WTO and Mega-Trading Arrangements – India’s Interests and Negotiating Strategy
By: Amb (Retd) Ashok Sajjanhar
Gujarat National Law University, Gandhinagar, Gujarat
Date: October 03, 2016
I would like to thank Prof Bimal Patel, VC of GNLU and his team for the kind invitation. I would also like to thank XP Division of MEA and Sq Ldr Priya Joshi for making arrangements for my visit.
Issues related to national economy and international trade are very important. Their significance has continued to grow in recent times. In addition to military, political and strategic strength, economic power is a significant and integral component of a nation’s overall comprehensive strength. It plays an important role in the manner in which a country is looked upon by others. One example would suffice. In the aftermath of the international financial and economic crisis in 2007/2008 and subsequently at the beginning of the Eurozone sovereign-debt crisis, economies of western countries particularly USA, Europe, Japan etc were in decline and experiencing difficult and challenging times. India’s economy had experienced a down turn from the robust growth of 8.6% in 2008, on account of the flight of portfolio investments from the Indian stock market but the economy was still cruising along at a healthy growth rate of 6.8% in 2009 which further increased to 7% plus the next year. Also the flight of capital of USD 15 billion in 2008 was more than made up by fresh investments in the following years. The robust economic growth was responsible not only for the re-election of the UPA government under Dr Manmohan Singh in 2008 but also for the visit of the leaders of 5 permanent members of the UN security Council viz. President Barack Obama of USA, President Nicholas Sarkozy of France, President Dmitry Medvedev of Russia, PM David Cameron of UK and PM Wen Jiabao of China within a short span of six months in the second half of 2010 to court India. The world lost interest in India over the next four years as its growth rate plummeted to sub 5% level as a result of policy paralysis and several financial scams and scandals that the country had to contend with.
Relationship between economic growth and international trade has been debated for long. While there is not a complete agreement amongst all experts and economists, it can be safely said that under most circumstances, there is a direct and positive correlation between the two factors.
It is necessary for common people to have a good understanding of the principles and basis of international trade so that they can evaluate, comment on and appreciate the various policy decisions and actions being taken by the government in international negotiations. It is even more crucial for lawyers to have a detailed and in-depth understanding of the relevant issues because multilateral trade negotiations today are a very complex subject. As is said: ‘’Devil is in the detail’’. In all trade parleys, negotiators have to have a lawyer by their elbow to understand the full implications and ramifications of language on any complex issue that is being discussed.
India’s contribution to world trade has been progressively growing over the last many years. Analysis by the well known British economist Angus Maddison conclusively demonstrates that till about 250 years ago, just before India became colonized by the British, it accounted for more than 20% of the world GDP and a similar share of world riches and international trade. Going back in history, at the turn of the first millennium, India accounted for about 33% of world GDP with China coming a close second at about 26%. USA and Middle East accounted for a little more than 10% each.
India’s production, manufacturing and growth saw a rapid decline as a result of colonization in the 18th century with India being reduced to an exporter of only raw materials and all manufacturing of fine textiles and other products having been taken away to UK. At the time of independence, India accounted for just around 2% of international trade. As a result of economic and industrial policies of import substitution and creating tariff and non tariff barriers around the country pursued by successive Indian governments, India’s share of international trade further declined to 0.6% by 1990. This was just before the launch of the economic reform programme in wake of the disintegration of the Soviet Union and the worst economic crisis experienced by the country when it stared at the prospect of having to default on re-payment of its international debt. To obviate this eventuality and to develop some cushion to meet its import needs as the import cover had dwindled to barely 10 days, India had to physically transport its gold by aircraft loads to Bank of England in London and to Bank of Tokyo to borrow adequate funds to pay off its debts and ensure uninterrupted supplies of essential industrial and consumer imports. Today as a result of the economic reforms initiated in the early 1990s and the judicious policies pursued by the government since then, India has amassed a comfortable foreign exchange reserve of more than US$ 350 billion which is approximately equal to the total imports entering the country in 2015-16.
Significance and relevance of international trade has continued to grow over the last 25 years since the country started opening up its economy. In 1991 India’s foreign trade accounted for only 17% of its GDP. Today it accounts for around 45% of its GDP.
For all the above reasons and more, it is essential for young lawyers and scholars to have a good understanding of the international trading system.
Agreement was reached in 1994 to establish the World Trade Organisation (WTO). It came into effect on January 1, 1995. It is a successor Agreement to the General Agreement on Tariffs and Trade (GATT) which was established soon after the Second World War. To better understand and appreciate the functioning of WTO it is essential to have a good knowledge of the operation and evolution of GATT as this Agreement and its principles have themselves been incorporated in WTO.
