KNOWLEDGE PARTNERSHIP PROGRAMME Inception Report · database (trade in goods and services) and the World Investment Outlook database. Missing data points will be accessed from Economic

KNOWLEDGE PARTNERSHIP PROGRAMME

Inception Report

External Preferential Trade Agreements and The Indian Economy: An Analysis of Impacts and Counter Measures

Consumer Unity & Trust Society (CUTS)

Submitted to

Department for International Development (DFID)

IPE Global Pvt. Ltd.

December 2013

1

Inception Report

Project Name: External Preferential Trade Agreements and The Indian Economy: An

Analysis of Impacts and Counter Measures

Project Reference Number: IPE-KPP-2013-10 (34)-CUTS

Implementing Agency: CUTS International

December, 2013

http://cuts-international.org/

2

Table of Contents

1. Introduction ............................................................................................................................. 3

2. Objectives ................................................................................................................................ 3

3. Activities and Work Plan ......................................................................................................... 4

3.1 Applied Research ............................................................................................................. 5

3.2 Awareness Generation and Policy Advocacy .................................................................. 9

4. Results Framework ................................................................................................................ 11

5. Project Timeline .................................................................................................................... 16

6. Preliminary Activity Report .................................................................................................. 17

Annex..................................................................................................................................... 18

3

1. Introduction

Deepening of plurilateral commercial relations elsewhere in the world is set to affect emerging countries

like India in many ways, especially when they are excluded from preferential trading arrangements

(PTAs) between countries that have been their important trading partners. Three of the main such

upcoming external PTAs from India’s perspective are the Trans-Pacific Partnership agreement (TPP), and

the Trans-Atlantic Trade and Investment Partnership agreement (TTIP) and the EU-ASEAN free trade

agreement. Together the negotiating countries under these agreements account for well more than 40

percent of both India’s Exports and Imports.

Given that India’s trade dependency on countries and regions belonging to these three large external

PTAs is very high, possibility of diversion of trade and economic activities from India to trading partners

within these PTAs as a result of deepening preferential arrangements between them is going to have very

serious implications for the Indian economy. The negative impact of such diversion would be of high

intensity. This emerging scenario necessitates a through ex ante analysis of implications for the Indian

economy as a result of these agreements and arrive at policy directions that would help India to mitigate

and adapt to substantial changes that are underway in its external economic environment.

This project undertakes such an ex ante analysis and use the results to advocate for appropriate mitigative

and adaptive trade policy approaches. It would extensively undertake both qualitative and quantitative

assessments of impacts of the aforementioned external PTAs on the Indian economy by extending the

existing models of analysis of diversion of trade and allied international economic transactions. The

project will have specific focus on impact of trade and investment on India’s poor, identify the potentially

affected sectors that are most sensitive to poverty and design appropriate safety-nets for safeguarding the

interest of such vulnerable sectors.

The project will be undertaken over a period of 18 months, from November 2013 to April 2015. It will

have a research component as well an advocacy component with equal thrust on both. This inception

report describes the activities planned under this project, the outputs to be generated and the outcomes

that are to be achieved through them. It gives an account of the implementation strategies and the initial

work plan. The following sections of this report delineates the objectives, activities, outputs, outcomes,

operational strategy, results framework, timeline and other details of the overall work plan.

2. Objectives

The overall objective of the project is to generate research results on the impacts of three selected external

trade agreements on the Indian economy (TTP, TTIP, EU-ASEAN FTA) and use the same for informed

policy decisions so that India becomes better prepared for facing the challenges of exogenous supply-

demand shocks.

In studying the impacts on Indian economy, specific attention will be given to identifying possible export

diversion effects on labour intensive sectors and trade intensive sectors with high concentration of small

and medium scale manufacturing unit. This will help to isolate the highly threatened sectors which are

very sensitive in terms of income loss to poor and marginalised sections of the workforce, and thus can be

prioritised for pre-emptive policy reforms.

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The linkage between shocks to specific sectors and poverty will be analysed using appropriate partial-

equilibrium models to assess the extent of impacts on poverty alleviation if the interests of the labour

intensive small-scale sectors are safeguarded by adequate trade support policies targeting such sectors.

Thus the research report will give specific emphasis on pro-poor trade policies that are required in the

event of exogenous shocks due to the mentioned external PTAs. Immediate objectives that would help to

achieve the desired outcome of resilience of the Indian economy as a result of external economic shocks

are as follows:

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) and impacts thereof on India’s key

macro-economic indicators including national income and employment so as to frame appropriate

policy responses to preempt negative impacts .

