New Delhi: Ahead of the ongoing Asia-Pacific Economic Cooperation (APEC) Summit in San Francisco, India signed one of the four pillars of the Indo-Pacific Economic Framework for Prosperity (IPEF).
Following the signing of the agreement Commerce and Industry Minister Piyush Goyal posted on his X handle: “India joins US & 12 other Indo-Pacific Economic Framework For Prosperity (IPEF) partners to ink the #IPEF Supply Chain Resilience Agreement, a first-of-its-kind international agreement that will: fortify & strengthen global supply chains; Foster adaptability, stability & sustainability.”
So, what is the IPEF?
The IPEF is an economic initiative launched by US President Joe Biden in May last year. The framework launched was with 14 participating founding member nations in the Indo-Pacific region with an open invitation for other countries to join. The 14 founding member nations are Australia, Brunei, Fiji India, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, the US and Vietnam. The 14 IPEF partners represent 40 percent of global GDP and 28 percent of global goods and services trade.
According to a fact sheet issued by the White House following the launch of the initiative, the IPEF will enable the US and its allies to decide on rules of the road that ensure American workers, small businesses, and ranchers can compete in the Indo-Pacific. Tackling inflation is a top economic priority, and this framework will help lower costs by making supply chains more resilient in the long term and protecting against costly disruptions that lead to higher prices for consumers.
“The United States and our partners in the region believe that much of our success in the coming decades will depend on how well governments harness innovation — especially the transformations afoot in the clean energy, digital, and technology sectors — while fortifying our economies against a range of threats, from fragile supply chains to corruption to tax havens,” the fact sheet read. “The past models of economic engagement did not address these challenges, leaving our workers, businesses, and consumers vulnerable.”
The framework focuses on four key pillars to deepen economic engagement among the member nations while establishing high-standard commitments: fair and resilient trade; supply chain resilience; infrastructure, clean energy, and decarbonization; and tax and anti-corruption. The IPEF is designed to be flexible, meaning that IPEF partners are not required to join all the four pillars.
Biden described the initiative as “writing the new rules for the 21st century economy”, stating that the agreement would make the participant economies “grow faster and fairer”. Analysts have compared it to the Trans-Pacific Partnership (TPP), which the US withdrew from in 2017.
Commentators have described the IPEF as being part of the Biden administration’s efforts to counter growing Chinese influence in the region. According to a report in the Financial Times, countries in the region urged the Biden administration to develop an international economic policy framework to combat China’s influence.
Chinese Foreign Minister Wang Yi criticised the initiative as an attempt to further economic decoupling from China. Wang argued that the initiative, and the US’ Indo-Pacific strategy as a whole, created divisions and “incited confrontation”. He stated that such an agreement would “ultimately be a failure”.
Meanwhile, leaving aside the pillar of trade, India has agreed to join the three other pillars of the framework. In a press briefing after an IPEF ministerial meeting last year, Minister Goyal had said that India was “very comfortable with the final outcome of the text and I have joined the three pillars related to supply chains, tax and anti-corruption, and clean energy”.
So, why has India been opting out of the trade pillar?
Goyal cited the following reasons: digital trade with data laws being formed up; linking environment and labour with trade and possible binding commitments of any nature vis-à-vis the benefits that Indi will receive as a developing country. According to him, India will continue to engage with trade track in the IPEF and will wait for the final contours on the trade pillar to be decided before taking a call on the formal association.
Dubbed as “Connected Economy” in the White House fact sheet, Pillar I or the trade pillar is defined like this: “On trade, we will engage comprehensively with our partners on a wide range of issues. We will pursue high-standard rules of the road in the digital economy, including standards on cross-border data flows and data localissation. We will work with our partners to seize opportunities and address concerns in the digital economy, in order to ensure small and medium sized enterprises can benefit from the region’s rapidly growing e-commerce sector, while addressing issues is such as online privacy and discriminatory and unethical use of Artificial Intelligence. We will also seek strong labor and environment standards and corporate accountability provisions that promote a race to the top for workers through trade.”
“We have yet to see what benefits member countries will derive and whether any conditionalities on, for example, environment may discriminate against developing countries who have the imperative to provide low cost and affordable energy to meet the needs of a growing economy,” Goyal had said. “We are also in the process of firming up our own digital framework and laws, particularly regarding privacy and data.”
Now, what benefits will India accrue by signing the agreement on Pillar II of the IPEF?
Pillar II of the IPEF is described thus: “We will seek first-of-their-kind supply chain commitments that better anticipate and prevent disruptions in supply chains to create a more resilient economy and guard against price spikes that increase costs for American families. We intend to do this by establishing an early warning system, mapping critical mineral supply chains, improving traceability in key sectors, and coordinating on diversification efforts.”
The first-of-its-kind IPEF Supply Chain Resilience Agreement was signed by Goyal ahead of the ongoing AEC Summit along with the ministers from other IPEF partner countries. The agreement is expected to make IPEF supply chains more resilient, robust, and well-integrated, and contribute towards economic development and progress of the region as a whole. This will help India and other IPEF member countries to reduce their dependence on China. The COVID-19 pandemic had severely disrupted the global supply chain as many countries were dependent on China for various products.
Speaking at the ministerial meeting in which India signed the agreement, Goyal emphasized enhanced collaboration to realise collective aims of the IPEF, particularly on the need for mobilising affordable financing for clean economy transition and for enhancing technology cooperation. He also urged early implementation of the envisaged cooperative work under IPEF, including on bio-fuels alliance suggested by India.