Is the Indo-Pacific Economic Framework for Prosperity (IPEF) limited in scope?

The launch this week of the U.S. President’s new trade initiative for the region, the Indo-Pacific Economic Framework for Prosperity (IPEF), which was witnessed by leaders of 13 countries, including Indian Prime Minister, was heralded as the start of a new economic bloc in the region, one which could be seen as a counter to China.

Indo-Pacific Economic Framework for Prosperity (IPEF)

• Touted as a substantial step by the U.S. as part of its decade-old “pivot to Asia”, the framework is a declaration of a collective desire to make the Indo-Pacific region an engine of global economic growth.
• Aim - to strengthen economic partnership among participating countries to enhance resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness in the Indo-Pacific region.
• Joined by India, Japan and Australia, and going beyond the Quad, also by 10 ASEAN countries countries, South Korea and New Zealand.
• Launched with a dozen initial partners who together represent 40% of the world GDP.
• 4 pillars:
  • Supply-chain resilience
  • Clean energy, decarbonisation & infrastructure
  • Taxation & anti-corruption
  • Fair & resilient trade.

Significance

• Countering China: China not being a member gives the group a distinct geopolitical flavour since all its members share worries about China’s muscular nationalism and expansionist ambitions.
• Economic Cooperation & Integration: It will produce many immediate benefits on the economic front in terms of cooperation in investment and technology development for clean energy.
  • It could also become the foundation for longer term economic integration of like-minded countries.
• Opportunity for India: India’s joining of IPEF is a strong statement of commitment to Indo-Pacific goals, and to broadening regional economic cooperation, particularly after it walked out of the 15-nation RCEP.

China’s response to IPEF

• China has been deeply critical of all U.S. initiatives in the region, as a part of a strategy to “contain China” .
• The Chinese government has accused the U.S. of building an “Asian NATO” in the Quad, of nuclearising the region through the Australia - U.K. - U.S. security pact AUKUS, and has also trained its guns on the IPEF, dismissing its utility.

Possible Challenges

• Questions about its utility: U.S. officials have made it clear that IPEF is not a Free Trade Agreement; nor will it discuss tariff reductions or increasing market access, raising questions about its utility.
  • 4 pillars also draw into question whether there is enough common ground among the 13 countries (that are part of very different economic arrangements) to set standards together, or be open to issues that vary for each country.
• India’s Traditional Positions: Progress in some of the areas identified under the IPEF may involve many departures from India’s traditional positions.
  • It should not be the case that India’s negotiators simply accept what is demanded by advanced-country participants.
• Taxation: Tax provisions are another element of the IPEF that could pose problems. There is a tendency to take taxation as a sovereign function and therefore not subject it to negotiation.
• Unheard Views of Businesses: The views of Indian businesses that are potentially competitive globally are often not heard.
  • The voices that are heard are of businesses that are afraid of competition and happy to lobby for protectionism to survive.
  • Indian business also needs to be mobilised in support of the new integration.
• Complex Negotiation Process: Trade negotiations involve multiple ministries, which then engage in cumbersome inter-ministerial consultations.
  • The negotiations are too complex to be handled by individual ministries acting in silos inevitably burdened by precedence.
• Credibility of IPEF: Given the fact that the U.S.’s previous initiatives (the Blue Dot Network and the Build Back Better World (B3W) Initiative) have made little headway in changing the region’s infrastructural needs, the IPEF faces a credibility challenge.

Way Ahead

• Establishing Common Standards: which could form the basis of deeper integration in the future.
  • Such standards will cover labour rights, environmental standards, protection of intellectual property rights and rules covering the digital economy.
• Balancing Self-Reliance and Globalisation: India has always expressed its desire to attract foreign investment and become part of global supply chains.
  • This is the right approach and building reliable supply chains is an explicit part of the IPEF agenda.
• Managing Taxation Issue: India should initiate an internal review of its tax administration, involving experts and the Department of Revenue to come up with suitable changes.
  • This would add to India’s attractiveness as a trading partner and as a destination for investment, especially in new supply chains.
• Addressing Tech-related Issues: Digital trade and e-commerce is another critical area included under the IPEF.
  • Given India’s comparative advantage in software development and application, it would be highly desirable to evolve an agreed set of rules that could be applied across like-minded countries.
  • There are many contentious issues here such as issues of transparency, requirements of fair competition and the ownership & localization of personal data.
  • A constructive role must be played in evolving a global consensus.
• Simplifying Trade Negotiations: Considering the complex trade negotiation process, there is a need for an empowered trade negotiator to consult with concerned ministries and report to the Prime Minister and key ministers with an assessment of pros and cons.
  • The NITI Aayog should be mobilised to conduct broad consultations and elicit the opinions of stakeholders, including state governments.

Exam Track

Prelims Takeaway

• IPEF
• ASEAN

Mains Track

Q. India is neither a part of the RCEP nor the CPTPP. However, the launch of the Indo-Pacific Economic Framework (IPEF) offers significant opportunity to ramp up its trade and economic engagements in the Indo-Pacific region. Discuss.