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Editorial of the Day: Indo-Pacific Economic Framework (The Hindu)

Context: The article discusses the U.S.-driven Indo-Pacific Economic Framework (IPEF) for Prosperity and its comparison to the Regional Comprehensive Economic Partnership (RCEP), which India walked out from in 2019. The article highlights that India, along with many of the same countries that were part of the RCEP, is now joining the IPEF, with the main difference being the replacement of China with the United States. It also highlights concerns that the IPEF could result in a complete stranglehold over the economic systems of the participating countries. It appears to be raising questions about why India, which walked out from the RCEP due to concerns about its impact on its domestic industries, is now joining a similar partnership framework with the US. The article, overall, explores India’s decision to join the framework and the potential implications of the same.

Indo-Pacific Economic Framework Background

Understanding Indo-Pacific Economic Framework (IPEF):

  • About: It is an economic initiative launched by the United States in May 2022.
  • Aim: Enhancing economic cooperation and integration in the Indo-Pacific region.
  • Members: IPEF has fourteen member states which includes QUAD nations (India, USA, Japan and Australia), 7 of the ten ASEAN nations except Cambodia, Laos and Myanmar and others include South Korea, Newzeland and Fiji.
  • Size: The 14 IPEF partners represent 40% of global GDP and 28% of global goods and services trade.

Pillars of IPEF:

Pillars of IPEF
Pillars of IPEF

India and IPEF:

India joined three of the four pillars of the Indo-Pacific Framework (IPEF) at the framework’s first in-person ministerial summit in Los Angeles in 2022.

  • India decided to become part of the resilient economy, clean economy, and fair economy components of the framework, but not the connected economy (trade) pillar of IPEF.

Significance for India from the three pillars of IPEF:

  • Benefits from the pillar of Resilient Economy: This pillar will reduce the world’s and India’s supply chains dependence on China through creating early warning systems to ensure predictable flow of goods.
    •  It is also in line with the views of our Prime Minister on how supply chain resilience must be based on three Ts — “trust, transparency and timeliness”.
  • Benefits from the pillar of Clean Economy: This decarbonisation pillar will entail a focus on green technologies and sustainable financing.
    • This is seen as a possible way to help meet India’s goals while giving another avenue to push the advanced western economies to meet their commitments.
  • Benefits from the pillar of Fair Economy: This pillar will build on existing international frameworks such as OECD and G-20 principles, United Nations conventions on anti-corruption and anti-bribery, and also include elements such as battling terror financing, which is in line with India’s policies.

Why has India not joined the pillar of Connected Economy?

  • The concern of market access: The framework is not a free trade agreement and doesn’t involve market access. The trade pillar in IPEF entails commitments on digital trade, labour, and environment, without providing market access. This has deterred India from participating in the pillar at this stage.
  • Potential Consensus: In the fourth pillar of IPEF, there are certain areas such as environment, labour, the digital trade, and public procurement in which a broader consensus has yet to emerge amongst all the nations.
    • Environment: India is still examining the conditionalities on the environmental front. For example, how the 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.
    • Data privacy: India is still in the process of firming up its own digital framework and laws, particularly regarding privacy and data.

