Context:
On Monday, President Biden outlined ideas for an Indo-Pacific Economic Framework for Prosperity (IPEF), a 13-nation economic endeavour led by the United States. The initiative is being billed as a significant step by the United States as part of its decade-long “Pivot to Asia,” as well as an attempt to inject some “economic heft” into its Indo-Pacific presence, which has been on the decline since its decision to withdraw from the Trans Pacific Partnership, or CPTPP, in 2017.
The IPEF framework, according to officials, includes four “pillars”:
- Supply Chain Resilience;
- Clean Energy,
- Decarbonisation, and Infrastructure; Taxes and Anticorruption; and
- Fair and Resilient Trade.
What deal did India and the United States sign?
- India and the United States signed an Investment Incentive Agreement on May 23, 2022. (IIA). This agreement was made to pave the way for the Development Finance Corporation’s (DFC) investments in India in many critical industries to be strengthened and promoted.
- PM Modi emphasises the three Ts of robust supply chains
- Prime Minister Narendra Modi spoke during the Indo-Pacific Economic Framework for Prosperity (IPEF), emphasising that the cornerstone of robust supply chains must be the three Ts:
Trust, Transparency, and Timeliness.
- Japanese Prime Minister Fumio Kishida participated in the framework negotiations, as did leaders from Malaysia, Brunei, Indonesia, the Republic of Korea, the Philippines, New Zealand, Thailand, Singapore, and Vietnam.
- Prime Minister Narendra Modi welcomed the move, saying, “India would strive towards an inclusive and flexible Indo-Pacific Economic Framework; trust, transparency, and timeliness are critical.”
About IPEF:
- The grouping, which includes seven of the ten ASEAN members, all four Quad nations, and New Zealand, accounts for almost 40 percent of world GDP.
- Countries must sign up for all components within a module but are not required to participate in all modules.
- The US Trade Representative will lead the “fair and resilient trade” module, which will encompass digital, labour, and environmental problems, as well as certain contractual obligations.
- The IPEF aspires to deepen economic relationship among participating nations with the goal of improving the Indo-Pacific region’s resilience, sustainability, inclusivity, economic development, fairness, and competitiveness.
IPEF Characteristics:
- The IPEF would not be a “free trade agreement,” nor are nations anticipated to discuss tariff reductions or increased market access.
- The IPEF will not contain market access promises such as tariff reductions.
- In that sense, the IPEF would neither attempt to replace the 11-nation CPTPP (Trans-Pacific Partnership), which the US withdrew from in 2017, or the RCEP, which China and all other IPEF members (except the US and India) are members of.
- The IPEF does not include three ASEAN nations considered closer to China: Myanmar, Cambodia, and Laos.
Reasons for the formation of IPEF
- The IPEF is also considered as a method for the US to re-establish credibility in the area following US President Donald Trump’s withdrawal from the Trans Pacific Partnership (TPP).
- There has been worry since then about the lack of a viable US economic and trade policy to offset China’s economic dominance in the area.
- China is a powerful member of the TPP and has expressed interest in joining its successor pact, the Comprehensive and Progressive Agreement on Trans Pacific Partnership.
- It is also a member of the 14-nation Regional Comprehensive Economic Partnership, which the United States is not a part of (India withdrew from RCEP).
- The Biden Administration envisions IPEF as the next US vehicle for re-engagement with East and Southeast Asia.
Points that should be taken note of: - It is important that all IPEF members, with the exception of India and the United States, are signatories to the RCEP free trade pact but have decided to participate in the US-led initiative. Despite the strong signals from all sides, there are many areas of the IPEF that require more examination.
- The four pillars also raise questions about whether there is enough common ground among the 13 nations that are part of quite varied economic systems, as well as outliers (the United States and India), to set norms jointly or be open to concerns that differ for each country.
- The United States’ assertion that the IPEF is primarily concerned with “American workers” raises concerns about whether more protectionist global trends would prevail.
- Each IPEF member country has significant trading interests in China, with the majority running big trade deficits. So, it remains to be seen how much they are ready to pay to join the IPEF.
- Above importantly, given the failure of past US programmes (the Blue Dot Network and the Build Back Better Initiative) to address the region’s infrastructure requirements, the IPEF confronts a credibility hurdle. Before making any major claims about the benefits to the region, negotiators will need to proceed with care and precision.
As previously stated, the IPEF will focus on four policy pillars, each of which will be overseen by a separate agency:
1. Connected Economy, which encompasses seven subtopics of fair and resilient trade, including labour, environment and climate, digital economy, agricultural, transparency and good regulatory practises, competition policy, and trade facilitation.
2. Resilient Economy, which addresses supply chain resilience issues.
3. Sustainable Economy, which addresses infrastructure, clean energy, and decarbonization issues; and
4. Fair Economy, which addresses tax and anti-corruption issues.
Countries can join any number of the four pillars, but they must commit to all parts of each pillar.
What does the initial list of nations suggest about regional interest in the framework?
- Australia, Brunei, India, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam expressed interest in the IPEF and signed on to its launch, however it is unclear which pillars each nation would participate in.
- While close advanced economy partners such as Japan, Australia, New Zealand, and Singapore were widely expected to join the IPEF launch, the inclusion of seven other Indo-Pacific countries—including all seven ASEAN members, members of the Asia Pacific Economic Cooperation (APEC), as well as South Korea and India—is significant.
- It appears that the IPEF’s decentralised pillar strategy with minimal obstacles to participation has proven successful, at least initially.
