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A TPPing Point on Trade? - Harsha Singh
00:28:48
TPP? TTIP? In the world of trade negotiations, there is no shortage of acronyms. And who better to break them down for us than Harsha Singh, former deputy director general at the World Trade Organization? Harsha recently visited CGD to...
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- [00:16]
A
Welcome to the Global Prosperity wonkast. I'm Lawrence MacDonald. I'm pleased to welcome to the studio today Dr. Harsha Singh. He is a former Deputy director at the World Trade Organization and currently associated with two organizations focused on trade and sustainable development, the International center for Trade and Sustainable Development and the International Institute for Sustainable Development. Harsha, welcome to the show.
- [00:40]
B
Thank you very much.
- [00:42]
A
I've been out the past week and was sorry to miss a roundtable that you had with Kimberly Elliott, a senior fellow here at the center for Global Development on the potential impact of mega regional trade deals on developing countries. It looks to me, having read about it and spoken with you, like an interesting discussion and that a lot of the focus in the media, at least in the United States and Europe on these big mega regional deals has been concerned from the left about the impact on labor standards, the impact on the environment. I saw an appeal from a European progressive organization that called the Trans Pacific Partnership, which is one of these two deals, the Death Star. There's been a lot of anxiety on the left but almost no discussion about the impact on developing countries. Your roundtable looked like it raised some new issues.
- [01:38]
B
It is raising some new issues. I agree with that. At the roundtable we looked at the impact on developing countries in general and specifically at Brazil and India. The reason why you have heard less about the impact on developing countries is because actually not very much is known about these negotiations, what's happening there. But one thing which is known is that the focus is much more on non tariff measures or standards. And that's where my focus came in this project in terms of how standards affect market access.
- [02:23]
A
I want for listeners who don't follow it closely to sort of get the names out of the way because there's a lot of Alphabet soup any time you get involved in trade talks. The two big deals we're talking about are the Trans Pacific Partnership, which is what it sounds like, except that China is currently not included but it includes the United States, I guess potentially parts of South America in the Pacific.
- [02:47]
B
There are parts of South America there.
- [02:49]
A
And many of the Pacific Asian trading nations, notably Japan.
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B
And then Vietnam is there.
- [02:56]
A
Vietnam is as the poorest and smallest that's involved. And then there's a kind of a parallel one. Unfortunately it's not named in a parallel fashion which is the Transatlantic Trade and Investment Partnership known to its friends, admirers and enemies as ttip. So we have the Trans Pacific Partnership, the TPP and TTIP which is the Atlantic one. And then you were telling me there's a third one underway, the Regional Cooperation and Economic Partnership that includes India, China, the Association of Southeast Asian nations, asean, Korea, Japan, Australia and New Zealand. Are these three big blocks going to ultimately merge in some way and bring energy back to the wto?
- [03:37]
B
The only way they can merge is provided they are multilateralized, which is they come to the wto. However, in order to manage that, certain structural issues should be kept in mind. They should not be agreements which fragment world trade. Rather, the kind of systems they use should be inclusive. They should not be using different criteria for standards, et cetera. So if that happens, then it's possible to use them as the way forward and try and see how much and in what manner they can be brought back to the wto.
- [04:27]
A
I guess nations entered into these things in part because they were frustrated with the global process. With the wto, it didn't seem to be going anywhere. The Doha Round is variously said to be on life support or dead. And so they've gone outside the World Trade Organization to create these blocks. A lot of people worry that these blocks are going to be, is it too extreme to say the end of a multilateral trading system, that they're a real threat to the system?
- [04:55]
B
I don't think they are an end to the multilateral system because ultimately the multilateral system is the only way we can all go forward together in a world which is far more interlinked today through trade and investment that we have been. Second, something which people tend to not pay attention to is that these linkages are only going to increase further. And to the extent that we are likely to see a huge increase in the middle class, about a billion during this decade, that increase in middle class will result in an immense increase in demand for products, for raw materials, etc. And the importance of those parts which are not yet in these mega regionals or mega FTAs, will be even more than it is today. At that point of time, those which are excluded will start emphasizing that they should also be part of the system. You cannot have an interlinked system where you just make certain rules for a part of it or provide benefits to one part of it, overlooking the others, those kind of tensions can be avoided only through a multilateral system. And to the extent that we live in an interlinked world with various other problems which we have to deal multilaterally through, in terms of, say, food crisis, in terms of financial crisis, in terms of climate change, etc. The multilateral trade system has to be kept strong. And the only way to do this is whatever new issues come up, you provide for certain kind of disciplines in such a way that they give you an inclusive framework.
