An Analysis of Tariff Reductions in the Trans-Pacific Partnership (TPP): Implications for the Indian Economy

Abstract

Our purpose is to undertake a comparative analysis of the likely impact of tariff reduction under the Trans-Pacific Partnership (TPP) on various macro and trade variables of the Indian economy under different scenarios. The TPP was concluded in October 2015, but it is yet to be ratified by the partner countries, and while Asian giants like India, China and Korea have not joined the TPP, there are some talks about their joining the partnership in future. Ours is a unique study that evaluates India's perspective on joining the TPP, in terms of tariff reduction, and not in terms of the removal of non-tariff barriers. We employ the widely used standard Global Trade Analysis Project (GTAP) model for this exercise. This is a unique framework with a global economy-wide approach, in a Computable General Equilibrium (CGE) setting. Five different scenarios of complete integration in terms of tariff reduction between different regions are simulated using the GTAP model. Under each scenario, the tariff among members of a group of regions is eliminated, but is unchanged for other regions. Higher welfare arising from allocative efficiency comes with the cost of a relatively lower consumption of domestic products and investment, resulting in a loss in terms of GDP. Therefore, we conclude that there are mixed prospects and no strong reason for India to pursue being part of the TPP in future, from a perspective of tariff reductions.

The economic impact of the Trans‐Pacific Partnership: What have we learned from CGE simulation?

“…Of particular concern is the impact on small developing economies which are likely to be excluded from not only the TPP but also other major trade agreements. In terms of countries within Asia, Rahman and Ara (2015) (2014) and Narayanan and Sharma (2016), while a number of studies have considered impacts on China (Li and Yao, 2014;Lu, 2015). In terms of other countries, Turkey is considered by Oduncu et al (2014), and the impact on Brazil is examined in Thorensten and Ferraz (2014).…”

“…The recursive dynamic studies, by design, all develop baselines going out as far as 2030 Lee, 2012 andPetri and and even 2047 (USITC, 2016). A number of studies incorporate into the baseline information on other FTAs that have already been agreed upon (e.g., Cheong and Tongzon, 2013, Disdier et al, 2016, Narayanan and Sharma, 2016, Petri et al, 2012. Several studies incorporate information on NTBs from various sources into the base data (Cororaton and Orden, 2015, Disdier et al, 2016, Itakura and Lee, 2012, Lee and Itakura, 2013, Lee and Itakura, 2014, Petri et al, 2012, Cabinet Secretariat, 2015and USITC, 2016.…”

Economic implications of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) on Pakistan: a CGE approach

“…For instance, studies of Rahman and Ara (2015) consider the impact on Nepal and Bangladesh, Ganesh-Kumar and Chatterjee (2016) and Narayanan and Sharma (2016) for India, Cororaton and Orden (2015) for Philippines, Durongkaveroj (2015) for Thailand, Li and Yao (2014) and Lu (2015) for China, Oduncu et al (2014) for Turkey and Thorstensen and Ferraz (2014) for Brazil. The potential impact of TPP on various economies in the framework of the CGE model is summarized in Table 1.…”

Implications of TTIP and TPP on Bangladesh and Nepal

“…The size of losses in terms of competitiveness of the excluded countries will depend on the degree to which such tariff elimination will impact on their relative competitive strength of these excluded South Asian countries. There are numerous studies using Computable General Equilibrium (CGE) modelling, like Lee andItakura (2014), Cheong (2013), Rahman andCheong (2014) Arif et.al (2014), Xin (2014), Narayanan and Sachin (2014) and Petri et.al (2011). These studies were seen to be quantifying the impact of TPP and TTIP on different regions.…”

“…The paper argues that the TPP should be promoted for its economic value, not for geopolitical purposes and it should be open to all Asia and Pacific countries, including the People"s Republic of China. Narayanan and Sachin (2014) conducted a comparative analysis of the likely impact of tariff reduction under TPP of Indian economy under different scenarios, by using the standard GTAP model and suggested that there are mixed prospects and no strong reason for India to pursue being part of the TPP. Arif et.al (2014), examine the impacts of TPP on Turkish economy.…”