Wednesday, March 14, 2018

The Future of the TPP: How it Alters the RCEP’s Importance for the Region

by Aditya Vijay*

When Donald Trump officially pulled the US out of the Trans-Pacific Partnership (TPP) in January of 2017, the global consensus was that the deal was effectively dead. With the US accounting for nearly 60 per cent of the total GDP of the 12-nation TPP, Washington’s move away from the deal was unquestionably a blow to the idea of creating a single market for trade in the Asia–Pacific to rival the European Union. However, almost a year later, the TPP seems to have been given a new lease of life by the remaining 11 countries, which are intent on moving on without US support, to create a new free trade framework for the region.
This new framework called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) incorporates many of the salient elements of the original TPP formulated by the Obama administration in February of 2016. However, it has suspended the implementation of a few provisions. These provisions, namely the investor–state dispute settlement (ISDS) provision and intellectual property protections, were heavily advocated by the US but faced strong pushback from many other countries. [1]With Washington no longer party to the deal, the provisions were inevitably dropped. Negotiations for the structure of the CPTPP concluded on January 23, 2018, and the 11 nations are expected to sign the agreement into effect in March of this year. Naturally, the question that arises now is whether the CPTPP is an adequate substitute for TPP. Alternatively, will the Regional Comprehensive Economic Partnership (RCEP) become a more attractive proposition for countries like Japan and Australia, which are included in both deals? Before answering these questions, it is imperative to study the two multilateral trade agreements, which currently stand as alternatives to the now redundant TPP, the CPTPP and the RCEP.
The original TPP was envisioned by lawmakers and diplomats on both sides of the Pacific as the model free trade agreement for the 21st century. Then Secretary of State Hillary Clinton referred to it as the ‘Gold Standard in Free Trade Agreements’. [2]It was also a cornerstone of Japanese Prime Minister Shinzo Abe’s ‘Abenomics’ policy. The original TPP would have gone down as the largest trade agreement in history, with a combined GDP of USD 28 trillion, representing around 37.4 per cent of global GDP and 25.9 per cent of global trade. [3]The CPTPP, however, carries significantly lesser international heft, accounting for 14 per cent of global GDP and 15 per cent of global trade. Simply put, the CPTPP does not possess the global weight necessary to shape world trade as its predecessor did. While the CPTPP framework will bring greater economic integration, the volume of trade and the size of the markets will be significantly smaller without the US. One way to solve this problem is by allowing China, the only state with enough economic clout, to replace the US, to join the CPTPP. However, the inclusion of China would be conditional on reducing the quality of the CPTPP, as several key provisions would have to be changed. [4]This path seems unlikely as the TPP was specifically engineered to serve the interests of the member countries on a similar level of economic development. In addition, Beijing itself has not demonstrated any keen enthusiasm to be a part of the TPP, which it views as a crucial element of Washington’s strategy to contain Chinese economic influence in the Asia–Pacific region.
A far more likely scenario is of the RCEP gaining more prominence, given that the CPTPP does not carry the economic weight that the TPP had. The RCEP is a proposed free trade agreement between the 10 countries comprising the Association for Southeast Asian Nations (ASEAN) and the six countries, which already have individual free trade agreements with the ASEAN, namely Australia, China, Japan, India, South Korea and New Zealand. Chinese President Xi Jinping has been a strong advocate of the RCEP as a model of multilateral trade in Asia. But as Jeffrey Wilson, writing for the Australian Institute of International Affairs, notes, the RCEP’s proposed reforms, like emphasising reduced trade barriers and promoting economic and technical mechanisms to protect the interests of developing nations, are more lukewarm than the TPP’s. [5]Additionally, unlike the CPTPP that focuses on Asia–Pacific, the RCEP with its inclusion of China and India focuses predominantly on the Indo–Pacific. Given the increasingly isolationist stance taken by President Trump and his proclivity to favour bilateral trade deals with individual countries over multilateral arrangements, the ‘Trump Shock’, as Wilson calls it, might push Japan and Australia to focus on the RCEP. [6]With China’s participation, the RCEP would account for nearly 25 per cent of global GDP and 30 per cent of global trade, making it a considerably bigger and more lucrative market than the CPTPP. [7]In this regard, for countries part of both the CPTPP and the RCEP, the latter becomes a more attractive proposition and would become the principal trade agreement with the CPTPP augmenting it.
Ironically, China and its President have come to be regarded as the international defenders of the existing global trade order. Neither the CPTPP without the massive US market nor the RCEP with its focus on developing economies is a perfect substitute for the erstwhile TPP. However, the larger and more diverse number of markets on offer in the RCEP framework combined with a dominant economic power, in this case China, willing to assume leadership, means that the RCEP will assume greater importance than the CPTPP for Japan, Australia and New Zealand. China’s role is crucial for the success of the RCEP and so far, Beijing has shown little sign of shirking its responsibility.