- [06:51]
A
Spoken like a true multilateralist. The United States is in a unique position in this. It's the only major nation that has coasts, both. I shouldn't say the only major nation, but it's the largest nation that has coasts both on the Atlantic and the Pacific. It's the key player, therefore, in both the TPP and the T tip, and both of those exclude the big developing countries. I wonder if that's because it would have been harder to reach agreement to move forward with those countries. The differences are larger. Or is there something else going on here? I wonder if trade negotiators in Brazil and India and China are sitting around scratching their heads and saying why is it the United States seems to be reaching out aggressively to reach new trade deals with groups that pointedly exclude us.
- [07:46]
B
Actually, I think two points are worthwhile in the context of looking at the issue you just raised. One is the point you mentioned about the difficulty in the Doha Ram negotiations. During those negotiations, part of the difficulty was the gap of perception between the large developed nations or economic entities like the US And EU and the so called emerging economies like China, India, Brazil, etc. So the developed nations felt that these economies now have grown enough adequately or they have benefited from the system to such an extent that they should now take on a larger share of the overall discipline or burden. The large developing economies felt that what was being asked of them, because it's not just the concept of that you should do something more, it's how much more is being asked for them. And they felt that that was too onerous and did not take into account the fact that they still house the largest number of poor in the world and have a long way to go to deal with the problem of development and poverty, which is almost like a crisis proportion in these economies.
- [09:19]
A
Of course, trade advocates would say, well, the way to deal with that is to open your economy even faster to foreign investment and to trade.
- [09:28]
B
The whole point is that if you do open the economies faster, then you have to prepare for it. And also the point about the multilateral trading system is that all countries open economies faster, but you do so in such a way that you manage the period of transition with adequate institutions, with adequate capacity, et cetera, and you walk in terms of both legs with your trade policy and your domestic policies. And it's that balance. I was talking about the two different kinds of perceptions. It's that balance. The Perception about that balance were very different in developed economies. And in these emerging economies, it was this gap which created the problem in wto. The other point is that WTO actually has a basic discipline of most favored nation treatment. So if you open up your market, you're not just opening up the market for those with whom you probably negotiated part of the deal, you're opening it up for everyone. So the larger economies were of the view that if we open up our markets within the multilateral trading system, and it's not that they were not being asked to open up more by the emerging economies themselves, so it's not as if the demands were only one way, but to the extent we open up our markets in a multilateral trading system and what we think should be the opening up by the larger developing economies is not done, then we will create a system of free rider.
- [11:16]
A
If the US and the other developed countries strategy was okay, we're stymied in the wto. We can't get the further steps in multilateral liberalization we'd like to see. We're going to create some big blocks among the advanced nations and then the big emerging markets will decide they want to join and they will come along and make the changes that we've been unable to get through a multilateral negotiating process. Looking at the paper that you wrote and the paper that we had from the Brazilian on Brazil's response, I won't even try to say his name. Maybe I'll try Clodaldo Hugheni.
- [11:55]
B
Clodoaldo Hugone. He's Ambassador Clodoaldo Huguenay.
- [11:59]
A
Both of those papers seem to be saying, this is coming. Brazil and India better get ready. In one way, I found it quite maybe refreshing in that it wasn't, this is coming, it's unfair. This is coming. This is terrible. It was, this is coming, we better be ready. But if US Strategy was we're not getting this from multilateral, we'll make our own club and other people will want to join. The response of the trade experts from both Brazil and India seems to be the response the US Would have liked to see.
- [12:32]
B
I don't know about what the US Would like to see, because each of us, Ambassador Huguenay and I have looked at this issue from the perspective of the specific country we were looking at. And the reason why we put it in the way we did is because not only is do we have a whole new set of rules, because just linking up with the previous point of the multilateral rating system, the mega regionals or mega FTAs actually cover areas which are being negotiated within the Doha Round and have areas which are yet not there. And the concern is a combination of social objectives. The concern is a combination of a level playing field from the perspective of those who are negotiating. Can be a very different perspective if you go to the other side. However, to the extent these are going to result in a rise in standards in the markets and the issue becomes far more relevant if these standards start being implemented in a large part of the market where, say, Brazil, India, China, Indonesia, Philippines, South Africa are selling their products, then you are not in a position to actually have effective market access unless you meet those standards. That is where my concern is coming. It's something which implies that if these standards are there and you are unable to meet those standards, then the benefits from trade are denied to you, not because you are not prepared for things as they stand now, but because you will have to prepare. And unless you do prepare, you will be unable to have those benefits in the future.