Conduct sectoral 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) 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 including trade policy-makers in the Department of Commerce, Government

of India, other government departments, apex business organizations including sectorial bodies,

farmer groups, consumer groups and other civil society organizations, trade unions and media.

By highlighting trade diversion effects that are likely to take place as a result of these highly ambitious

and comprehensive agreements (EU-ASEAN, TPP and TTIP), the long-term objectives of the project are

to recommend; (i) the likely trade policy changes that India should adopt in order to face the challenges of

exogenous supply-demand shocks; (ii) the likely changes in domestic trade support programmes that

India should adopt in order to prevent negative impacts on poverty reduction due to exogenous shocks to

labour intensve and small-scale sectors; and (iii) the likely changes in negotiating strategy that India is

expected to adopt both in the bilateral and in the multilateral fora for increasing trade with its key trading

partners.

3. Activities and Work Plan

The project will be carried out over a period of 18 months. Two broad set of Activities will be undertaken

as follows:

I. Applied Research

a) Literature Review

b) Diagnostic Assessment

c) Impact Assessment

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II. Awareness Generation and Policy Advocacy

A generic format and method will be adopted for sequentially carrying out research, awareness generation

and policy advocacy for all the three selected external PTAs. Though, in general, these three components

will be carried out one after the other, the initial phase of research will include gathering primary

information on various aspects from key informants from different stakeholder groups. These key

informants will be engaged in the subsequent phases of advocacy. Thus all the envisaged activities will be

involving a critical mass of stakeholders affected by the subject matters of this project.

Moreover, proposed stakeholder consultations as part of research phases of the project will help in

generating awareness among the major stakeholders, particularly those who will be impacted by these

external PTAs. The work plan for these activities and their outputs are given as follows:

Applied Research

Applied research will involve secondary as well as primary data. Although given the scope of the project

the research will have to rely mostly on secondary data. Relevant primary data will be gathered from

sectors with highest impact from the subject matter. Applied research phase will contain three

components; (i) literature review, (ii) diagnostic assessment, and (iii) impact assessment. Details of the

tasks to be completed during the course of this phase under these three components are given below.

(i) Literature Review - An extensive review of literature on status of trade negotiations between

the negotiating countries belonging to the three external PTAs will be undertaken for the

purpose of scenario building. Latest developments in the area and various possible outcomes

of negotiations will also be collected from various sources including correspondents with key

stakeholders who have been engaged in the negotiation in various capacities. An assessment

of possible outcomes of the three external PTAs in the immediate future will be mapped

based on this review and these scenarios will be used for subsequent analysis and simulations.

A group of key informants, relevant and selected trade policy-makers and representatives of

industry/business associations in these countries, will be identified and contacted during this

stage for collecting primary information. CUTS network in policy circles will help to identify

these key informants in New Delhi, Brussels, other major European capitals and major

capitals of the ASEAN group of countries.

(ii) Diagnostic Assessment - The next stage is to map the patterns of flow of trade in goods and

services and other important commercial transactions including trade related investments,

trade-related competition issues, etc. for participating countries in the external PTAs vis-à-vis

India. Basic trade indices such as RCA (revealed comparative advantage), IIT (intra-industry

trade), TI (trade intensity) and IIE (import intensity of exports), etc. will be used for

analysing the trade baskets of these three constituents, in order to identify sectors/products

which are highly sensitive.

Trade flow data will be accessed primarily from UNCOMTRADE and ITC TradeMaps

database (trade in goods and services) and the World Investment Outlook database. Missing

data points will be accessed from Economic Indicators of the World Bank, Direction of Trade

of the International Monetary Fund and Trade Statistics of the World Trade Organisation,

after checking compatibility with the main database. The basic objective is to find those

sectors/transactions which feature prominently in India’s external accounts (Current and

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Capital Accounts of the Balance of Payments) with the countries in the external PTA blocks

and have high likelihood of diversion on account of them. Using basic statistical indicators

the volume of diversion and static figures of impact of diversion will be calculated for such

sectors during the diagnostic assessment.

For this diagnostic assessment, firstly a set of indicators will be used to identify sectors (at 6-

digit level of aggregation in HS 07, using trade flow data for the latest available year from

UNCOMTRADE database) that are highly threatened of trade diversion. The indicators used

will look at the main exported products to each of these PTA regions. Taking the example of

TTIP (EU-US), first we select the top products that are exported to either EU or US at 6-digit

level (at 6-digit, because at a higher level of aggregation, say 4-digit, the subsequent analyses

is not likely to give a clear picture and at a lower level of aggregation, say 8-digit, it is

practically impossible to apply such indicators, because of missing data points and other

complications). Such products may be deemed as highly sensitive from India’s point of view.