*The author is Research Intern with CPPR. Views expressed by the author is personal and does not reflect that of CPPR.

[1]Torrey, Zachary. February 3, 2018. “TPP 2.0: The Deal Without the US”
[2]Adityo, Alwin. March 2, 2017. “Can RCEP revive a dead TPP?”
[3]Helbe, Matthias and Xie, Yizhe Daniel. December 23, 2017. “Is the CPTPP a risky gamble?”

[4]Helbe, Matthias and Xie, Yizhe Daniel. December 23, 2017. “Is the CPTPP a risky gamble?”
[5]Wilson, Jeffrey. January 20, 2017. “After Trump: Will RCEP replace the TPP?”
[6]Wilson, Jeffrey. January 20, 2017. “After Trump: Will RCEP replace the TPP?”
[7]Priya, Prachi. December 6, 2017. “Regional Comprehensive Economic Partnership: India pushes for greater market access, ASEAN irked”

Tuesday, March 06, 2018

What Regulations did to Agriculture Markets: Can eNAM be a Game Changer?

by Sara John*
The central government is carrying out a slew of measures to revive the agriculture sector with the aim of keeping its promise of doubling farmers’ income by 2022. The government has been criticised for being populist in its budgetary allocations by providing temporary sops for the farming community, as the election results are greatly dependent on the votes of the rural population. However, the vicious cycle of the failure of the farmers to get profitable price for their produce, farmer suicides and loan waivers continue, amidst many policy measures and promises to help farmers get better price for their produce.
It is an intriguing question as to why the farmers do not get reasonable prices for their produce, when other players in the agricultural market gain more profit than the farmers do. In an efficient market system, the producer should get the maximum revenue with a minimal gap in the price earned by the producer and price paid by the consumer. Given this context, it would be interesting to look at how the government regulation of the agricultural market through the Agriculture Produce Market Committee (APMC) Act over the years, resulted in market distortions and entry barriers, thus failing to meet its intended purpose of helping farmers get better price for their produce.

From Regulations to Monopoly
As per the APMC Act, a state is divided into different market areas based on geography. Each market comes under the jurisdiction of a marketing committee comprising of representatives of the state government, local bodies, cooperatives, traders and farmers. The loopholes in the system resulted in the monopoly of trade, restricting the options available to farmers to sell their produce. The prevalence of license raj for traders restricted the entry of more number of traders into the market. In addition, cartel formation by the agents risked the price the farmers should actually get for their produce.
The marketing committee charges market fees as tax levied by the government from buyers and licensing fees from commission agents and other functionaries like warehousing agents. This adds up to the retail price of the produce but farmers get only 25–30 per cent of the retail price. The dual role of regulator and market played by the APMCs has paved the way for vested interests to predominate in their operations and hindered direct marketing.
The amendments in the APMC Act during the course of time did not help in improving the situation. For instance, the Model APMC Act of 2003 allowed the setting up of private markets but the owners of the private market were required to collect fees on behalf of buyers and sellers. The relatively weak infrastructure of the distribution system along with corruption in the functioning of APMCs added to the woes of the farmers and consumers due to price distortions.
The Union Budget of 2014-15 recognised the need for a national common market for agricultural commodities. The central government is persuading the state governments to bring about reformative changes in their APMC Acts to remove taxation and licensing barriers. It is assumed that the states do not prefer to bring in these changes, as these reforms may threaten the monopoly and power of the marketing committees influenced by political factors.

Transforming Legislation to Reality
With the intention of liberalising trade and giving farmers wider options beyond the local mandis (markets), the central government launched an electronic National Agriculture Market (eNAM) purported to reduce transaction costs and information asymmetry, though material flow of goods will continue to happen through mandis. The central government has also approved the Model APMC Act, 2017, which can act as a template for the states to bring about changes in facilitating trade through eNAM. Though 417 mandis in various states have joined the eNAM platform and the concept of One Nation One Market seems to be a game changer, the transformation of legislation to ground reality is a herculean task.
Several states have amended the APMC Act but they have not framed rules for the Act. Madhya Pradesh has imposed an entry barrier of Rs 1 crore for issuing a unified state license. Though a few states have joined the eNAM platform, it is not fully functional and restricted to a few commodities. Lack of infrastructure facilities, poor internet connectivity and absence of scientific sorting/grading facilities have impended the progress and implementation of the provisions of eNAM. The concept of a common market with a single point of levy of taxes and single state-wide license for trade looks impressive on paper but to what extent the system is equipped to realise it needs to be pondered.
It is a challenge to convince the stakeholders to shift to online trading. Ultimately, the question is if there is any guarantee that the farmers can sell their produce at the price they seek or if the state of affairs would be back to square one, where a powerful few would benefit, while the same vicious cycle would continue for the less privileged in the farming community. The need of the hour is doable action plans, which can be implemented effectively, and not initiatives that are confined on paper. Increasing the budgetary allocation will not help if proper implementation does not happen.

