Lanka braces for likely trade diversion, courtesy TPP

12 May '16

5 min read

The yarn forward rule has been adopted to prevent third party countries outside the agreement from benefiting from TPP tariff reductions as well as to safeguard the textile and apparel industries of some countries such as the US. Under the yarn forward rule, the ability of countries such as Vietnam to export clothing to TPP made from Chinese yarns and fabrics for instance will be constrained. In the short to medium run, these factors will mitigate the trade diversion risks, by limiting the immediate markets access of the US by Vietnam under the TPP.

While the magnitude of loss from trade diversion due to TPP would be negligible for Sri Lanka when the TPP comes into force, which is most likely to happen after 2018, the TPP is a living agreement and membership will be open to other countries including those in the Asia Pacific Economic Forum (APEC) at a future date. Countries such as Korea, Taiwan, the Philippines, Colombia, Thailand, Indonesia, etc., have expressed an interest in joining the mega regional grouping. Therefore, the risks of trade loss/diversion are likely to increase with time given that Sri Lanka is also not part of the other mega-regional trade agreements under negotiations.

Sri Lanka too is looking at TPP and is currently conducting a feasibility study to determine the pros/cons of the Agreement. The country needs to weigh-in the costs and benefits of the Agreement in light of its current position and development needs. While there are likely to be great benefits involved in joining the Agreement, there are a lot of political and economic investments that will have to be made by the country to be ready to enter into such an Agreement at a later date.

TPP is a 'comprehensive and high-standard agreement' going beyond enhancing trade in goods and current multilateral commitments. In fact, only 6 of the 30 chapters in the Agreement covers trade in good issues while the majority of the chapters deal with e-commerce, government procurement, competition policy, state-owned enterprises, intellectual property, labour and environmental protection, etc. According to IPS, some of these aspiring countries will have trouble in meeting TPP's ambitious requirements, due to their protectionist stance toward agriculture and industry.

Meanwhile, Sri Lanka should strive to improve the competitiveness of its own exports by creating competitive infrastructure services, promoting export oriented foreign investment, facilitating goods across borders effectively, addressing export market issues through trade agreements, and improving access to inputs of materials, capital, and technology for the export sector, the IPS said. (SH)

Fibre2Fashion News Desk – India