Then we look at the export capacity of these products from within the PTA region, i.e.

whether the EU or US is capable of supplying these products to each other. If yes, such

products would fall under the threatened category.

Once the highly sensitive sectors/products are identified, which are also threatened with

diversion, a set of partial equilibrium models will be used to assess the potential quantum of

diversion in each sector. There are various such models available from existing literature.

CUTS research team will compare various modelling options and will consult the members of

the project advisory committee for selecton/modification of an appropriate model.

For analysing the impact on trade in services and trade related investments as well as impacts

of competition policies, laws on property rights (IPRs), trade remedial measures like like anti-

dumping and safeguards, etc., the diagnostic assessment will include a mapping of patterns in

services trade and investment as well as comparative studies between trade regulatory

systems that are in place in the countries covered by the project and in India.

Quantitative mapping of services and investment flows will be done based on Trade in

Services database of the WTO and the World Bank, Balance of Payments Statistics (BOPS,

IMF), International Financial Statistics (IFS, IMF) and World Investment Reports (UNCTAD

and OECD). The comparative studies on differences and features of trade regulatory regimes

that are in place in the programme countries will be based on a qualitative mapping of WTO

Trade Policy Review reports, governmental open sources and other relevant documents that

available respectively for each country.

(iii) Impact Assessment - Inputs generated from the diagnostic assessment will be used for

undertaking a comprehensive impact assessment. For this purpose a partial equilibrium

approach will be adopted. The basic gravity model used for trade flow analysis will be

augmented and/or customised. The likelihood of variations in India’s export-import flows and

investment flows in key sectors with the external PTA regions will be analysed separately by

using similarly structured models. Besides Trade Map (International Trade Centre),

UNCOMTRADE database and Direction of Trade (DoT, IMF), a newly updated database for

analytical purposes by the UN Economic and Social Commission for Asia and Pacific

(UNESCAP) will be used for feeding these models with appropriate variables. While trade

(both goods and services) and investment volumes between India and the external PTA

regions will be dependent variables in the model, trade and investment flows with external

PTA regions adjusted for changes that are expected from the PTAs under various scenarios

will be used as input (independent) variables.

7

Though quantitative impact assessment of diversion of trade (goods and services) and

investment owing to other trade regulatory aspects such as competition policies, IPRs, trade

remedial measures etc. will be difficult to carry out owing to data limitations, the customised

partial equilibrium models to be used for the study will be calibrated to include proxy

variables for estimating the impacts of various trade regulatory aspects as mentioned above.

Simulation exercises will be carried out by using this model for assessing changes in impact

under various outcome scenarios of the external PTA negotiations. The impact assessment

will be sectoral in nature covering the most crucial sectors from the point of view of the

Indian economy. Simulation exercises will also be done using alternate proxy variables

(ordinal variables for capturing the essence of trade regulatory aspects including competition,

IPRs and trade remedial measures) representing trade regulatory aspects and they will be

differentiated between studied countries. This will help to estimate trade diversion impacts

owing to changes in regulatory regimes.

Furthermore, case studies in selected sectors will be carried out to cross-check the results of

the modeling and simulation exercises. The case studies will also help to qualitatively

elucidate sectoral impacts and relevant linkages and in generating awareness among the

Indian stakeholders and conducting policy advocacy. The uniqueness of this method will be

that the scope of impact assessment goes beyond just diversion of exports of goods and

thereby offers much more comprehensive results.

The study will give specific attention to vulnerable sectors that are sensitive for poverty

reduction. A process of identification of labour intensive and small scale sectors which are

highly dependent on E-ASEAN, TPP, TTIP countries and threatened by these three external

PTAs will be carried out for isolating those sectors which will have the highest impact on

poverty reduction. This identification process will help to study sector specific impacts on

poverty reduction and subsequently frame sector specific trade policy remedies that will

check the possibilities of negative impacts of exogenous shocks on poverty and also help

such sectors to become more competitive and resilient in the long run. Further, the study will categorise the sectors (highly sensitive, threatened and the quantum of

potential diversion is very high) into those which are highly labour intensive, those in which

there is high concentration of MSMEs etc. these are the sectors which would find it

comparatively more difficult to adapt to harmful effects of diversion (basically, competition

in the PTA regions for these sectors/products will likely intensify manifold and they need to

change production practices, cost cutting or other forms of innovation very quickly). The

study intends to use the primary survey component of this project to collect information from

various firms and units in these sectors as well as apex industry organisations for this part of

the study. Once a scenario building execise is done on how external shocks are likely to affect

them, what their current shorcomings are and what kind of support do they need to face

increase in external competition, it would then be possible to come up with appropriate policy

support programmes under the NFTP or by way of other schemes to help such sectors.

