Nov 3, 2012

TPP, Regulatory Coherence, and India

 "On November 12, 2011, the Leaders of the nine Trans-Pacific Partnership countries – Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, and the United States – announced the achievement of the broad outlines of an ambitious, 21st-century Trans-Pacific Partnership (TPP) agreement that will enhance trade and investment among the TPP partner countries, promote innovation, economic growth and development, and support the creation and retention of jobs."... from USTR website

Now, what's so special about an agreement that US is going to have with few other nations across pacific? 
A reading of the same USTR page would tell you this too:

"The United States, along with Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam are working to craft a high-standard agreement that addresses new and emerging trade issues and 21st-century challenges. The agreement will include:

• Core issues traditionally included in trade agreements, including industrial goods, agriculture, and textiles as well as rules on intellectual property, technical barriers to trade, labor, and environment.

• Cross-cutting issues not previously in trade agreements, such as making the "regulatory systems" (emphasis added) of TPP countries more compatible so U.S. companies can operate more seamlessly in TPP markets, and helping innovative, job-creating small- and medium-sized enterprises participate more actively in international trade.

• New emerging trade issues such as addressing trade and investment in innovative products and services, including digital technologies, and ensuring state-owned enterprises compete fairly with private companies and do not distort competition in ways that put U.S. companies and workers at a disadvantage." 

Those three bullet points above, are the major points of TPP. The key lies in the world "Regulatory Systems" in the second bullet point. 

When I was working with Infosys in Bangalore, way back in 2007/2008, I used to work on projects outsourced by Boeing. My job was to prepare structural repair manuals for Boeing 787. I used to read a lot of technical manuals written by Boeing, and invariably, those documents contained the IP clauses on the bottom of each page, that said that the information is covered under Boeing/US Defence Intellectual Property (IP) laws, and cannot be divulged without permissions/approvals. Infosys, had signed the agreement to protect the 'Intellectual Property' of Boeing in all possible ways. In fact, the access to the 'Boeing area' in Infosys was restricted to only those employees whose IDs were given access, after necessary approvals, and 'only' such employees could unlock the doors to the Boeing work area. It was the same with Johnson controls, Airbus, or other such sensitive projects, that were bagged by Infosys, with an assurance that all IPs will be protected fully. Infosys did a commendable job, to the best of my knowledge, to adhere to what it had signed on paper. US firms such as Boeing, had to go that extra length to sign such IP/regulatory related agreements with 'each' of the firms that they worked with. Random audits, to ensure that such firms confirmed to the regulatory requirements, were a common feature when I worked. I believe that it is still the same, when it comes to Indian firms that undertake such projects. 

US, or for that matter any other country, that generates such sensitive IP, is wary of outsourcing work to any random vendor, who might copy or leak the data outside. That applies not only to firms but to the countries too. US is extremely wary of China, rightly or wrongly, as US suspects China of stealing data or IP protected stuff. 

US firms lead the global supply chains that crisscross multiple countries, each having it's own version of IP law implementation. The regulatory framework might be dictated by TRIPS and such agreements, but in the end, the level of implementation, is a function of how much the individual country gets serious about implementing such IP related laws on the ground. 

US has tried to push for stricter IP protection laws at the WTO for some years now, and US has been successfully stonewalled by developing countries, mainly due to differences arising from Pharma industry experience. 

US firms would ideally like to have an environment where they can operate without the fear of IP theft, while taking the advantage of outsourcing/local comparative advantage in various aspects of product development.  It is not easy to have such a secure environment across countries. At TPP, this effort, to have a coherent regulatory environment,  is being undertaken, and that's why they hail it as a 21st century agreement. 

If the agreement comes through as desired by US, the US firms would have flexibility of operating in TPP countries without bothering about special US legal/regulatory permissions or agreements for each and every project that they execute in collaboration with TPP countries, as these countries would have 'regulatory coherence'. Regulatory coherence would mean that the countries would converge on IP and related regulatory structures. 

So, where does that leave us, that is, Indian firms? 

It's a challenge in the sense that India won't get into any such agreement, with US, or at WTO level anytime soon. So, the set of countries that fall in the 'regulatory coherence' ambit of TPP (or such similar agreements that might crop up in future) would have an advantage. However, Indian firms, such as Infosys and others, have been quite open to adhere to US regulatory requirements. So, I don't see any reason as to why they should get affected. When it comes to manufacturing, we are not getting too much of 'sensitive' projects, except for the ones that come through defence offset clauses of Indian defence procurement policy. So, that area too is safe, for the time being. 

The TPP type of 'regulatory coherence' would start hurting when this type of  regional agreement clauses would start becoming the norm. US couldn't push it through WTO, so it's pushing it into TPP. Once this comes through, the ambit might widen, with more countries showing interest to join TPP. And the TPP document might become benchmark for future regional agreements with US and other countries, and ultimately coming into multilateral agreements of WTO. This might happen sooner than later. Are we gearing up for that? 

I think it's time we start analyzing TPP seriously in our policy circles, without minding that it is happening far away from us. It's indeed a 21st century challenge, for a 21st century agreement.

PS: I have kept the focus narrow in this post, and have omitted larger issue of technical barriers to trade (TBTs). My intention is only to draw the attention. The bigger debate is for another day