General Agreement on Tariffs and Trade (GATT) was a multilateral agreement regulating international trade. Its purpose was the "substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis." It was negotiated during the United Nations Conference on Trade and Employment to establish the International Monetary Fund and the World Bank and was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO). GATT was signed by 23 nations in Geneva on October 30, 1947 and took effect on January 1, 1948. It lasted until the signature by 123 nations in Marrakesh on April 14, 1994 of the Uruguay Round Agreements, which established the World Trade Organization (WTO) on January 1, 1995.
The original GATT text (GATT 1947) is still in effect under the WTO framework, subject to the modifications of GATT 1994.
The first round of discussions between acceding governments took place in Geneva in 1947 and resulted in a package of trade rules and 45,000 tariff concessions affecting US$10 billion of trade, about one fifth of the world’s total.
The second round took place in 1949 in Annecy, France. 13 countries took part in the round. The main focus of talks was more tariff reductions, around 5000 in total.
Torquay Round: The third round occurred in Torquay, England in 1951. Thirty-eight countries took part in discussions. 8,700 tariff concessions were made.
Geneva Round: 1955–56: The fourth round returned to Geneva in 1955 and lasted until May 1956. Twenty-six countries took part in the round. US$2.5 billion in tariffs were eliminated or reduced.
Dillon Round: 1960–62: The fifth round occurred once more in Geneva and lasted from 1960-1962. The talks were named after U.S. Treasury Secretary and former Under Secretary of State, Douglas Dillon, who first proposed the talks. Twenty-six countries took part in the round. Along with reducing over US$4.9 billion in tariffs, it also resulted in discussions relating to the creation of the European Economic Community (EEC).
Kennedy Round: 1962–67: The sixth round of GATT multilateral trade negotiations, held from 1963 to 1967. It was named after U.S. President John F. Kennedy in recognition of his support for the reformulation of the United States trade agenda.
As the Dillon Round went through the laborious process of item-by-item tariff negotiations, it became clear that a more comprehensive approach was needed to deal with the emerging challenges resulting from the formation of the European Economic Community (EEC) and EFTA, as well as Europe's re-emergence as a significant international trading player more generally.
Japan's high economic growth rate portended the major role it would play later as an exporter, but the focal point of the Kennedy Round was the United States-EEC relationship. There was an influential American view that saw the beginning of a transatlantic partnership that might ultimately lead to a transatlantic economic community.
In May 1963 Ministers reached agreement on three negotiating objectives for the round:
(a) Measures for expansion of trade of developing countries as a means of furthering their economic development,
(b) Reduction or elimination of tariffs and other barriers to trade, and
(c) Measures for access to markets for agricultural and other primary products.
The working hypothesis for the tariff negotiations was a linear tariff cut of 50% with the smallest number of exceptions. The lofty working hypothesis was however soon undermined. The special-structure countries (Australia, Canada, New Zealand and South Africa), so called because their exports were dominated by raw materials and other primary commodities, negotiated their tariff reductions entirely through the item-by-item method.
In the end, the result was an average 35% reduction in tariffs, except for textiles, chemicals, steel and other sensitive products; plus a 15% to 18% reduction in tariffs for agricultural and food products. The developing countries which played a minor role throughout the negotiations in this Round, benefited only marginally from the tariff cuts. Their main achievement at the time, however, was seen to be the adoption of Part IV of the GATT, which absolved them from according reciprocity to developed countries in trade negotiations. In the view of many developing countries, this was a direct result of the call at UNCTAD I for a better trade deal for them.
There has been argument ever since whether this symbolic gesture was a victory for developing copuntries, or whether it ensured their exclusion in the future from meaningful participation in the multilateral trading system. On the other hand, there was no doubt that the extension of the Long-Term Arrangement Regarding International Trade in Cotton Textiles, which later became the Multi-Fiber Arrangement, for three years until 1970 led to the longer-term impairment of export opportunities for developing countries.
Another outcome of the Kennedy Round was the adoption of an Anti-dumping Code, which gave more precise guidance on the implementation of Article VI of the GATT. In particular, it sought to ensure speedy and fair investigations, and it imposed limits on the retrospective application of anti-dumping measures.
Kennedy Round took place from 1962-1967. $40 billion in tariffs were eliminated or reduced.
Tokyo Round: 1973–79: Reduced tariffs and established new regulations aimed at controlling the proliferation of non-tariff barriers and voluntary export restrictions. 102 countries took part in the round. Concessions were made on $190 billion worth of trade. The results included an average one-third cut in customs duties in the world’s nine major industrial markets, bringing the average tariff on industrial products down to 4.7%. The tariff reductions phased in over a period of eight years, involved an element of "harmonization” — the higher the tariff, the larger the cut, proportionally.
In other issues, the Tokyo Round had mixed results. It failed to come to grips with the fundamental problems affecting farm trade and also stopped short of providing a modified agreement on "safeguards” (emergency import measures). Nevertheless, a series of agreements on non-tariff barriers did emerge from the negotiations, in some cases interpreting existing GATT rules, in others breaking entirely new ground. In most cases, only a relatively small number of (mainly industrialized) GATT members subscribed to these agreements and arrangements. Because they were not accepted by the full GATT membership, they were often informally called "codes”.
