US's departure from TPP. What's in store for India?

Just after winning the presidential election, US president Donald Trump announced that the US would pull out of the Trans-Pacific Partnership (TPP) trade pact right on his first day in office. He announced that the pact he feels is a disaster for US and  instead, he mentioned how keen he was to negotiate fair, bilateral trade deals that would otherwise bring jobs and industry back on to the American shores.

The global economy was long awaiting a confirmation on TPP, as President Barack Obama was trying hard to seek US congressional ratification for the TPP while in office. The TPP has faced stiff political opposition, for a while now. Trump was very vocal in his opposition to the TPP as well as NAFTA throughout his campaign and gave clear vibes as what could be expected with his coming to power.


Signed in February 2016, the TPP involved namely the following nations: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam. The idea of a trans-Pacific partnership was initiated by four countries – New Zealand, Singapore, Chile and Brunei – way back in 2002.

While this was the initial list, but US under Obama had an intent to join the pact and China was more or less ready to bend if majority was with the pact or else stay away citing their own cost parameters.

The agreement is a 4,500-page document, that took almost seven years to reach a formulation. The TPP represents a new generation of 21st-century trade agreements, creating new mechanisms to govern cross-border economic activities with much higher standards than any existing bilateral, regional and multilateral trade agreements have achieved. As experts have pointed out, the pact is a kind of “economic constitution” governing cross-border trade and investment with a greater emphasis on the removal of regulatory barriers. The TPP also contains stringent rules on a wide range of issues such as cross-border investments, intellectual property rights (IPRs), state-owned enterprises, government procurement, e-commerce, services liberalisation, regulatory coherence, labour and the environment.

Japan and US held the pilot's seat and Japan is the only TPP member country to have voted to pass their consent on the deal. As per the rules laid out in the TPP, the agreement allows for a two-year ratification period in which at least six original member countries – representing 85% of the combined GDP of the group – should approve the text for the agreement in order for it to be implemented. The US accounts for nearly 60% of the group’s GDP. With the US announcing its withdrawal, the TPP agreement simply cannot enter into force even if all the remaining 11 member countries sanction the agreement.

In simple terms, with US withdrawing from the TPP, in its present form, kills the future of the pact. The same is as good as dead.

What about India?

Obama looked at, the TPP from a totally different angle, which was not purely a trade and investment agreement. Obama and his aides foresaw huge strategic value in joining this pact. The TPP was a key component of Obama’s “rebalance” policy towards Asia which rested on three pillars: economy, politics and security. Obama repeatedly emphasised the importance of the US maintaining its leadership role in crafting global trade rules and how the TPP would strengthen the US’s power to set the rules of global trade.

But in the absence of the resurrection stone, the death of TPP  in many important ways, has eased the pressure on India – which is not supportive of the RCEP’s ambitious agenda on IPRs, investment and zero tariffs due to the potentially negative impact it could have on local Indian producers and businesses. For India and many other developing countries, the pressure to sign bilateral and regional FTAs in order to counter other mega-regional trade pacts (such as the TPP) has subsided for the time being. The TPP’s collapse has also weakened the negotiating position of countries like Japan and Australia in RCEP discussions.

But India certainly can bank on a few benefits owing to TTP's untimely death, but the country surely has to reap the best of these positives of the tunnel that has just opened in front of  her.

With TTP exiting from the backdoor, Vietnam's lucrative business arena, US, completely vanishes. India's domestic textile industry has been continuously eclipsed by nations like Bangladesh and Vietnam with cheaper production costs and aggressive marketing. So with Vietnam taking a backseat, India's channel with US gets cleared of the blocks. The absence of TPP will also give member nations more reason to push for a successful RCEP at the earliest. This is surely an advantage for India.

There has been pressure on India to conform to stricter standards of labour, intellectual property and investment earlier owing to TPP discussions and arguments. However even though RCEP encompasses a lot of regional factors but still the pressure on India certainly eases out. Apart from this, the major issues of concern for the country have been the proliferation of non-tariff barriers (NTB) to trade as a result of TPP and greater trade diversion.  Trade restrictions like quotas, embargoes and sanctions, could have  been imposed on India by nations signatory to the TPP to keep the balance of trade with other member nations. Trade diversion was also a significant concern with TPP commanding great clout in dictating trade among third party nations and acquiring markets still untapped. However the same has been comfortably put to rest now.

The TPP had been brought in as a battle between the US and manufacturing powerhouse China over domination of global trade. So now, China's loss will surely be a gain for India, as the US will eventually have to step up bilateral understandings on trade matters, even with India. So India surely has a better hope with TPP's exit.

What Next?

The TPP has now become a TPP (minus one) Pact. Even though Japan is still holding the sails, but convincing the other 11 countries to join hands, is certainly a big thing to expect now that US has formally call it quits. While Vietnam has completely showed their reluctance towards any further attachment, Thailand and Indonesia are however keen on the deal.

But considering the dead state of TTP, will there be hope for RCEP? The RCEP is a proposed mega-regional FTA between 16 countries – ten ASEAN countries and their six FTA partners, namely, Australia, China, India, Japan, South Korea and New Zealand. If accomplished, the RCEP would pave the way for the creation of the largest free-trade bloc in the world, covering 45% of the world’s population with a combined GDP of US $22 trillion and accounting for 40% of global trade.

It can now be judged that the pilots of TPP barring US, in particular Japan, Australia and New Zealand, who are also members of the proposed Regional Cooperation Economic Partnership (RCEP) will now shift their attention to this pact  further pushing for TPP-like provisions at RCEP to maximise the best possible outcome following the imminent demise of the TPP. RCEP is surely gaining importance as recently Peru and Chile have also expressed interest in joining this pact.

The legally binding RCEP covers a wide range of issues including trade in goods and services, investment, intellectual property rights, competition policy, dispute settlement and economic and technical cooperation. Apart from this since 2013, the US has been negotiating the Transatlantic Trade and Investment Partnership (TTIP) – another ambitious free-trade agreement with the EU. The future of this pact has also become highly uncertain post Brexit and Trump’s election victory.

It is only the future that holds answer to the trade governance around the world, while every country have to buck up and consider their interest and their FTA's before committing to the global pacts.

Related Articles
Leave a Comment