Purpose Main Tasks Outputs

To review the existing

literature for assessing the

current state of negotiation

between participating

Literature Review:

Collection and review of

relevant articles, research

A report containing literature

review - Write up from analysis

of existing literature on impacts

on products, services, and

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countries in TPP, TTIP and

EU-ASEAN FTA

negotiations.

To compare various

methods used by earlier

works to assess impact of

external PTAs

To collect various possible

outcomes and latest

developments in

negotiations.

To identify sensitive sectors

in India that will be

impacted and select the

sectors which are highly

labour intensive and

sensitive to poverty

reports and other related

material.

Collection and analysis of

relevant data from

secondary sources.

Collection and analysis of

inputs from members of

project advisory

committee, important

stakeholders and subject

experts.

Project Inception Meeting

investments.

A note on selection of

vulnerable sectors and possible

impacts on poverty sensitive

sectors.

A note on methodology to

conduct the subsequent

diagnostic and impact

assessments.

[These outputs will be

contained in the Project

Inception Report and Draft

Research Report on the Impact

of Three External PTAs]

To determine the pattern of

existing flow of trade

Quantitative mapping of

trade in goods and services

as well as investments using

various trade indices such

as RCA (revealed

comparative advantage), IIT

(intra-industry trade), TI

(trade intensity) and IIE

(import intensity of

exports), etc.

To conduct an assessment

of the diversion of trade in

goods, services and

investment due to the three

mega PTAs.


of extent of impacts on

selected labour intensive

and vulnerable sectors with

high sensitivity to poverty.


of the preparedness of the

existing safeguard measures

like competition laws,

intellectual property rights,

anti- dumping laws and

other trade related rules.

Diagnostic Assessment:

Desk research based on

secondary data

Analysis of primary

information collected

from various stakeholders

and interactions with

experts

Draft report on the existing state

of trade flows and the safeguard

measures that are in place.

A database of import/export of

all three PTAs and the

corresponding data for Indian

substitutes

A report on vulnerable and

sensitive sectors


contained in the Draft Research

Report on the Impact of Three

External PTAs and Draft

Research Report on Field

Research on the Impact of

Three External PTAs]

Determine the impact of the

mega agreements on

selected sectors using

Impact Assessment:

Desk research based on

A report on effects of each of

the mega agreements on key

macroeconomic variables

9

partial as well as general

equilibrium models.

Similarly structured models

will be used to determine

the effect of each of the

three PTAs.

To assess the impact on

safeguard measures like

IPRs, Anti-dumping, and

competition laws will be

determined by simulation

using proxy variables.

To undertake qualitative

assessment of the sectoral

level impact on

employment and income.

To understand from primary

sources the existing

competitiveness as well as

the future strategies of

vulnerable sectors

To conduct focused studies

on implications for labour

intensive and vulnerable

sectors and impact on

poverty reduction

secondary data

Analysis of primary

information collected

from various stakeholders

and interactions with

experts

including employment, income

and poverty using partial as

well general equilibrium

models.

A report on the changes needed

to the safeguard measures

Case studies on impact on the

threatened sectors

A report on field research on the

impact of PTAs on trade

oriented sectors including trade

services.

A report on linkages of shocks

in vulnerable sectors to India’s

poverty alleviation plans and

policy remedies thereof.


contained in the Draft Research

Report on the Impact of Three

External PTAs and Draft

Research Report on Field

Research on the Impact of

Three External PTAs as well as

negotiating briefs, policy briefs

and media articles]

Awareness Generation and Policy Advocacy

Key informants and stakeholders from policy-recipient as well as policy-making circles will be involved

in the project during the research stage itself. Since the study will be highly useful for building future

negotiating strategies, they will be keen to understand its results. The primary survey part of the applied

research component, including data collection from stakeholders such as organisations of micro, small

and medium sector, various sectoral manufacturing clusters, etc., will also be used for sensitising the

subjects amongst these stakeholders, who are largely unaware of possible impacts of external PTAs.

Besides stakeholder consultation meetings in various Indian cities, CUTS will use popular media and

publish op-ed articles based on interim research results for keeping the targeted audience informed about

the subject matter of the project. CUTS has been publishing a quarterly dossier on external PTAs, which

will also be used as a medium for sensitising the relevant stakeholders on issues to be dealt under this

project.

10

CUTS has been undertaking similar studies in other contexts and, therefore, enjoys good rapport with the

Department of Commerce, Government of India and other relevant stakeholder groups and, hence, that

will be used for better visibility and acceptance/use of the research results. As the likely impacts of these

excluded PTAs on the Indian economy are expected to be substantial and as the Indian government is

reviewing its strategy to negotiate PTAs, this project will enable to forge a closer link with the

Department of Commerce, Government of India. This will ensure the sustainability of the project.

