Why does India need to be cautious when joining IPEF?

Speaking to delegates at the launch of the Indo-Pacific Economic Framework (IPEF), Prime Minister Narendra Modi said the pact will pave the way for development, peace and prosperity in the region.

When India joined the bloc initiated by US President Joe Biden, it made its intentions very clear. For them, peace in the region was the top priority, without which the economy and prosperity would not be possible.

IPEF is a crucial part of US President Joe Biden’s plan to counter China’s growing influence in the Asian economy. Biden plans to do this through partnerships with other countries including India, Australia, Brunei Darussalam, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand and Vietnam.

The Indo-Pacific Economic Framework (IPEF) has four pillars. The first is supply chain resilience. The second concerns clean energy, decarbonization and infrastructure. The third deals with taxation and the fight against corruption. And the fourth is fair and resilient trade. The US is also trying to include digital economy issues such as cross-border flows and localization of data.

So what form will the pact take? According to a February report by the US Congressional Research Service, US officials have said they do not envision the IPEF taking the form of a “traditional trade deal.”

The report quoted a USTR official as saying in February that the initiative would include various modules covering “fair and resilient trade, supply chain resilience, infrastructure and decarbonization, and tax and anti-corruption.”

Basically the pillars we talked about before. Countries must register for all components within a module, but do not have to participate in all modules.

In particular, the Fair and Resilient Trade module is led by USTR and includes digital, labor and environmental issues with some mandatory commitments.

As reported by business standard, IPEF’s joint statement does not call for the start of negotiations for a trade agreement. Instead, she only promises to start “collective talks about future negotiations”.

Without ruling out tariff negotiations under the proposed trade deal, the joint statement said that cooperation in the digital economy would be part of efforts under IPEF.

A White House fact sheet spoke of the pursuit of high-standard rules for the digital economy related to cross-border data flows and data localization, as well as the search for strong labor and environmental standards and corporate accountability provisions.

And the devil is in these details. As previously explained by business standard, India and the US have different views on digital trade, labor and environmental standards.

In fact, India steadfastly refuses to include such standards in any free trade agreements it enters into.

Speak with business standard, said Biswajit Dhar, professor of economics at Jawaharlal Nehru University, that IPEF intends to bring about regulatory coherence, which is similar to what happened with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. It will impact the digital economy, e-commerce, the environment and labor regulations, but data portability is one of the key issues for India that is yet to be addressed, he said. E-commerce rules are another important topic. In fact, India’s labor standards have weakened. Indian institutions lack the depth to address these regulatory issues. All other countries in the IPEF have a certain willingness. India is an outlier in this regard, says Dhar. India will need to see what kind of sensitivity other members show towards its concerns.

The nature of the frame itself could be a cause for concern. According to a letter from the Washington-based Center for Strategic and International Studies (CSIS), the Biden administration has portrayed the IPEF domestically as an initiative that will allow the US to better compete with China in the region.

For this reason, some of the Indo-Pacific partners fear that the IPEF was primarily a political effort to counter China, rather than a genuine and thoughtful economic program.

The same CSIS brief also described India as possibly not an ideal IPEF participant under current conditions. However, it said India’s exclusion from IPEF “would raise questions about how ‘Indo-Indoan’ the Indo-Pacific economic framework really is.” While IPEF’s success or failure lies far in the future, it is clear that India is currently facing a particularly difficult challenge.

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