They were not multilateral in application. Several codes were eventually amended in the Uruguay Round and turned into multilateral commitments accepted by all WTO members. Only four remained "plurilateral” — those on government procurement, bovine meat, civil aircraft and dairy products. In 1997 WTO members agreed to terminate the bovine meat and dairy agreements, leaving only two.
Uruguay Round: 1986–94: The Uruguay Round began in 1986. It was the most ambitious round to date, hoping to expand the competence of GATT to important new areas such as services, capital, intellectual property, textiles, and agriculture. 123 countries took part in the round. The Uruguay Round was also the first set of multilateral trade negotiations in which developing countries played an active role. Earlier negotiations used to take place amongst developed countries and subsequently multilateralised by extending the concessions to developing countries. Developing countries were required to, so to say, sign on the dotted line as they were not asked to make any tariff concessions while access to developed markets was extended to them as per the negotiations. It is a moot point whether they were able to take any benefit or advantage from the access thus provided as they did not have comparative advantage in items of high technology and innovation which were imported by developed markets.
Agriculture was essentially exempted from previous agreements as it was given special status in areas of import quotas and export subsidies, with only mild caveats. However, by the time of the Uruguay round, many countries considered the exception of agriculture to be sufficiently glaring that they refused to sign a new deal without some movement on agricultural products. These fourteen countries who were projected as efficient producers and exporters of agricultural goods came to be known as the "Cairns Group", and included mostly small and medium-sized agricultural exporters such as Australia, Brazil, Canada, Indonesia, Thailand, Hungary and New Zealand.
The Agreement on Agriculture of the Uruguay Round continues to be the most substantial trade liberalization agreement in agricultural products in the history of trade negotiations. The goals of the agreement were to improve market access for agricultural products, reduce domestic support of agriculture in the form of price-distorting subsidies and quotas, eliminate over time export subsidies on agricultural products and to harmonize to the extent possible sanitary and phytosanitary measures between member countries.
GATT and the World Trade Organization
In 1993, the GATT was updated (GATT 1994) to include new obligations upon its signatories. One of the most significant changes was the creation of the World Trade Organization (WTO). The 75 existing GATT members and the European Communities became the founding members of the WTO on 1 January 1995. The other 52 GATT members rejoined the WTO over the following two years. Since the founding of the WTO, 23 new non-GATT members have joined and 29 are currently negotiating membership. There are a total of 164 member countries in the WTO with Laos and Tajikistan being new members as of 2013 and Kazakhstan as of Dec 2015. Afghanistan is the newest member joining effective 29 July 2016.
Whilst GATT was a set of rules agreed upon by nations, the WTO is an institutional body. The WTO expanded its scope from traded goods to include trade within the service sector and intellectual property rights. Although it was designed to serve multilateral agreements, during several rounds of GATT negotiations (particularly the Tokyo Round) plurilateral agreements created selective trading and caused fragmentation among members. It came to be known as the ‘a la carte’ approach.
The WTO agreements are lengthy and complex because they are legal texts covering a wide range of activities. They deal with: agriculture, textiles and clothing, banking, telecommunications, government purchases, industrial standards and product safety, food sanitation regulations, intellectual property, and much more. But a number of simple, fundamental principles run throughout all of these documents. These principles are the foundation of the multilateral trading system.
A closer look at these principles is as follows:
1. Most-favoured-nation (MFN) treatment: Under the WTO agreements, countries cannot normally discriminate between their trading partners. If a country grants someone a special favour (such as a lower customs duty rate for one of their products) then it is required to extend the same tariff benefit to all other WTO members.
This principle is known as most-favoured-nation (MFN) treatment. It is the first Article of the General Agreement on Tariffs and Trade (GATT), which governs trade in goods. MFN is also a priority in the General Agreement on Trade in Services (GATS) (Article 2) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) (Article 4), although in each agreement the principle is handled slightly differently. Together, these three agreements cover all main areas of trade handled by the WTO.
Some exceptions are allowed. For example, countries can set up a free trade agreement that applies only to goods traded within the group — discriminating against goods from outside. Or they can give developing countries special access to their markets. Or a country can raise barriers against products that are considered to be traded unfairly from specific countries. And in services, countries are allowed, in limited circumstances, to discriminate. But the agreements only permit these exceptions under strict conditions. In general, MFN means that every time a country lowers a trade barrier or opens up a market, it has to do so for the same goods or services from all its trading partners — whether rich or poor, weak or strong.
2. National treatment: Treating foreigners and locals equally - Imported and locally-produced goods should be treated equally after the foreign goods have entered the domestic market. The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents. This principle of "national treatment” (giving others the same treatment as one’s own nationals) is also found in all the three main WTO agreements (Article 3 of GATT, Article 17 of GATS and Article 3 of TRIPS), although once again the principle is handled slightly differently in each of these.
