Trade and national interest

In Atlanta, on 5 October, amidst great fanfare, the United States, Canada, Japan and nine Pacific Rim nations announced the final agreement on the Trans-Pacific Partnership (TPP).

The TPP, if ratified by its members—a big if, especially in the US, entering election season—will become the world’s largest preferential trade agreement, covering nations accounting for some 40% of global income. China and India—two of the largest and most important economies in Asia, apart from Japan—are notable by their absence at this juncture.

Hardly had the ink dried on the agreement than a chorus of commentaries from Washington DC to Delhi decried India’s lack of engagement with the TPP process and urged India to sign on the dotted line with alacrity.

Leading the charge, in a briefing released in September—in advance of the final agreement—Fred Bergsten of the Peterson Institute for International Economics, an influential Washington DC think tank, argued aggressively that India must join TPP, holding out the promise of significant economic gain if it did, and warning of considerable economic cost if it failed to do so.

If it does join, India would essentially be signing on to an American-designed template, not just on the opening of trade and investment, but crucially, in a multiplicity of non-trade related areas, such as labour and environmental standards, and, especially important for India, intellectual property protection (IPP). This would require, thus, a ratcheting up of India’s IPP regime to US levels, which would almost surely jeopardize India’s generics pharmaceutical industry while offering the uncertain gain of increased innovation and access to the US and other markets.

Bergsten, in other words, would have us believe that what is in America’s national interest also happens to be in the Indian interest! One may be forgiven for being cynical of such a view, coming as it does out of Washington DC, and in a paper purportedly funded by US corporate interests who would stand to gain handsomely if India’s markets were pried open.

Not to be outdone, a leading Indian business daily averred that India has been stuck in a “backward-looking, tariff focused mode”, and unwilling or unable to engage with contemporary “beyond the border” issues such as the domestic regulatory environment—and urged India to embrace internal reform, presumably via the channel of signing up to external economic agreements.

There are two principal flaws with such argumentation.

First, while it is true that the freeing of trade among nations is, generally, mutually gainful—leaving aside for the moment “second best” considerations arising from the fact that an arrangement such as TPP is a preferential, plurilateral deal, rather than globally freeing trade through the multilateral route—it is manifestly not true that if one nation is cajoled or coerced into adopting the regulatory norms of its partners, such a move is mutually gainful.

Rather, if, say, India is forced to “harmonize”—a euphemism for being forced to adapt—its IPP norms to US levels, what will be involved, as a matter of economics, is not mutual gain, but rather the transfer of economic surplus from India to the US, as, among others, large US pharmaceutical firms will gain at the expense of their Indian rivals. Privately, even those sympathetic to US corporate interests admit as much when it comes to putative Indian accession to the TPP.

The second principal fallacy of the argument made by Bergsten and those of his ilk is the claim that, in the case of India and the TPP, joining up to an international agreement can be a goad for domestic economic reform. The example of Mexico and other Latin American economies is routinely trotted out to support this proposition, but this facile analogy misses entirely that the Indian political economy is fundamentally different.

In India, economic reform has marched to its own idiosyncratic tune, occurring in fits and starts from 1991 to the present. Apart from the initial jolt of the 1991 macroeconomic crisis, there is no credible case that international economic conditions—to say nothing of international economic agreements—have been a principal driver of economic policy reforms, which have much more to do with the calculus of domestic political losses and gains.

Also, as my Columbia classmate Pravin Krishna persuasively argues, gung-ho proponents of the TPP, in Washington or Delhi, miss the dissonance between US geopolitical grand strategy and its narrower commercial objectives in this part of the world. In the larger scheme, the US would like to isolate China and engage India; but, through the TPP, the US is driving China and India into a tighter embrace, as each rightly opposes the imposition of US style regulatory standards and would rather negotiate a separate trade agreement—perhaps in the context of the Regional Comprehensive Economic Partnership, with which both are involved.

None of this is to suggest that we should remain passive. India urgently needs to develop a policy framework on trade and investment liberalization—but one which is based on the Indian national interest, not on America’s. And, it goes without saying, India needs to press ahead with the unfinished reforms agenda.

Being seduced by the Trojan horse of the TPP is, assuredly, the wrong way to move ahead.

Every fortnight, In the Margins explores the intersection of economics, politics and public policy to help cast light on current affairs.

Comments are welcome at views@livemint.com. To read Vivek Dehejia’s previous columns, go to www.livemint.com/vivekdehejia-