Towards the end of the research phase, the following specific activities will be undertaken for awareness

generation and policy advocacy.

Applied research will be conducted by engaging with some key informants (government officials

and other relevant stakeholder groups) in India and selected overseas countries at the research

stage itself. This will help in generating awareness about the value of this work.

CUTS will publish news articles based on the study results in popular media in India.

The study report will be published and disseminated to key stakeholders in India and abroad.

Negotiating and policy briefs based on the study reports will be circulated through online forums

hosted by CUTS.

At the end of each year, a dissemination seminar with the participation of government officials

and other relevant stakeholders will be organised in New Delhi.

CUTS representatives will have one-to-one meetings with the relevant officials in the Department

of Commerce, Government of India to disseminate research results and conduct specific policy

advocacy.

The long-term impact of the project will be in respect to its ability to generate awareness among key

stakeholders on the impacts of excluded PTAs on the Indian economy and how that would influence

likely trade policy changes that India is expected to adopt in future and likely changes in India’s trade

negotiating strategy at the bilateral and at the multilateral level.

Purpose Main Task Outputs

To generate awareness

among the policy makers as

well as the policy recipients

of the impacts of the three

mega PTAs

To generate awareness in

the vulnerable sectors of the

economy about the mega

PTAs and guide them on

the necessary steps to be

taken to negate the effect of

the PTAs.

To assist policy makers in

framing and implementing

appropriate remedial and

preventive policy measures

to safeguard the interest of

Four stakeholder consultation

meetings

Focussed interviews with key

stakeholders

Preparation of media articles

and press releases based on

research results and stakeholder

consultations

Preparation of negotiating briefs

and policy briefs

Reach-out and dissemination

through CUTS’s PTA dossiers,

websites and e-groups.

Event reports of the Stakeholder

consultation meetings

Negotiating briefs

Policy briefs

Articles in media

[These outputs will also be

contained in the final

consolidated research report]

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vulnerable sectors

To enhance the negotiating

resources of the policy

makers.

4. Results Framework

Key deliverables or outputs of the project and the resultant outcomes are captured in the following results

framework.

Outputs Activities (to achieve the

Outputs)

Long-Term Impact Source of Information

1. One Project

Inception Report

(containing

methodology, activity

chart and operational

strategy) and One

Project Inception

Meeting Report

1. Project inception

meeting including

periodic meetings

/consultations with

project advisors and

experts

1.Capacity enhancement of

CUTS and Indian

stakeholders in respect to

their ability to influence

likely changes in India’s

negotiation strategy and in its

trade policy, particularly to

face the challenges of

exogenous supply-demand

shocks as a result of these

agreements and for increasing

its trade with key trading

partners

1. Outputs (negotiating

briefs, research reports,

policy briefs, meeting

reports, press releases,

media articles) will be

available at www.cuts-

citee.org and will be

disseminated to the

CUTS Trade Forum

12

2. One draft research

report on desk research

on the impact of Three

External PTAs [EU-

ASEAN FTA, Trans-

Pacific Partnership

agreement (TPP) and

Trans-Atlantic Trade

and Investment

Partnership (TPIP)]

agreement on the Indian

economy

2. Desk research –

literature review and

secondary data analyses

on the impact of EU-

ASEAN FTA, Trans-

Pacific Partnership

agreement (TPP) and

Trans-Atlantic Trade and

Investment Partnership

agreement (TPIP) on the

Indian economy

2. Better understanding

among the Indian trade policy

officials, negotiators and

other relevant stakeholders on

the impact of these

agreements on the Indian

economy

2. Project advisors and

experts who will be

periodically consulted – a

list of key informants will

be shared with the Joint

Trade Policy Unit of

DFID-India and BHC,

New Delhi

3. One draft report on

field research on the

impact of Three

External PTAs [EU-

ASEAN FTA, Trans-

Pacific Partnership

agreement (TPP) and

Trans-Atlantic Trade

and Investment

Partnership (TPIP)]


economy

3. Field research

including compilation

and analyses of primary

data on the impact of EU-

ASEAN FTA, Trans-

Pacific Partnership

agreement and Trans-

Atlantic Trade and



economy (four rounds in

four different locations in

India targeting selected

exporters and importers

who are likely to be

impacted by these

agreements)

