should be opened up or discussed, but whether a concession here can potentially alter the very nature of talks, putting India on a slippery slope. That could put at risk hard-fought gains at the WTO in other areas, such as intellectual property (IP) and agriculture subsidies.

While the RCEP seems open to considering the development needs of member countries, the TPP is more focused on market access — standardising rules on investment, IP, trade facilitation, government procurement, labour and environment. It is important that India plays a bigger role in setting the RCEP agenda — without, however, closing the door on the TPP camp. It is over agriculture, IP and ‘Mode 4’ (free movement of professionals) that India is likely to run into a roadblock with TPP actors. The US is keen to stitch a deal this year to prove a point to China. India should press for a ‘development’ agenda — going beyond a mega-FTA to creating an Asian community that allows for the respective countries to liberalise at different speeds — while also being flexible on matters such as trade facilitation and the opening up of services. If e-commerce is arguably not ready for competition, surely the legal services and entertainment sectors are, as the Prime Minister has pointed out.

While Chinese goods and ill-conceived FTAs have harmed sections of Indian industry, there is no getting away from our infirmities. Our exports are unable to compete on price and quality. We must create an ecosystem that encourages innovation, investment, quality and technology transfer. ‘Make in India’ entails improving infrastructure, easing procedures and ensuring contract enforcement, areas where we are notorious laggards. We must improve our physical and virtual connectivity with Asean countries as part of the so-called ‘Act East’ policy. A technologically confident India can negotiate without fear with any trade bloc that knocks on its door.

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