India among worst abusers of antibiotics

18 September 2015

India's economic integration with countries outside is entering a new phase as it looks to enter negotiations for the Trans Pacific Partnership (TPP), a larger alliance that includes countries like the United States and Canada, clashes with its Asian Regional Comprehensive Economic Partnership (RCEP).

The policy implications that the TPP and the RCEP will generate will be quite unmanageable for India as the two are diverse partnerships which forbid any common sets of rules for economic engagement.

Experts, however, say the benefits of integration are significant, with income gains that override trade diversion and other costs.

These regional agreements could generate domino effects for wider regional and global trade initiatives to revive growth, they say.

With a diverse and heterogeneous domestic economy, these partnerships could pose even greater problems for India.

The introduction of the long-delayed goods and services tax (GST) that would ensure one common market within the country, could help mitigate some of the cross effects of such partnerships.

Chief negotiators for the 12 countries involved in the TPP, including the US, Canada and Japan, will begin meeting in Atlanta on 26 September, and trade ministers will join the next week, possibly on 30 September.

India and China are not in the TPP negotiating process, but they are in the negotiations for the RCEP.

The RCEP, which focuses on integration among the 16 Asia Pacific countries, have a higher share of global exports than the TPP and account for close to 30 per cent of world GDP.

While India has made it clear it intends to be part of the TPP process, external integration has domestic policy implications that need to be well-managed and quickly implemented to allow the country to reap its benefits.

For India, the costs of entry to the Trans Pacific Partnership could include exposing its agriculture sector to competitive US and Canadian farm sectors that have in-built defences against any commodity imports, especially from emerging and developing economies.

But, the costs of exclusion from the growing integration for the country are more significant, especially now that traditional economic growth engines have shifted from agriculture to manufacturing and services.

But, for this, there is an urgent need to make India a more integrated domestic economy, so that it can attract, and absorb sustainably, the foreign investment generally associated with increased external integration. This will help raise productivity and build more inclusive growth.

As it stands, India's tight and highly heterogeneous product, tax and regulations across its states, result in varying degrees of competition in the domestic economy, affecting productivity, investment, competition, and employment, which in turn increase costs.

The TPP seeks to extend existing trade pacts by liberalising relatively protected sectors such as agriculture, pharmaceuticals, investment, and services, and opening rules on competition, intellectual property, labour, internet access, environment protection, and marine activity and conservation.

Yet, it is potentially important for emerging economies as its 12 members represent 40 per cent of global GDP and about a quarter of global exports.

Second, it could open up leading sectors in both emerging and advanced countries, such as service, investment, and technology.

Third, for emerging markets, it will expand market access for their manufacturing industries, and help build their financial integration.

Finally, Japan's potential entry could be historically important as it would open up its domestic investment, insurance, services, and farm trade for access by TPP members.

The RCEP seeks to integrate consistently existing free trade agreements between ASEAN and its individual partners, while keeping special preferences and exemptions for lower income countries.

The TPP is more ambitious in trying to develop new 21st century rules for trade and investment for advanced and emerging market countries.

The TPP rules envisage much greater transparency and discipline on government interventions in the market and on intellectual property rights. But it has so far not stated anything on how the TPP will take into account and accommodate the circumstances of its diverse members.

The TPP and RCEP are not the only rising planks of regional integration. Bilateral trade agreements are also being extended in the Asia Pacific. Among them, Korea is following some of the TPP aims in its free trade agreements with the U.S. and the European Union, and is working on expanded agreements with China and Japan.

As for the TPP, Korea, Indonesia, Thailand, and Philippines are already considering their future membership-thereby potentially creating a TPP of 16 countries.

In this context, the costs of non-participation - and exclusion - are potentially significant from both sides. China is mulling over the costs of its non-participation in the TPP. But it is also clear that the TPP loses by not having China - the world's biggest manufacturer - as a member.

A deal would eclipse NAFTA in importance and would expand copyright and patent protections for drugs, place constraints on how state-owned companies and sovereign wealth funds conduct themselves and open up traditionally protectionist Japan to more foreign commerce.

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