National treatment only applies once a product, service or item of intellectual property has entered the domestic market. Therefore, charging customs duty on an import is not a violation of national treatment even if locally-produced products are not charged an equivalent tax.
3. Freer trade: gradually, through negotiation - Lowering trade barriers is one of the most obvious means of encouraging trade. The barriers concerned include customs duties (or tariffs) and measures such as import bans or quotas that restrict quantities selectively. From time to time other issues such as bureaucratic delays and exchange rate policies have also been discussed.
Since GATT’s creation in 1947-48, eight rounds of trade negotiations as detailed above have been completed. A ninth round captioned the Doha Development Agenda is now underway. As a result of negotiations, by the mid-1990s developed countries’ tariff rates on industrial goods had fallen steadily to less than 4%.
Opening markets can be beneficial, but it also requires adjustment. The WTO agreements allow countries to introduce changes gradually, through "progressive liberalization”. Developing countries are usually given longer to fulfil their obligations.
4. Predictability: through binding and transparency - Sometimes, promising not to raise a trade barrier can be as important as lowering one, because the promise gives businesses certainty and a clearer view of their future opportunities. With stability and predictability, investment is encouraged, jobs are created and consumers can fully enjoy the benefits of competition — choice and lower prices. The multilateral trading system is an attempt by governments to make the business environment stable and predictable.
The Uruguay Round increased bindings
Percentages of tariffs bound before and after the 1986-94 talks
| Developed countries
(These are tariff lines, so percentages are not weighted according to trade volume or value)
In the WTO, when countries agree to open their markets for goods or services, they "bind” their commitments. For goods, these bindings amount to ceilings on customs tariff rates. Sometimes countries tax imports at rates that are lower than the bound rates. Frequently this is the case in developing countries. In developed countries the rates actually charged and the bound rates tend to be the same.
A country can change its bindings, but only after negotiating with its trading partners, which could mean compensating them for loss of trade. One of the achievements of the Uruguay Round of multilateral trade talks was to increase the amount of trade under binding commitments as detailed above. In agriculture, 100% of products now have bound tariffs. The result of all this: a substantially higher degree of market security for traders and investors.
The system tries to improve predictability and stability in other ways as well. One way is to discourage the use of quotas and other measures used to set limits on quantities of imports — administering quotas can lead to more red-tape and accusations of unfair play. Another is to make countries’ trade rules as clear and "transparent” as possible. Many WTO agreements require governments to disclose their policies and practices publicly within the country or by notifying the WTO. The regular surveillance of national trade policies through the Trade Policy Review Mechanism provides a further means of encouraging transparency both domestically and at the multilateral level.
5. Promoting fair competition -
The WTO is sometimes described as a "free trade” institution, but that is not entirely accurate. The system does allow tariffs and, in limited circumstances, other forms of protection. More accurately, it is a system of rules dedicated to open, fair and undistorted competition.
The rules on non-discrimination — MFN and national treatment — are designed to secure fair conditions of trade. So too are those on dumping (exporting at below cost to gain market share) and subsidies. The issues are complex, and the rules try to establish what is fair or unfair, and how governments can respond, in particular by charging additional import duties calculated to compensate for damage caused by unfair trade.
6. Encouraging development and economic reform -
The WTO system contributes to development. On the other hand, developing countries need flexibility in the time they take to implement the system’s agreements. And the agreements themselves inherit the earlier provisions of GATT that allow for special assistance and trade concessions for developing countries.
Over three quarters of WTO members are developing countries and countries in transition to market economies. During the seven and a half years of the Uruguay Round, over 60 of these countries implemented trade liberalization programmes autonomously. At the same time, developing countries and transition economies were much more active and influential in the Uruguay Round negotiations than in any previous round, and they are even more so in the current Doha Development Agenda.
At the end of the Uruguay Round, developing countries were required to take on most of the obligations that are required of developed countries. But the agreements did give them transition periods to adjust to the more unfamiliar and, perhaps, difficult WTO provisions. A ministerial decision adopted at the end of the round said developed countries should accelerate implementing market access commitments on goods exported by the least-developed countries, and it sought increased technical assistance for them. More recently, developed countries have started to allow duty-free and quota-free imports for almost all products from least-developed countries.
Since the establishment of WTO in 1995, 10 Ministerial Conferences have been organized. An indication of discussions in the Conferences is given below.
First ministerial conference. The inaugural conference
was held in Singapore in 1996. Its primary purpose was to initiate an international effort among global trading nations to overhaul the structure and mechanisms of the General Agreement on Tariffs and Trade (GATT) while preserving the considerable progress and success achieved by that system since its inception in 1948.