- [14:38]
A
Thanks very much. We're going to take a quick break. This is the Global Prosperity Wonkast from the center for Global Development. Welcome back to the Global Prosperity wonkast. I'm Lawrence MacDonald. I'm speaking with Harsha Singh. He is the former Deputy Director General at the World Trade Organization and is affiliated with two institutes that focus on sustainable development, the International center for Trade and Sustainability Development and the International Institute for Sustainable Development. Harsha, before the break, we've discussed the impact of these mega regional deals on the big emerging markets, but we've done so in pretty large and abstract firms. And I'm wondering if you can give me an example of, say, an Indian firm that might be doing some international business now, trying to figure out whether these things are going to matter to it and if so, what it should do.
- [16:11]
B
Thank you. These mega regionals, the kind of disciplines they focus on, can be looked at conceptually in three different parts. One is tariffs. In certain areas, the tariff decreases will be large, but not in general because tariffs are already quite low in the main markets. The second is general kind of standards where if you don't meet certain criteria, the product, not just in a specific area but rather large part of the economy, becomes ineligible for market access unless that standard is met.
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A
Would these be things like phytosanitary, it's not clean enough? Or these would be at.
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B
These would be things like environment, if the standard is a generic standard. Or it could be a labor standard.
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A
Issue, so it may not be embodied in the product itself. It's in the process. I look at the product, I can't tell the difference, but I go to the factory and I find out conditions are unsafe, that the factory's dumping mercury into the stream, the product's identical. But I say this product can't come in. It hasn't met the standard.
- [17:28]
B
That's right. So that's, that's something where that's the kind of standard which has a far more generic effect. And these kind of issues are being negotiated within these large FTAs. What the result will be, we'll have to see. The third is the product specific, you know, embodied in the product itself. Here again, you can have different criteria. But one of the ways in which these negotiations are likely to change the trade scenario is because they are going to have a technique of inclusion by reference. So certain kind of standards could be included through reference or certain. Another aspect is that it includes not just disciplines on trade, but also investment. So if you have, if you refer to certain codes of good conduct or good business, such as the one which is adopted at the OECD as something which needs to be followed, then you are at the same time adopting a generic kind of standard which goes way beyond whatever you might be having disciplines at present and the specific products also. And the reference becomes a very potent kind of mechanism to raise the standard. Because a number of private standards are now being incorporated through the mandatory system of government.
- [19:11]
A
What an example of such a standard be? That might be difficult for the big emerging market.
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B
Something in food, for example. You mentioned sanitary and phytosanitary products. Food is the largest area or the first port of call for those who are looking at problems in selling in the markets. It could be chemicals, it could be engineering products. So there are specific areas, especially if they are products which have high capital intensity and quality concerns, plus links with the environment or other process kind of issues become superimposed on them.
- [19:52]
A
So I think of iPhones here, not just iPhones, but smartphones in general. High value added, potentially substantial environmental concerns because of the rare metals that are incorporated. Potentially labor intensive China, of course makes a lot is. Talk to me about say a concrete product like a fancy phone. Are firms in India making them? If they wanted to make them, would these be a problem? These standards be a problem for them to meet.
- [20:25]
B
Some products of this kind are being made, not specifically iPhone, etc. But to the extent there are certain product standards, they have to definitely be met. But the process standards are those which in the context of iPhone, sometimes one has come across you talked about high value added. It's interesting. Let me. This is a very good example of the supply chain where people think that oh, iPhones are made in China, so high value added is there from China to this product. Interestingly, 60% of the value added is from the US in the value chain. And it's a very good example of the value chain where different nations contribute to the overall value added. And the value added from China is just 10%. But if you take the total value of trade, it will appear as if 100% of the product is produced in China. But it's produced through a combination of different efforts in different nations in a. In a global value chain.
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A
We're not talking only about the software here, we're talking about components and patents and.