3. Awareness enhancement

among trade policy officials,

negotiators and other relevant

stakeholders in India’s key

trading partners on likely

changes in India’s trade


trade policy including

implementation concerns of

India’s existing FTAs and

their implications on the

implementation of India’s

future FTAs, especially EU-

India FTA

3. Officials in the

Department of

Commerce, Government

of India, in the European

Commission (Brussels

and New Delhi), of

selected European,

ASEAN, North American

and Pacific Countries

(respective capitals and

New Delhi) – a list will



DFID-India and BHC,

New Delhi

4. Four event reports,

one each on four

stakeholder

consultations and

Press release of various

meetings and media

articles on the impact of

EU-ASEAN FTA,

Trans-Pacific

Partnership agreement

and Trans-Atlantic

Trade and Investment


4. Four rounds of

stakeholder consultations

(in four different

locations in India) on the

impact of EU-ASEAN

FTA, Trans-Pacific


and Trans-Atlantic Trade

and Investment

Partnership agreement on

the Indian economy (in

three different locations

in India)

4. Awareness generation

among the global trade and

development community on

likely changes in India’s


trade policy in future

including its likely reactions

to the possibility of

multilateralisation of some of

the WTO Plus provisions of

these agreements including

through plurilateral

agreements among some

4. Stakeholders (Indian

exporters and importers

who are likely to be

impacted by these

agreements) - a list will



DFID-India and BHC,

New Delhi

13

on the Indian economy WTO Members

5. One Negotiating

Brief on: a) likely

changes in India’s

negotiating strategy

(both in the bilateral

and in the multilateral

fora) and in its trade

policy to face the

challenges of

exogenous supply-

demand shocks as a

result of these

agreements and for

increasing its trade with

key trading partners,

especially in vulnerable

sectors that are highly

sensitive to income

losses and poverty

headcount b) India’s

likely reactions to the

possibility of

multilateralisation of

some of the WTO Plus

provisions of these

agreements including

through plurilateral

agreements among

some WTO Members,

and c) issues/concerns

and records of India’s

5. Interaction (face-to-

face and electronic) with

the relevant officials in

India and selected

European, ASEAN,

North American and

Pacific countries

5. Establishment of an

advanced analytical model to

analyse the impact of external

PTAs on an economy

including their impact on

imports, services, investment,

etc.

5. Invitees and

participants of the project

inception meeting and the

dissemination meetings

on the Impact of EU-

ASEAN FTA, and Trans-

Pacific Partnership


Atlantic Trade and



economy – lists will be

shared with the Joint


DFID-India and BHC,

New Delhi

14

implementation of its

existing free trade

agreements and their

likely implications on

the implementation of

three external PTAs

studied under this

project

6. One consolidated

draft report on the

impact of three external

PTAs on the Indian

economy and One

Event Report on

Dissemination Meeting

in New Delhi on the

Impact of three external

PTAs on the Indian

economy, with specific

reference to impact on

poverty reduction

6. One dissemination

meetings in New Delhi

on the impact of: a) EU-

ASEAN FTA and b)

Trans-Pacific Partnership


Atlantic Trade and



economy

6. Better understanding

among the Indian trade policy

officials, negotiators and

other relevant stakeholders on

the impact of these

agreements on the Indian

economy. Awareness

enhancement among trade

policy officials, negotiators

and other relevant

stakeholders in India’s key

trading partners on likely

changes in India’s trade


trade policy including

implementation concerns of

India’s existing FTAs and

their implications on the

implementation of India’s

future FTAs, especially EU-

India FTA

6. Invitees and

participants of the

dissemination meetings

on the Impact of EU-

ASEAN FTA, and Trans-

Pacific Partnership


Atlantic Trade and



economy – lists will be



DFID-India and BHC,

New Delhi

7. One consolidated

final study report on

impact on the Impact of

three external PTAs on

the Indian economy,

with specific reference

to poverty reduction,

7. Publication and

dissemination of the

Negotiating brief and

consolidated study report

on the impact of EU-

ASEAN FTA, Trans-

Pacific Partnership

7. Policy responses from

Indian negotiators and trade

policy officials for mitigating

the harmful effects of trade

and investment diversion.

Better safeguards and support

mechanisms for vulnerable

7. Officials in the

Department of

Commerce, Government

of India - a list will be



DFID-India and BHC,

15

and policy

recommendations for

making India’s trade

more resilient to

possible exogenous

shocks and generates

welfare outcomes for

the poor.


Atlantic Trade and



economy

and labour intensive sectors. New Delhi. Official

documents and citations

on trade policy changes

adopted as part of the

mitigative and adaptive

strategies.