Disagreements, largely between developed and developing economies, emerged over four issues – government procurement, investment, competition, and trade facilitation - initiated by this conference; afterward, these were collectively referred to as the "Singapore issues".
Second ministerial conference -
Was held in Geneva in Switzerland in 1998.
Third ministerial conferenc
e in Seattle, United States in 1999 ended in failure, with massive demonstrations and police and National Guard crowd control efforts drawing worldwide attention.
Fourth ministerial conference
was held in Doha In Persian Gulf nation of Qatar in 2001. The Doha Development Agenda (DDA) was launched at the conference. The conference also approved the joining of China, which became the 143rd member to join.
Fifth ministerial conference
was held in Cancún, Mexico in 2003, aiming at forging agreement on DDA. An alliance of 22 developing countries, the G20 (led by India, China and Brazil), resisted demands from the North for agreements on the so-called "Singapore issues" and called for an end to agricultural subsidies within the EU and the US. The talks broke down without progress.
Sixth ministerial conference
was held in Hong Kong in December, 2005. It was considered vital for sufficient progress in the four-year-old Doha Development Agenda negotiations to conclude the round in 2006. In this meeting, countries agreed to phase out all their agricultural export subsidies by the end of 2013, and terminate any cotton export subsidies by the end of 2006. Further concessions included an agreement to introduce duty-free, tariff-free access for goods from the Least Developed Countries, following the Everything But Arms initiative of the European Union — but with up to 3% of tariff lines exempted. Other major issues were left for further negotiation to be completed by the end of 2006.
Seventh ministerial conference
was held in 2009 in Geneva, Switzerland. The general theme for discussion was "The WTO, the Multilateral Trading System and the Current Global Economic Environment".
Eighth ministerial conference
was held in December 2011 in Geneva. Russia, Samoa, and Montenegro were admitted as new members.
Ninth ministerial conference
was held in December 2013 in Bali, Indonesia. 159 members of World Trade Organization agreed to the Bali Package which eased barriers to international trade. It was agreed to adopt the trade facilitation agreement which had been under discussion since the first Ministerial Meeting in Singapore in 1996.
Tenth ministerial conference
The WTO's 10th Ministerial Conference was held in Nairobi, Kenya in December 2015.The completion of Afghanistan and Liberia's accession to the WTO was approved. It culminated in the adoption of the "Nairobi Package", a series of six Ministerial Decisions on agriculture, cotton and issues related to least-developed countries (LDCs).
Doha Development Agenda (DDA):
The WTO launched the current round of negotiations, the Doha Development Agenda (DDA) or Doha Round, at the Fourth Ministerial Conference in Doha, Qatar in November 2001. The Doha round was to be an ambitious effort to make globalisation more inclusive and help the world's poor, particularly by slashing barriers and subsidies in farming. The initial agenda comprised both further trade liberalization and new rule-making, underpinned by commitments to strengthen substantial assistance to developing countries.
The negotiations have been highly contentious and agreement has not been reached despite the intense negotiations at several Ministerial Conferences and at other sessions. The only positive substantive outcome has been the decision to implement the Trade Facilitation Agreement as a quid pro quo to an indefinite peace clause’’ till an acceptable solution to the issue of stockpiling which is found essential by large developing countries to meet their public distribution system obligations is not reached.’’
A large number of Mega Trading Arrangements have sprouted all over the world because countries have got frustrated by the slow progress in negotiations under the DDA. Developed countries have been demanding that large developing economies known as the Emerging Economies should rapidly open up their markets to foreign imports. Developing countries are not agreeable to this as they maintain that the underlying philosophy of DDA was the opening up of developed country markets for benefit of developing countries. Developed countries feel that circumstances today are radically different from 2001 when DDA was launched. International economic and financial crisis intervened in 2007/2008 followed by the Eurozone sovereign debt crisis. This has severely depleted the possibility, developed countries claim, of their opening up their markets to developing countries. Moreover these countries are plagued by challenges of refugee crisis and terrorist attacks. On the other hand economies of emerging markets like China, India, Indonesia, and Vietnam have expanded rapidly and they should be pressurized to accept more responsibilities in giving an impulse to international trade. The number of countries which are participating in these negotiations is unprecedentedly high. All these countries have their own concerns and interests and it becomes extremely difficult to harmonize and manage all of them simultaneously.
In response to these inordinate delays and unending discussions under the DDA, several countries have got together to negotiate Mega Trading Agreements in which the level of rights and obligations is much higher than those assumed under the WTO in 1995.
Some of the important MTAs are:
Trans Pacific Partnership:
The Trans-Pacific Partnership (TPP) or Trans Pacific Partnership Agreement (TPPA) is a trade agreement among twelve Pacific Rim countries - notably not including China. The finalized proposal was signed on 4 February 2016 in Auckland, New Zealand, concluding seven years of negotiations. It is currently awaiting ratification to enter into force. The 30 chapters of the agreement aim to "promote economic growth; support the creation and retention of jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty in the signatories' countries; and promote transparency, good governance, and enhanced labor and environmental protections." The TPP contains measures to lower both non-tariff and tariff barriers to trade, and establish an investor-state dispute settlement mechanism.