Sara John is Project Associate at Centre for Public Policy Research. Views expressed by the author is personal and does not reflect that of CPPR.

Friday, March 02, 2018

Assembly Elections in Meghalaya and Nagaland- The Changing Political Contours in the North-East

By Anupama Ghosh*

The two north-eastern states Meghalaya and Nagaland voted earlier this week. The counting of votes is scheduled on March 3, along with Tripura which voted on February 18. In both Meghalaya and Nagaland, anti-incumbency is a major factor. In Meghalaya, the Congress has been in power since 2008, while in Nagaland the Naga People’s Front has been ruling the state since 2003.
An equally important factor is the foray of the BJP in the region, with aggressive campaigning by Prime Minister Modi. What makes these elections significant is that prior to the 2014 general elections, the vote share of the BJP in the north-eastern states had been negligible. However, the party has since made significant inroads in the region, with the BJP and its allies forming the government in five of the seven north-eastern states.


Meghalaya- Assembly Elections 2013

In the previous elections, out of the total 60 seats, the Congress won 29 seats and entered into an alliance with the United Democratic Party which had won nine seats. For Congress this is a crucial election, as it has already lost its hold on the other regional states – Assam, Arunachal Pradesh and Manipur- to the BJP.
Apart from BJP, the three-party alliance of the United Democratic Party, Hill State People’s Democratic Party and Garo National Council might make the task of retaining power for Congress in Meghalaya difficult.

The question of Coal-mining in the Garo and Jaintia Hills
In the 1970s, coal-mining began on an unprecedented scale in the Garo and Jaintia Hills region of Meghalaya. This widespread mining,which often employed rudimentary techniques,damaged the environment. In 2014, the National Green Tribunal (NGT) imposed a ban on coalmining in the state, terming it unscientific and illegal. The ban rendered thousands unemployed andresulted in much ire against the Congress. Locals allege that while the ban lead to widespread loss of livelihood, the Congress government was unable toprovideother employment options.
It is estimated that Congress support might dwindle in the coal mining areas of the Jaintia and Garo hills, which together account for 31 of the 60 seats in the assembly- 7 in Jaintia and 24 in Garo Hills. The BJP and National People’s Party have promised to employ scientific mining methodsto commence mining in the area. The BJP has also promised to resume coal mining within 180 days of coming to power, while ensuring there are no harmful environmental fallouts.


Nagaland- Assembly Elections 2013

In the previous Assembly elections, the Naga People’s Front (NPF) had won 38 seats with 47% vote share. In a state where tribal loyalties are deemed significant, the ruling NPF has a formidable ground level organisation. However, in this election the biggest worry for the NPF would be the pre-poll alliance between the newly formed National Democratic Political Party (NDPP) and the BJP. In the 60 seat assembly, the BJP is contesting from 20 seats and the NDPP from the remaining 40 seats.
While the incumbent party faces charges of corruption and issues like unemployment and lack of development, it also had to contend with many of its influential leaders switching sides to the NDPP in the run-up to the elections.

The Question of Unemployment and Lack of Infrastructure
The Annual Employment-Unemployment Survey 2015-16 pegged the rate of unemployment in Nagaland at 8.9%, twice the national average of 4.8%. It also highlighted the urgent need to develop secondary and tertiary sectors of employment in the state.
Nagaland’s Economic Survey 2016 revealed the crumbling and inadequate infrastructure in the state. According to the report, despite a road density of 95%, access remains a major problem as many of the roads are dilapidated and prone to landslides which severely affect the transportation of people and goods during the monsoons. The gravity of the situation can be ascertained by the fact that Nagaland has only one airport and one rail track connecting Dimapur, its largest city, to the rest of the country.
In Nagaland, tribal and local allegiances have traditionally been major factors in influencing the voter. But in this Christian majority state, religion may play a major factor in the assembly polls for the first time. The Congress announced subsidised travel to the Christian Holy Land in its manifesto. While campaigning, the BJP promised free trips to Jerusalem to 50 senior citizens,who will be chosen randomly. Against this, the Nagaland Baptist Church Council, which represents around 1500 churches in the state, has made its reservations about the BJP, and particularly the RSS, public.
Both Nagaland and Meghalaya have recorded a voterturnout of 75% in this election. It would be interesting to see which of these issues- unemployment, poor infrastructure and development or religion- resounds with the electorate.

 *Anupama Ghosh is Research Intern with CPPR. Views expressed in this article are personal and do not reflect those of CPPR.