Rule Maker Or Rule Taker: Should India Join The CPTPP?

In 2019, Delhi left the RCEP (Regional Comprehensive Economic Partnership) due to concerns regarding asymmetric exposure to unchecked Chinese manufacturing for the Indian market through ASEAN routes. The exit was not irrational by any means; the concerns about arbitrage regarding rules of origin were justified. However, this has left India as the largest economy in the region behind China, without a diversified trade anchor to rely on.

Illustration by The Geostrata

Now, joining a trade bloc is not reduced to a mere tariff-cutting exercise by any means. A free trade agreement (FTA) reduces barriers between specific partners. Broader formations covering generally multiple bodies, like the CPTPP and the RCEP, operate on a much larger scale. These agreements bind economies across the Indo-Pacific region with shared rules in place on goods, services, intellectual property, and digital trade, amongst other aspects. The RCEP is a generally China-anchored formation that warranted India’s exit. On the other hand, originally a US formation now anchored by its current members, the CPTPP operates without Beijing’s influence and holds substantially more demanding standards. A conversation about India’s membership in the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) would begin beyond the bloc in isolation.

WHY IS THE CPTPP ANY DIFFERENT?

Aside from the most important difference in Chinese absence, the alliance also brings in other structural advantages and protections more suitable to Delhi. Standards across IP, labour, state enterprise norms, and digital trade are substantially more demanding than those in the RCEP. This ironically suits India better because it raises the trade protection floor but tames the RCEP risk Delhi was afraid of. The bloc represents 13-14.4% of global GDP and would be the most ambitious trade move India has made in recent times.

The case for the CPTPP does not restrict itself to tariff savings. India’s exports to CPTPP markets aren’t suppressed by tariffs that this accession would unlock. The core incentive is much different. Since the pandemic, there has been a global acceleration towards diversification away from Chinese manufacturing dependency, US-China decoupling pressure, and European strategic autonomy thinking. There exists a gap for India to exploit in such a global order.

The window is only accessible with trusted supply chains, and that is something that comes with the standards of the CPTPP. There is also a signaling of trust achieved by commitment to accession. Absence would mean the window technically remains open, but closes in practice because Vietnam, Malaysia, and Mexico would absorb trade flows instead, because of their own incentive towards development.

It is no secret that there is a pursuit from Delhi to create a Non-China pluralistic stack with both economic and geopolitical motives to it. This is visible through QUAD and bilateral ties with Japan and Australia, amongst others. The accession also brings a cover for domestic trade reforms, which Delhi has otherwise not implemented properly. CPTPP membership is consistent in reinforcing the growing Indian focus towards diversification and signals in a durable manner within a stable alliance, the trade stack India has chosen. That signal in itself, along with the implicit push towards domestic reforms, brings far greater value than the trade flow alone.

With growing protectionism in American markets, an area of concern for Delhi has been the service sector. Significant concerns persist regarding services and digital trade chapters. India’s service sector primarily revolves around software, business process, and financial services, and gains considerably in the predictable and wide market-access-centric framework the CPTPP provides. These are underexplored areas where India has a genuine comparative advantage, which remains sub-optimal in the current framework. An FTA with Japan partially covers this gap, but doesn’t go far enough.

WHAT COULD GO WRONG?

There are structural obstacles to joining the CPTPP from an economic and, more importantly, a political lens. These obstacles are most significant in three areas. The first is agriculture, a large source of employment for India. The aggressive tariff schedules of the CPTPP are largely applicable across most goods and would be politically unviable for a sector that contributes a shrinking share of GDP, but still employs a percentage large enough to carry insurmountable political backlash if tampered with.

Dairy would be the critical example. New Zealand has a direct conflict with India when it comes to dairy, a reason why the recent agreement between the two nations included an explicit dairy exemption to move the agreement forward. Delhi has established a red line with dairy, and the politically powerful dairy cooperative sector of India would be in direct conflict with Kiwi export interests. The sector also played a key role in the 2019 RCEP negotiations breaking down.

The second core avenue is Intellectual Property. CPTPP’s IP chapter includes provisions around biologics data exclusivity and patent term extensions that conflict with the current Indian patent framework at large. The current Indian framework is designed to suit Indian needs, namely to enable the generics industry that supplies affordable medicine across the developing world. The pharmaceutical sector is a genuine national asset with a comparative advantage over nations for Delhi, and any accession without addressing this critical area with meaningful carve-outs to avoid or tame this conflict would face strong domestic opposition with tremendous moral weight of employment and pride behind it.

The third area revolves around investors' state dispute settlement frameworks. The Indian framework was revised under the new Modi regime. It significantly rolled back the ISDS provisions after considerable arbitration losses. The CPTPP’s investment chapter takes a significantly different approach. The reconciliation of these frameworks would carry technical complexity and political sensitivity with regard to lobbying and political capital held by businessmen in Delhi. The reconciliation itself would be counter-productive politically in the sense that the rollback of the ISDS provisions was asserted as a reclamation of Indian sovereignty against multinational overreach.

WHAT ARE THE STEPS FORWARD?

All mentioned concerns matter due to economic and political sensitivity. However, they do not provide an argument to move India away from trade ambition. The mentioned circumstances speak for better sequencing and a viable approach to make accession possible and extract maximum utility from the CPTPP, should India join. Manufacturing growth has been softer than targeted, and household consumption growth has been uneven. The stress is more prominently visible at the lower end of the income distribution. These conditions, indeed, amid a declining rupee, make the political economy for agriculture and industry readjustment harder to manage.

The alternative is that accession takes years. The United Kingdom’s path took the better part of three years, even with large-scale institutional preparation. For India, with the highlighted complexities and comparative lack of preparation, this timeline would be longer. The conditions under which India enters the CPTPP, even if we apply today, would not be the conditions we have inherited today. The process, if pursued with genuine intent, could provide a catalyst to incentivise reform during the negotiation window.

External commitment in trade diplomacy has historically worked as an effective mechanism to unlock domestic reforms that are economically prudent but carry political complexities. In the Indian context, WTO commitments have been used similarly before. While this does not guarantee positive results, the results are largely mixed but carry real power for reform.

ENTER THE DRAGON

The variable that forces this issue the most is China. Beijing has formally applied to join the CPTPP. The application is contested, with the core concern being Beijing’s compliance with the bloc’s high standards on SOE provisions. In the event of a meaningful advancement in the Chinese bid, India would make a strategic error.

The incentive structure of trade in this scenario would change sharply for India. Sitting outside the CPTPP, allowing China to shape membership norms from within, would have consequences far beyond trade alone. The image of India as an alternative to China in global supply chains would be undercut if China makes meaningful progress here. It would signal that India’s plurilateral trade ambition carries geographical borders that exclude the most consequential blocs that form the global supply chain architecture in the near future.

The possibility is not imminent. However, it tells us why this move is more beneficial today and not sometime in the future. India’s window to enter the CPTPP is closing as a shaping member; a possibility in the future would exist as a rules-taker without any mover advantage.

CONCLUSION

None of the aforementioned friction points is unresolvable. The UK and Vietnam, before Delhi, have negotiated flexible transition arrangements that show the bloc carries a serious interest in expansion. India’s market access and strategic weight as a counter to China provide more leverage than smaller accession applicants today. However, an application must come with a willingness to reform. An application without preparation to just send a signal to Tokyo and Washington would be worse than not applying. The RCEP precedent fuels skepticism when it comes to partnerships with India. A second high-profile exit would carry reputational loss that FTAs would not be able to offset.

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BY KRISH

TEAM GEOSTRATA

info@thegeostrata.com