The TPP began as an expansion of the Trans-Pacific Strategic Economic Partnership Agreement (TPSEP or P4) signed by Brunei, Chile, New Zealand, and Singapore in 2005. Beginning in 2008, additional countries joined the discussion for a broader
Australia, Canada, Japan, Malaysia, Mexico, Peru, the United States, and Vietnam, bringing the total number of countries participating in the negotiations to twelve. Current trade agreements between participating countries, such as the North American Free Trade Agreement will be reduced to those provisions that do not conflict with the TPP or provide greater trade liberalization than the TPP. The United States government considers the TPP a companion agreement to the proposed Transatlantic Trade and Investment Partnership (TTIP), a broadly similar agreement between the U.S. and the European Union.
Participating nations aimed at completing negotiations in 2012, but the process was prolonged by disagreements over contentious issues, including agriculture, intellectual property, and services and investments. They finally reached agreement on 5 October 2015. Implementing the TPP has been one of the trade agenda goals of the Obama administration in the U.S.
The agreement cuts over 18,000 tariffs. Tariffs on all U.S. manufactured goods and almost all U.S. farm products would be eliminated completely, with most eliminations occurring immediately. According to the Congressional Research Service, TPP "would be the largest U.S. FTA by trade flows ($905 billion in U.S. goods and services exports and $980 billion in imports in 2014)". The signatories represent roughly 40% of global GDP, and one-third of world trade.
In addition, the agreement mandates expedited customs procedures for express shipments and prohibits customs duties from being applied to electronic transmissions. It also requires additional privacy, security, and consumer protections for online transactions and encourages the publication of online customs forms. These provisions are expected to be particularly beneficial to small businesses.
According to the Office of the United States Trade Representative, the "TPP includes the most robust enforceable environment commitments of any trade agreement in history". According to the USTR, TPP is the first trade agreement to prohibit harmful fisheries subsidies, such as those that contribute to overfishing. The USTR asserts that TPP signatories are required to "combat illegal fishing", "promote sustainable fisheries management practices", and "protect wetlands and important natural areas", "combat wildlife trafficking, illegal logging, and illegal fishing" and "protect the marine environment from ship pollution, including by implementing their obligations under MARPOL (an international agreement to prevent marine pollution)".
The Peterson Institute for International Economics argues that the TPP is "the most environmentally friendly trade deal ever negotiated." A September 2016 report by the Institute for Agriculture and Trade Policy (IATP) predicts that "as countries take action to protect the climate, conflicts between trade rules and climate goals will escalate". The report goes on to say that trade agreements like the TTP set broad-reaching rules for the economy and government policy, thereby expanding trade, often in extractive sectors, and protecting corporations and financial firms from future measures to stabilize the climate.
According to the Office of the United States Trade Representative, signatories are required to join the United Nations Convention Against Corruption (UNCAC); criminalize bribery of public officials; have in place a code of conduct for public officials; take measures to decrease conflicts of interest; effectively enforce anti-corruption laws and regulations; and involve private organizations in the fight against corruption.
According to the Office of the United States Trade Representative, the TPP prohibits exploitative child labor and forced labor; ensures the right to collective bargaining; and prohibits employment discrimination. The USTR asserts that "research by the International Labor Organization and the World Trade Organization finds that combining expanded trade opportunities with strong protections for workers can help workers move from informal-sector jobs into formal work in wage-paying, regulated export industries which offer a minimum wage, benefits, and safety programs". The USTR asserts that "research also shows that trade improves human rights conditions by fostering pluralistic institutions and increasing open exchanges of information."
The intellectual property section lays out a minimum level of protection that parties to the Agreement must grant for trademarks, copyright, and patents. Copyright is granted at a length of life of the author plus 70 years, and requires countries to set criminal penalties for violating copyright protections such as Digital Rights Management.
According to the Office of the United States Trade Representative, the TPP will spur innovation by requiring signatories to establish strong patentability standard and adopt strong copyright protections.
In May 2015, Nobel Memorial prize winning economist Paul Krugman expressed concern that the TPP would tighten the patent laws and allow corporations such as big pharmaceutical companies and Hollywood to gain advantages, in terms of increasing rewards, at the cost of consumers, and that people in developing countries would not be able to access the medicines under the TPP regime. However, Walter Park, Professor of Economics at American University, argues that it is far from clear in economic research that this would necessarily happen: clarifying intellectual property rights on drugs has for some developing countries not led to greater prices and less access to drugs. Park also argues, based on the existing literature, that the pharmaceutical protections in TPP will potentially enhance unaffiliated licensing in developing countries, lead to tech transfers that contribute to local learning-by-doing, stimulate new drug launches in more countries, expand marketing and distribution networks, and encourage early stage pharmaceutical innovations. The Office of the United States Trade Representative notes that the TPP "aligns with the Doha Declaration on TRIPS and Public Health", which allows developing countries to circumvent patent rights for better access to essential medicines.
