India Signs IPEF Agreement With Indo Pacific Economic Framework Members

Context:

• This article is based on the news  “IPEF agreement: India has played its cards deftly”” Which was published in the Live Mint.  India recently signed the Supply Chain Resilience Agreement of the Indo Pacific Economic Framework for Prosperity (IPEF) at a recent meeting at San Francisco in the US.  

What is the Indo Pacific Economic Framework (IPEF)?

• IPEF was launched jointly by the US and other partner countries of the Indo Pacific region in May 2023 in Tokyo (Japan).
• Aim: The initiative aims to advance resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness for the economies involved. The overarching goal is to contribute to cooperation, stability, prosperity, development, and peace within the region.
• Members (14): Australia, Brunei Darussalam, Fiji, India, Indonesia, Japan, the Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, the US and Vietnam are members of the IPEF. Together they account for 40 percent of the world’s economic output and 28 percent of trade.
• The framework is structured around four pillars relating to Trade (Pillar I); Supply Chains (Pillar II); Clean Economy (Pillar III); and Fair Economy (Pillar IV). 
  • India had joined Pillars II to IV of IPEF while it has an observer status in Pillar I. 
• Trade ( Pillar-I):
  • Enhance trade engagement among IPEF partner countries.
  • Promote economic growth, peace, and prosperity in the region.
• Supply Chains (Pillar-II):
  • Enhance supply chain resilience and integration.
  • Mitigate disruptions for business continuity.
  • Improve logistics and connectivity.
  • Promote investments in critical sectors.
  • Empower workers through upskilling.
• Clean Economy (Pillar-III):
  • Advance cooperation on research, development, commercialization, availability, accessibility, and deployment of clean energy and climate friendly technologies.
  • Facilitate investment in climate projects.
  • Introduce a regional hydrogen initiative.
• Fair Economy (Pillar-IV):
  • Strengthen anti-corruption measures.
  • Enhance tax measures for transparency.

What is the significance of the IPEF Agreement?

• Global Supply Chain Resilience: First multilateral attempt to enhance supply chain resilience globally, addressing inflationary pressures and future disruptions, especially for key raw materials, critical minerals, and semiconductors.
• High-Standard Rules: It represents an effort to negotiate “high-standard” rules between like-minded countries to govern the digital economy, particularly data flows, propel climate mitigation , and tilting power in the global economy toward workers through equitable global tax, anti-money laundering and anti-bribery provisions.
• Flexibility and Open Nature: Its member countries are not required to join all its four pillars and can opt to join any pillar/s of their choice.
• • For Example, India had joined Pillars II to IV of IPEF while it has an observer status in Pillar-I.

Key Highlights IPEF Meeting at San Francisco in the US:

IPEF Agreement –  India sign supply chain resilience agreement

• India, the US and 12 other members of the Indo Pacific Economic Framework (IPEF) entered into a supply chain resilience agreement.
• Aim:  To cut dependence on China and help shift manufacturing of crucial goods to member nations.
  • For instance, it aims to prevent future supply chain disruptions, as witnessed during the COVID outbreak, as most countries depended on China for various products.
• Other benefits: These include shifting production centers in critical sectors, Supply chain diversification, mobilization of investments, deeper integration of India in global value chains, support to MSMEs and creation of a seamless regional trade ecosystem.
• IPEF Supply Chain Council: It would be set up to implement and monitor the agreement. The council will meet every year and all the members must report on the agreement’s implementation progress.
  • The block would also set up The IPEF Supply Chain Crisis Response Network and The IPEF Labour Rights Advisory Board.
• The pact would come into force after any five-member countries implement the agreement.

Clean Economy Agreement (IPEF):

• Climate Objectives and Net-Zero Emission Economies: Partners commit to pursuing shared climate objectives and pathways to net-zero emission economies.
  • Promotion of sustainable growth and success for all partners is emphasized.
• Clean Economy Investor Forum: Annual convening of the IPEF Clean Economy Investor Forum, starting in Singapore in the first half of 2024, to catalyze investment for sustainable infrastructure and climate technology.
• Catalytic Capital Fund: Establishment of the IPEF Catalytic Capital Fund administered by the Private Infrastructure Development Group to expand the pipeline of bankable climate-related infrastructure projects.

Fair Economy Agreement (IPEF):

• Enhancing Transparency, Rule of Law, and Accountability: Under the IPEF Fair Economy Agreement, the IPEF partners committed to working together to enhance transparency, the rule of law, and accountability in their economies to improve the trade and investment environment in the Indo-Pacific region.
• Capacity Building Framework (CBF): Establish a new Capacity Building Framework (CBF) to enhance each other’s capabilities to effectively implement all aspects of the proposed agreement.
• Annual Coordination Meetings: The IPEF partners would also hold annual coordination meetings on anti-corruption, labour, and tax to discuss the implementation of commitments, challenges in implementation, and any technical assistance needs.

Concern for India:

• Lack of Market Access Details: Under the IPEF trade pillar, there is ambiguity about the market access India would gain. The absence of clear incentives and potential restrictions raises questions about the benefits for India.
• Export Restrictions: The issue of export restrictions, especially in the context of food and agriculture, remains sensitive. 
  • However, India has been extensively using such restrictions to arrest food prices. India has banned wheat exports, imposed restrictions on rice and sugar exports in the run up to the general elections next year.
• Impact on Manufacturing Sector: The concern is specifically about the potential impact of such a deal on India’s manufacturing, similar to worries about China flooding Indian markets with cheap goods.
• New Age Trade Deals:
  • The IPEF’s departure from traditional tariff-focused trade deals to a comprehensive approach covering intellectual property, services, investment, domestic regulation, digital, and labor and environmental standards raises concerns.
    • Unlike a traditional trade agreement, the U.S. administration will not need congressional approval to act under the IPEF. This also raises doubts among potential participants about its willingness to offer significant concessions under the agreement.
• Strategic-Economic Bloc Formation:
  • The IPEF is seen as an attempt by the U.S. to form a strategic-economic bloc centered on itself, excluding China.
  • Critics argue that the IPEF aims to integrate economies into a system advantageous to the U.S., potentially limiting policy autonomy and industrialization efforts for participating countries, including India.
• Data Localisation Challenge: India has a significant concern regarding data localisation, a contentious issue with the U.S. for the past few years. 
  • India’s proposed data localisation requirements, requiring firms to store data within India, have been criticized by the U.S. as potential barriers to digital trade.

Way Forward: 

• Empowered Trade Negotiator: Establish an empowered trade negotiator to coordinate with relevant ministries, report to key government figures, and assess the pros and cons of negotiations. Niti Aayog can facilitate broad consultations with stakeholders and educate the public on the benefits of greater integration.
• Navigate Data Localization Concerns: Address the concerns related to data localization diplomatically and explore solutions that balance India’s regulatory goals with the need for international digital trade. 
• Active Participation in IPEF: Through Continue active participation in the Indo Pacific Economic Framework (IPEF) discussions and collaborations, India can leverage the platform to strengthen economic ties, regional connectivity, and trade and investment opportunities within the Indo-Pacific region.
• Proactive Internal Review: Initiate an internal review of India’s tax administration involving experts to align with global best practices, enhancing India’s attractiveness for trade and investment.
• Flexibility in Digital Trade: In the critical area of digital trade, India should play a constructive role in evolving global consensus, considering contentious issues like data localisation and fair competition.

Conclusion: 

Balance national interests with the collaborative spirit of the IPEF. Ensure that India’s participation aligns with its economic priorities, while also contributing to the overall objectives of the framework.

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