Additional activities that will be undertaken for achieving the outcomes stated above:

a) Media outreach (through press releases and articles) on the impact of EU-ASEAN FTA, Trans-Pacific

Partnership agreement and Trans-Atlantic Trade and Investment Partnership agreement on the Indian

economy

b) Desk research and interaction with Indian officials and other relevant stakeholders to do a critical analysis

of likely changes in India’s negotiating strategy and in its trade policy to face the challenges of

exogenous supply-demand shocks as a result of these agreements and for increasing its trade with key

trading partners

c) Desk research and interaction with Indian officials and other relevant stakeholders to do a critical analysis

of India’s likely reactions to the possibility of multilateralisation of some of the WTO Plus provisions of

these agreements including through plurilateral agreements among some WTO Members

d) Desk research and interaction with Indian officials and other relevant stakeholders to do a critical analysis

of issues/concerns and records of India’s implementation of its existing free trade agreements and their

likely implications on the implementation of EU-India FTA

e) Electronic outreach of all project-related outputs to the CUTS Trade Forum – an electronic platform of

global trade and development community having approximately 12,000 subscribers

16

5. Project Timeline

The duration of the project will be 18 months from November 2013 to April 2015. However the project activities including

publication and dissemination of the research report will be completed by March 2015 and the final closure activities including final

project report (activity report) will be undertaken in April 2015. The timeline of activities for 17 months (November 2013 to April

2015) is given as follows:

TIMELINE→

↓ACTIVITIES

M

1

M

2

M

3

M

4

M

5

M

6

M

7

M

8

M

9

M

10

M

11

M

12

M

13

M

14

M

15

M

16

M

17

Literature

review

Inception

meeting

Secondary data

analysis

Field research

and primary

data analysis

Stakeholder

consultation

Meeting

Negotiating

briefs and

research report

Dissemination

meeting

Publication and

posting of

negotiation

briefs

17

6. Preliminary Activity Report

CUTS project team has stated the preliminary project activities since November, 2013. These preliminary

activities include the following:

Preparation of the inception report and work plan

Creation of project webpage with all the information about the project to be hosted in

CUTS website domain

Preparation of a project brief

Preparation of list of invitees for the project inception meeting

Collection of relevant material, data and other useful information

Development of methodology for diagnostic assessment

Preparation of draft methodology document and work plan which will be discussed

during the inception report

These preliminary activities are under progress and will be completed in December 2013 and

January 2014. The webpage is currently under construction and will be fully operational by 10th

December, 2013.

One of the sets of indicators for diagnostic assessment has been prepared and applied on the

cases of TPP and TTIP. The analysis will be extended to the cases of EU-ASEAN, along with

other indicators. The preliminary measure/indicator used to identify sectors which are likely to

be impacted by external PTAs is constructed based on a scale of sensitivity quotient and threat

quotient. This method and preliminary results were presented by CUTS in a meeting organized

by BRICS Trade and Economic Research Network (BRICS TERN) in Shanghai, China during 6-

7 November, 2013. Comments and suggestions received from this presentation will be used to

make further improvements to this methodology and analysis. A summary of the presentation is

given in the Annex.

18

Annex

External PTAs and India

Implications of TPP and TTIP

Synopsis of Preliminary Research Results

CUTS International, India

Overview and Approach

Excluding petroleum and its derivatives, which dominate India’s trade basket (both exports and

imports with mostly countries other than TPP and TTIP negotiating members), TPP and TTIP

accounts for 23.03 and 31.27 percent of India’s exports respectively. Corresponding figures for

India’s imports are 18.98 and 24.65 percent each. In aggregate, a third of India exports go to

TPP-TTIP region and a fourth of India’s imports come from it. India is overtly export dependent

on the region (US and EU in particular) in some of the most sensitive traded services sectors

such as IT & IT enabled services (33% of services exports) and financial services (modes 1& 3).

As regards dependency on investment US and EU together contributed to 27 percent of

investment inflow to India over the period 2000-12.

The objective of the study is to find sectors and products (both goods and services) that are

threatened with high likelihood of diversion (both export and import diversion) so that

precautionary measures can be taken on a sectorial basis. Therefore the thrust is on identification

of threatened sectors and products rather than macro level impacts on Indian Economy, though

the latter is also important to attract attention to the need for urgent corrective measures. Keeping

this in view the study has adopted a two pronged approach; (i) usage of either a general

equilibrium model (CGE) or a select set of augmented partial equilibrium models (for ex ante

projections) to assess the effect of possible shocks in the current account on key macro-economic

variables and (ii) exploratory analysis using suitable trade indicators to identify the most

vulnerable sectors and products.

However the potential effects of TPP-TTIP agreements on Indian trade basket depends on a

number of factors and presents a complex analytical problem. Firstly, the extent of preferential

coverage and other trade supportive measures that would be exchanges is not yet known. The

study assumes that it would be substantial and duty free cover will be on at least 90 percent of

the product lines. As tariff levels facing India are mostly low in TPP-TTIP region, provisions on

removal of non-tariff barriers and other allied trade rules would be more consequential.