Decoding the Editorial

  • India’s Dilemma:
    • India is caught between two difficult options, or the “devil and deep sea.”
    • On one hand, India has a deteriorating relationship with China and is seeking a strategic partnership with the United States, which is its top foreign policy priority.
    • On the other hand, India is wary of becoming economically dependent on the US and is concerned about the potential negative impacts of a trade deal with the US, particularly in areas such as agriculture, intellectual property, labour and environmental standards, and the digital economy.
    • It is to be noted that while a strategic partnership with the US is important, it should not come at the cost of India’s economic interests.
    • India should not blindly accept a US-driven economic framework that is solely based on US self-interest and does not suit India’s current economic priorities.
    • Instead, India should seek to negotiate a framework that balances the interests of both countries and protects India’s domestic industries while still allowing for economic growth and cooperation.
  • Traditional Trade Deals vs IPEF:
    • Traditional trade deals, which focused primarily on tariffs, are becoming less important, while issues related to intellectual property, services, investment, domestic regulation, digital, and labour and environmental standards are gaining greater importance.
    • The US-driven IPEF proposal completely removes tariffs from the equation and focuses entirely on these other areas.
    • The US has encountered resistance from many countries, including India, to traditional free trade agreements, which were primarily focused on reducing tariffs.
    • The US has presented tariffs-free trade deals as a new kind of win-win economic partnership, which allows it to bypass the legislative roadblocks that are likely to be encountered in traditional trade deals.
    • Therefore, IPEF represents a new approach to trade deals, which focuses on a broader range of economic issues beyond just tariffs.
  • Pitfalls:
    • The IPEF, despite its “new age” language, is seen as a trap that would give the US complete control over the economic systems of participating countries.
    • The IPEF’s vaguely-worded proposals are designed to benefit US strategists rather than the participating countries, and early assessments by experts indicate that the IPEF would result in a complete stranglehold over the economies of these countries.
    • Experts argue that the IPEF is really about developing a strategic-economic bloc that is centered on the US and excludes China.
    • This would result in a systemic integration that would leave little room for domestic policies to support a country’s industrialization.
    • The tight supply chain integration that is promoted by the IPEF would contribute to this integration, making it difficult for countries to pursue their own economic interests.
  • Complex Language:
    • The Developing country trade negotiators may struggle to understand and respond to the language of the IPEF due to its use of vague and innocuous-sounding text.
    • These negotiators have traditionally been skilled at identifying problems in free trade agreements, but the language of the IPEF is more complex and difficult to decipher.
    • Despite this complexity, the IPEF is being rushed through for approval by November 2023.
    • The high-level language of the IPEF is being used as an excuse to expedite its approval, but that this same language will ultimately trap countries in economy-wide permanent commitments.
    • The result will be a compromised domestic policy making space and a lack of understanding of the real implications of the IPEF until it is too late.
  • India’s Engagement with IPEF’s Pillars:
    • IPEF is composed of four pillars: trade, supply chains, clean economy, and fair economy.
    • India has chosen to join the other three pillars, but not the trade pillar, possibly due to concerns that it could be a trap for India’s economic interests.
    • Despite India’s reservations, there is pressure on it to join the trade pillar as well.
    • Even the other three pillars contribute to the creation of new economic architectures and structures that are not based on tariffs.
    • This indicates that India may be able to benefit from the IPEF even without joining the trade pillar, but there is still pressure on India to reconsider its decision.
  • Potential Long term Repercussions:
    • There are  potential long-term consequences of participating in the IPEF’s non-tariff-based economic structures, particularly in the areas of digital, labour and environment, and export constraints.
    • The author argues that the hard-wiring of supply chains and the loss of policy space in these areas could lead to a state of irreversible economic dependency.
    • The author questions whether developing a strategic partnership with the US should come at the cost of such a loss of policy space and economic autonomy.
    • He suggests that while the short-term benefits of joining the IPEF may be attractive, the long-term implications must also be carefully considered.
    • The potential negative impact of the IPEF are on India’s agriculture, regulation of Big Tech, comparative advantage in manufacturing, and ability to develop a domestic ecosystem in emerging areas such as the digital economy and green products.
    • The IPEF’s proposals on issues like genetically modified seeds and food, labour and environment standards, and digital regulations could compromise India’s policy space and make it more dependent on the US in these areas.
    • This could hinder India’s ability to develop its own industries and technologies and could have long-term economic and trade implications beyond just tariffs.

Beyond the Editorial

India’s strategy with respect to its engagement with the IPEF:

  • Assessing the risks and benefits:
    • India should conduct a thorough assessment of the potential risks and benefits of joining the IPEF.
    • It should carefully consider the economic, social, and environmental impacts of the proposed agreement on its domestic economy.
    • This should include a comprehensive analysis of the potential implications for different sectors, such as agriculture, manufacturing, services, and the digital economy.
    • India should also evaluate the potential geopolitical implications of joining the IPEF, including its impact on its relationships with other major powers such as China and Russia.
  • Negotiating from a position of strength:
    • India should approach negotiations with the U.S. from a position of strength, leveraging its economic and geopolitical clout to secure the best possible terms.
    • This should involve developing a clear set of priorities and red lines for negotiations, including protecting its strategic interests in key sectors such as agriculture, manufacturing, and the digital economy.
    • India should also seek to negotiate provisions that safeguard its policy space, including the ability to regulate Big Tech, protect its environment, and promote domestic industries.
  • Prioritizing domestic economic development:
    • India should prioritize its domestic economic development over its engagement with the IPEF.
    • This means investing in key sectors such as infrastructure, education, and research and development to strengthen its domestic economy.
    • India should also focus on building a strong, competitive domestic ecosystem in emerging areas such as the digital economy, green products, and advanced manufacturing.
    • By doing so, India can reduce its dependence on external actors and better position itself to negotiate favourable terms in international trade and investment agreements.
  • Building alternative partnerships and alliances:
    • India should seek to build alternative partnerships and alliances that complement its engagement with the IPEF.
    • This could involve strengthening its relationships with other major powers such as China, Russia, and Japan, as well as regional groupings such as ASEAN, BRICS, and the SCO.
    • India should also explore new partnerships with emerging economies.

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