Pharmaceutical companies have criticized TPP for having too lenient intellectual property protections.
The TPP agreement establishes an investor-state dispute settlement (ISDS) mechanism, which grants investors the right to sue foreign governments for treaty violations. For example, if an investor invests in country "A", a member of a trade treaty, and country A breaches that treaty, then the investor may sue country A's government for the breach. ISDS is meant to provide investors in foreign countries basic protections from foreign government actions such as "freedom from discrimination", "protection against uncompensated expropriation of property", "protection against denial of justice" and "right to transfer capital":
ISDS cannot overturn local laws (unlike the World Trade Organization) which violate trade agreements, but can grant monetary damages to investors adversely affected by such laws. As pointed out by the Office of the United States Trade Representative, ISDS requires specific treaty violations, and does not allow corporations to sue solely over "lost profits".
The TPP specifically excludes tobacco industries from the ISDS process. The carve-out came as a response to concerns about ISDS cases against anti-smoking laws. The exemption of tobacco from ISDS is a first for an international trade agreement.
Economists Joseph Stiglitz and Adam S. Hersh criticized the ISDS provisions of TPP for interfering with the ability of governments to prevent public harm, alleging that if asbestos had been discovered today, governments would have been unable to impose regulations without creating grounds for an ISDS suit. Stiglitz also claimed that the TPP would give oil companies the right to sue governments for efforts to reduce carbon emissions and global warming.
In November 2015, Columbia professor Jeffrey Sachs concluded that the ISDS system of the TPP grants huge power to investors, and damages the judicial systems of all the member countries. He alleged that ISDS has been already used by corporations to upset governments so as to weaken the regulations that have negative effects on their profits.
The Peterson Institute for International Economics (PIIE)argues that "the ISDS provisions in the TPP are a significant improvement over those in previous agreements". PIIE notes that the ISDS mechanism in the TPP respects environmental, health, and safety regulation; ensures the transparency of dispute proceedings; and eliminates forum shopping.
According to the Office of the United States Trade Representative, the TPP imposes "binding and fully enforceable obligations" on signatories to "protect the freedom to form unions and bargain collectively" and "eliminate exploitative child labor and forced labor protect against employment discrimination". The obligations include "laws on acceptable conditions of work related to minimum wages, hours of work, and occupational safety and health." The USTR insists that if countries like Malaysia and Vietnam do not enforce provisions relating to forced labor, human trafficking and collective bargaining, they will cease to get the economic benefits of the TPP agreement.
Economic impact -
According to The New York Times, economists are sharply split over the positive and negative effects of TPP. For example, research by the U.S. International Trade Commission, the Peterson Institute for International Economics and the World Bank find that the agreement will lead to net positive economic outcomes for all signatories, while an analysis by two Tufts economists finds that the agreement will adversely affect the signatories.
Effects on economic equality
In 2013, Nobel prize-
winning economist Joseph Stiglitz warned that, based on leaked drafts of the TPP, it "serves the interests of the wealthiest." Organised labour in the U.S. argued, during the negotiations, that the trade deal would largely benefit corporations at the expense of workers in the manufacturing and service industries. The Economic Policy Institute and the Center for Economic and Policy Research have argued that the TPP could result in job losses and declining wages.
Economists Peter A. Petri and Michael G. Plummer challenge the view that TPP will primarily benefit the wealthy. Their analysis finds that "the gains from TPP appear to be fairly distributed—labour will gain relative to capital, and cost reductions will favour low-income households. Some workers will need to change jobs, but they constitute a small fraction of normal job churn in any given year, and the national benefits argue for generous compensation for their adjustment costs. The agreement will also benefit workers in TPP's poorest member countries." Research by Harvard economist Robert Z. Lawrence finds that the "percentage gains for labor income from the TPP will be slightly greater than the gains to capital income. An opinion piece by Ed Gerwin in the Wall Street Journal argues that the TPP agreement will benefit small businesses in the US.
TPP is much more than a mere trade agreement. It is a strategic agreement designed to check and curtail the rising power and influence of China in Asia and other regions of the world. While notifying the Agreement to the US Congress last year Obama said that United States cannot allow countries like China to write future rules of international trade, innovation and production. It is designed to ensure continuation of US dominance over global trade. The Agreement establishes ambitious and far-reaching rules on issues encompassing labour, environment, competition, government procurement several of which have never been captured earlier in trade agreements. TPP represents the economic element of Obama’s pivot to Asia to counter China’s economic growth and rise. It is also a key component of economic reforms launched by Japanese Prime Minister Shinzo Abe. The Agreement is a reflection of the growing influence and importance of multinational corporate houses. The Investor State Dispute Settlement provision of the Agreement provides many more rights and possibilities to big corporate as compared to any other international accord. In fact the right to sue a foreign government which has been provided in this agreement is the first of its type in any agreement of this nature.