Secondly, India’s existing formal trading arrangements with partners belonging to the region

would influence the effects of TPP and TTIP in a significant way. Currently six of the TPP

member states are covered under India’s PTAs (Brunei, Malaysia, Singapore and Vietnam under

India-ASEAN FTA; Japan and Chile under bilateral agreements). In addition, apart from EU-

India FTA, ongoing are bilateral CEPA negotiations with the large economies of Australia,

Canada and New Zealand.

Export of Goods: Sectoral Scenario

The composition of India’s overall export basket (at HS07 6-digit level excluding chapter 27,

19

petroleum) has a very high similarity with the export basket it maintains with the US. Share of

individual products lines at 6-digit level in the total of overall and US export baskets share a

correlation coefficient of 0.79 between them, indicative of high export dependency (structurally)

on US markets (US is the single largest export destination after EU, accounting for 13 percent of

total exports). The corresponding figures with that of TPP and TTIP are 0.44 and 0.62

respectively. To select the most vulnerable product lines, we employed two comparative indices,

one to rank products in the export baskets (at 6-digit level) according to sensitivity/dependency

and another to rank them according to level of threat.*

Even a conservative selection approach shows around 200 highly sensitive top products under

severe threat of diversion, together accounting for almost a 5th

of India’s total exports. In this

regard impact of TTP appears to be less severe than TTIP. While 79 product lines (6.2 % of

exports) faces threat from TPP, 129 product lines (17.2 % of exports) seems to high likelihood of

market displacement from TTIP. Changes in market scenarios in US (which will be influenced

by both TPP and TTIP) is of particularly severe consequences for India. Though there are

significant product differentiations (beyond 6-digit level, which could not be captured) with each

of these product categories and all of them are not likely to face competitive pressure from

within the TPP-TTIP region in the same intensity, intra-regional supply capacity in these

categories in the TPP-TTIP region is found to be high. Besides, trade complementarity of India

in these products with non-TPP/TTIP region is noted to be low on an average, increasing the

likelihood of sever export market losses.

Given this context, policy options before India seems to be very limited, especially when the

capacity constraints of India is also considered, both at domestic level and at the level of its own

trade negotiations. As far as domestic trade promotion polices are concerned, instruments

National Foreign Trade Policy (NFTP 2009-14) do not cover most of the threatened products. In

external trade negotiations, India’s reach in terms of PTAs/FTAs/ CECAs with trading partners

outside TPP/TTIP region remain limited. Even with ASEAN, India’s biggest preferential trade

block, coverage of non-tariff trade rules has not been completed. On the one hand preferential

trade negotiations with crucial trading partners such as EU-28 and other OECD countries has not

made any significant breakthrough in the post-crisis period, competition between other

TPP/TTIP excluded region is set to rise on the other hand.

Implications for India’s Multilateral and Plurilateral Trade Negotiations

Under the circumstances, the likely responses from India are fairly predictable. India’s

negotiating resources can be expected to throw its weight on bilaterals with large counties within

the TPP region. Focus will be on ongoing CECAs with Canada, Australia and New Zealand. This

would be because of relative ease of proceeding with bilaterals and also because import baskets

of these countries has a higher degree of similarity with India’s export basket to TPP/TTIP

region. For the same reasons, India’s interests in ongoing FTA negotiations with EU will also go

up in the coming years. Some relaxations on the offensive interests with EU such as market

access in IT enabled services and tariff structure on generic drugs may even be relaxed. In the

case of CECA with ASEAN, with which India maintains huge negative trade balance in goods,

the interest now will shift to services commitments and investment protocols, expecting trade

related investment inflows and outflows with the region. While India’s appetite for cooperation

20

with rest of BRICS will continue to rise, it is likely to maintain status quo as far as WTO

positions are concerned.

* Sensitivity measure – given by S = ( |

) ( |

)⁄ scales the export dependency of India on

product category ‘k’ ; Threat measure - given by T= ( |

) { |

}⁄ , scales likelihood of

intra- regional trade in TPP-TTIP on product category ‘k’ ; represents India’s exports to the region

considered (TPP/TTIP) represents intra-regional trade and the subscript ‘w’ stands for rest of the

world. Both measures are normalized to a scale of -1 to 1 by applying (S/T-1)/(S/T+1).

KNOWLEDGE PARTNERSHIP PROGRAMME Inception Report · database (trade in goods and services) and the World Investment Outlook database. Missing data points will be accessed from Economic

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