1. External PTAs and the Indian Economy An Analysis of Impacts and Counter Measures Inception Workshop New Delhi, 24 January, 2013 Joseph George

2. 2 Objectives of the Project Conduct extended analysis of diversion of trade (goods and services, exports and imports) and allied economic transactions (trade-related investments) from India vis-a-vis the participating countries in the EU-ASEAN FTA, the Trans-Pacific Partnership agreement (TPP), and the Trans-Atlantic Trade and Investment Partnership agreement (TTIP). Conduct sectoral analysis of diversion of trade (goods and services, exports and imports) and allied economic transactions (trade-related investments) from India and impacts thereof on labour intensive and small scale sectors so as to assess the effects on poverty so as to frame appropriate policy responses to preempt negative impacts on poverty reduction. Conduct research- and evidence-based awareness generation and policy advocacy among the key Indian stakeholders

3. MYANMAR CAMBODIA INDONESIA LAOS PHILIPPINES THAILAND EU-ASEAN FTA TPP TTIP BRUNEI MALAYSIA SINGAPORE VIETNAM AUSTRALIA** CANADA** CHILE JAPAN MEXICO N. ZEALAND** PERU US EU* Notes : European Union (EU) consists of 28 countries including Croatia, which has recently joined EU (in July 2013); TPP contains 12 countries, TTIP has 29 countries and EU-ASEAN has 38 countries (EU 28 and ASEAN 10). Countries without formal trade agreements with India given in red. * FTA under negotiations. ** CECA under negotiation. External PTA % Share in World GDP % Share of Exports in World Trade % Share of Imports in World Trade Intra-Regional Trade in Group %Share of India's Imports %Share of India's Exports TPP38.4231.439.8626.7918.9823.03 TTIP45.0940.2844.4237.1724.6531.27 EU-ASEAN26.3538.7238.4241.1127.4627.78 ALL63.7458.6662.9649.2741.8544.72 Profile of Mega External PTAs

4. 4 Framework for Analysis Part 1. Trade in Goods Scenario Sectoral AnalysisMacro Impact A Sector specific threats facing sensitive sectors and sector specific policy remedies C ∑Si – Aggregate impact on Current Account – Transmission to key macro variables B Impact of new additional rules and disciplines on India’s trade D General Equilibrium Modelling for Welfare Impacts Part 2. Trade in Services and Investment Different economic forces driving trade in services and investment flows New disciplines governing services and investment flows Analysis within the ambit of available data

5. 5 Part 1. Trade in Goods Scenario (A) Trade in Goods: Sectoral Selection

6. 6 Export of Goods: Scenario 1 No. of highly vulnerable product lines 79 % Share in Indian Exports6.2 Complementarity with import basket of non TPP region low Average RCA in non TPP markets 0 > Low level of value added content in vulnerable product lines, but mostly labor intensive Likelihood of product differentiation beyond 6-digit level in non TPP markets is low Likelihood of income loss in alternative markets is low Part 1. Trade in Goods Scenario (A)

7. 7 No. of highly vulnerable product lines 129 % Share in Indian Exports17.2 Complementarity with import basket of non TTIP region low Average RCA in non TTIP markets 0 < Export of Goods: Scenario 2 Relatively high level of value added content in vulnerable product lines Likelihood of product differentiation beyond 6-digit level in non TPP markets is high Likelihood of income loss in alternative markets is high Part 1. Trade in Goods Scenario (A)

8. 8 Export of Goods: Scenario 3 No. of highly vulnerable product lines 102 % Share in Indian Exports9.2 Complementarity with import basket of non TPP- TTIP region Very low Average RCA in non TPP- TTIP markets -0.3 < Relatively high level of value added content in vulnerable product lines Likelihood of product differentiation beyond 6-digit level in non TPP markets is very high Likelihood of income loss in alternative markets is very high Part 1. Trade in Goods Scenario

9. 9 Export of Goods Scenario: Emerging Challenges Complementarity  Difficult to find markets for displaced products outside TPP-TTIP region as level of product sophistication varies significantly  Likelihood of increase in competition within markets of excluded countries  Price differences (high for TPP-TTIP bound goods) + Additional NTB costs likely to get added together Capacity  Relatively high trade costs with non TPP-TTIP partners, weak NTB resolution mechanisms  Weak preferential trading arrangements with Non-TPP-TTIP partners. Large-scale southern cooperation, which would be required to ward of the shock that may get transmitted, not possible without safeguards that are sparsely negotiated in agreements with southern countries  National Foreign Trade Policy (2009-14) has limited coverage with trade promotion policy instruments over threatened products Part 1. Trade in Goods Scenario (A)

10. 10 Part 1. Trade in Goods Scenario (B) Environmental standards -Comprehensive rules for of liberalization of trade in EGSs in TPP, move to bring rules on fisheries subsidies, regionalization of existing environmental commitments under FTAs (US – Chile; NZ-Singapore) Rules of Origin -Likely impacts of narrow, product specific origin rules on sensitive sectors including textiles and dairy products (TPP set to follow narrow, strict cumulation, high threshold rules as in NAFTA, KORUS) Labour Standards -Protectionist abuse of strict labour standards not likely in TPP due to political uncertainty -The direction of chapter on labour standards in TTIP uncertain -Even softer rules under mega PTAs may influence consumer preferences in member countries -Specific case studies on labor-intensive sensitive sectors needed. Impact of WTO Plus Topics Covered under Mega External PTAs

11. 11 Part 2. Trade in Services and Investment Parameters for Services Trade Diversion Analysis Each of the TPP member countries have about 5 preferential agreements on services on an average NAFTA type negative-listing approach proposed, takes into account post-GATS conceptalisation of services trade Strengthening of sector specific regulatory disciplines, expansion of coverage irrespective of modes, stress on horizontal commitments Capacity building provision for developing countries, additional provision on ease of payments and transfers Parameters for Investment Diversion Analysis Additional investor protection clauses against arbitrary exploitation, losses against armed conflict, provisions for free transfer of payments and full- insurance coverage Modern investment treaty arbitration, proposed investor-state dispute settlement mechanisms

12. 12 Implications for India’s Trade Negotiations Domestic Preparedness: NFTP Strategies Treaty Shopping - Prospects of dominion shift of negotiating resources to bilaterals of wider coverage with large TPP member states (CECAs with Australia, Canada and New Zealand) Prospects of changes in negotiating positions on outstanding issues in FTA with EU and CECA with ASEAN -Positions on outstanding issues with EU; multiple tax structure on wines, auto sector tariffs, Mode 3 imports of financial services, market access in IT services and tariff structure for generic drugs. -Investment protocols under India-ASEAN CECA after services chapter, trade related investment outflow to ASEAN, concerns on primary products and reforms in domestic agro export policies Prospects at the WT’O level and other fora (BRICS) -New multilateral rules, usage of DSB, positions on NTMs affecting industrial goods, new coalitions of excluded countries. -Possibilities for institutional mechanisms for intra-BRICS cooperation Part 3. Counter Measures and Future Negotiations

13. 13 ---Thank You--- Overall Framework Part 1. Trade in Goods Scenario Sectoral analysis of potential impact in the light of vulnerability to new disciplines in the external PTAs and assessment of macro level impacts Part 2. Trade in Services and Investment Sectoral analysis of potential impact in the light of vulnerability to new disciplines in the external PTAs and assessment of macro level impacts Part 3. Counter Measures and Future Negotiations Possible countermeasures in terms of enhancing domestic preparedness and changes in engagements in own trade negotiations, both multilateral and preferential