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B
Yes, absolutely. So it's not just hardware or not just putting things together because the global value chain of a product includes from conceptualization to the patent, to getting back some kind of royalties, etc. To putting to production of specific components and putting them together.
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A
Harsha, I want to hear more about the project. It's been really a treat for us. I know Kim was delighted when you came here because you have not only your experience at the WTO but your deep familiarity of what's going on in India and in the paper that you prepared. There's an area we didn't even discuss but I hope we'll be able to post it online about what's going on in the Indian economy in terms of getting increasingly integrated with the world. How come we're so lucky? What brings you here?
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B
Thank you very much. Actually, this is a project which I conceptualized when I was asked to give memorial speech last year. And I was told that this was a speech which would be then used as inputs into certain kind of policy making. And I looked at the world around me and I realized that the world was changing in a big way in terms of trade and investment requirements or market access conditions which might come up in next five years. And India was not prepared for it as are several other developing countries. So I gave the speech and then I discussed this with DFID India and they have supported me with a project.
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A
Dfid Bean Department for International Development uk.
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B
Yeah, that's right. Yeah, that's right. And this project has just commenced. This workshop was the first in that project and I have followed the work of Kim and the CGD for some time now. And I felt this as a very special opportunity to actually have the first workshop in Washington D.C. with the collaboration cooperation of Kim and others at the cgd and it was a very good effort.
- [24:00]
A
A couple of the papers mentioned that one of the purposes of the workshop is to raise new questions. And I feel that it has certainly done that, unlike some of of the interviews I do here, where we think we have the answer and we're pushing it forward. In this case, I think much of the exercise has been to expand the realm of debate and discussion and raise these very big questions about how are the big emerging markets going to integrate with the mega regional agreements or not and what is the impact on the small countries? And maybe I would make that my final question. We've talked a fair amount about the challenges posed to the big emerging markets, but a lot of the focus of the work here at the center is on the smaller poorer countries. And I know that's one of Kim's concerns. India and Brazil and China are probably going to fare pretty well one way or the other in the trade realm. They're big and powerful. We mentioned Vietnam is one of the few small poor countries that is being considered for involvement in a mega regional agreement. Can you talk about the concerns for the Bangladeshes and Cambodias and Liberias of the world? In this world of mega regional trade.
- [25:11]
B
Agreements there are two kinds of concerns. One is the diversion of markets away from their products to those who get preferential treatment as being members of this mega regional. When it comes into being, that concern is mainly in terms of tariff preferences, either being eroded because they already might be getting preferences. So the other countries start getting certain competing.
- [25:43]
A
This would be familiar to some of our listeners. In terms of agoa, the African Growth and Opportunity Act. You give special tariff preferences to African countries so they can compete, but then you bring other tariffs down, their preference goes away.
- [25:56]
B
But this is something which is happening all the time. So there are all kinds of RTA's or regional trade agreements taking place and the result is tariff preference erosion. That's where normally the focus is, but the larger focus I think should be, and this is the purpose of my project on the impact of higher standards on market access. You cannot then have access to the markets unless you upgrade your capacities. And that's where the cooperation, collaboration of all concern becomes relevant. The large developing economies with the smaller ones as well as hopefully the larger developed countries who can facilitate the upgradation of skills. And in that context, the important thing is not just meeting the standards, but also the system which is used to determine that the standard actually is consistent with what is being demanded. And that system can often be exclusionary. And another part of my project is to focus on how to make it inclusive so that when the capacity increases, at least these countries will have equal chance of accessing the market. And that becomes also an element of fairness.
- [27:21]
A
That's a tall challenge, and it's one that I think you would find a lot of interest and sympathy for here at the center for Global Development. Thanks very much for joining me on the show.
- [27:30]
B
Thank you very much.
- [27:31]
A
This is the Global Prosperity Wonkast from the center for Global Development. My guest today is Harsha Singh. He's the former Deputy Director General at the World Trade Organization and affiliated with the International Institute for Sustainable Development and the International center for Trade and Sustainable Development. We've been talking about the impact of mega regional trade deals on the big emerging markets and on other developing countries. You can find the Wonkast online on itunes and on Stitcher. Just search for wonkcast or CGD and sign up to hear a new interview every week. Until next time, I'm Lawrence MacDonald. Thank you for listening.
- [28:32]
B
Ra.