Regional Comprehensive Economic Partnership (RCEP):
Negotiations for the Regional Comprehensive Economic Partnership (RCEP) were launched by leaders from ASEAN and ASEAN's free trade agreement (FTA) partners in the margins of the East Asia Summit in Phnom Penh, Cambodia on 20 November 2012.
RCEP is an ASEAN-centred proposal for a regional free trade area, which would initially include the ten ASEAN member states and those countries which have existing FTAs with ASEAN – Australia, China, India, Japan, Republic of Korea and New Zealand. RCEP has the potential to deliver significant opportunities for regional businesses. The 16 RCEP participating countries account for almost half of the world’s population, almost 30 per cent of global GDP and over a quarter of world exports.
The objective of launching the RCEP negotiations is to achieve a modern, comprehensive, high-quality and mutually beneficial economic partnership agreement that will cover trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement and other issues.
RCEP forms part of the regional strategy for lowering trade barriers and securing improved market access for exporters of goods and services, and investors of member countries.
Key interests and benefits:
RCEP will provide a basis for more open trade and investment in the region. This will help address concerns about a ‘spaghetti bowl’ of overlapping bilateral agreements and derive additional benefits (eg. through supply chains) from regional liberalisation.
A number of countries are parties to both the Trans-Pacific Partnership Agreement (TPP) and the RCEP viz. Australia, New Zealand, Vietnam, Brunei, Malaysia, Japan, Singapore and Thailand.
Four Ministerial Meetings and fourteen rounds of negotiations amongst participating countries have been held so far. It was initially expected that the negotiations will be concluded by 2015. This did not materialize. It appears that it will not be possible to conclude Talks by the end of 2016 also. The matter was discussed in detail at the East Asia Summit in Vientiane, Laos on 8th September, 2016 and it was decided that all participating countries should endeavour to conclude negotiations without any delay. Pressure on participating countries to finalise Talks has risen because they do not wish to be left behind after the conclusion of Talks on TPP.
India’s interests lie mostly in services, the removal of technical barriers to trade such as those taken under sanitary and phyto-sanitary measures, and trade in goods such as pharmaceuticals and textiles. India has been negotiating hard to liberalise the free movement of professionals in the services agreement (mode 4), in order to offset the revenue loss from goods liberalisation.
India thinks its best bet is in exporting services, through which it can supply its burgeoning skilled professionals to other countries, thus partially meeting the demand for jobs from a million people joining the labour market every month. But at the same time there are serious limitations to this. Many complain that India’s service trade with ASEAN is insignificant, and moreover India faces stiff competition on services from countries like the Philippines.
Issues of temporary movement of professionals, market access, intellectual property rights, agriculture and some sectors of services trade are proving to be bottlenecks in finding common ground amongst all participating countries. It is however being hoped that a Final Text could emerge soon.
Several more similar trading Arrangements have been launched all over the world which are in different stages of progress. In addition China has launched its Belt and Road Strategy as a response to USA’s TPP. This is also much more than a mere trading arrangement and has strategic ramifications. China is attempting to draw around 60 countries in its fold to isolate the USA. These countries include the region of South Asia, Central Asia, South East Asia, Middle East, Europe and Africa. It is a highly ambitious project and the jury is still out whether it will be able to achieve its objective.
India’s Interests: India has always been a purist in matters relating to the multilateral trading system with the conviction that a fair, open, transparent and balanced trading regime is in the interest of developing countries as it constrains the economic power of big and powerful countries and ensures that they follow international rules on the subject. As a result India till recently was not supportive of regional trading arrangements or free trade pacts or custom union agreements as it felt that they detract from the viability and credibility of the multilateral trading system. Moreover it has never been conclusively proved and demonstrated convincingly that such agreements are in conformity with Article XXIV of GATT so that they result in trade creation and not trade diversion. India has not been convinced that these Agreements are building blocks to a more free and open multilateral trading system. However seeing the rush amongst major world trading powers towards entering into FTAs and delay in concluding the Doha Round, India also embarked on such negotiations apprehensive that it might be left behind. The first bilateral FTA concluded by it was at the end of 1990s with Sri Lanka.
In addition to discussions on RCEP, India is engaged in several other negotiations with Canada, with Australia, with BIMSTEC countries, with MERCOSUR, with SADC and others. So far it has signed FTA or CEPA deals with ASEAN, Japan, Malaysia, ROK, Thailand, Singapore and some others. India is vigorously pursuing the conclusion of negotiations under the DDA while also pursuing negotiations in bilateral, regional and multilateral trading arrangements.