IPEF: Indo-Pacific Economic Framework – Explained, pointwise

Introduction

On May 23 2022, before the Quad leaders’ summit in Tokyo, the United States launched the Indo-Pacific Economic Framework (IPEF). IPEF is being said to be the US’ answer to the other trade pacts in the Indo-Pacific region: the Trans Pacific Partnership (TPP) and its successor agreement, the Comprehensive and Progressive Agreement for TPP (CPTPP), and  the Regional Comprehensive Economic Partnership (RCEP). The US had pulled out from the TPP due to enormous domestic backlash against the low/no tariff agreement in it and also did not join the China-led 15-country RCEP. The IPEF is being portrayed as a tool to enhance economic cooperation and establish a rule based order in the Indo-Pacific.

What are the proposed dimensions of IPEF?

The proposed economic bloc has 13 members so far and more countries are expected to join. Apart from the four Quad members, IPEF includes Brunei Darussalam, Indonesia, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand and Vietnam.

Source: Indian Express

The framework has 4 pillars

Trade: It will include digital economy and emerging technologies, labour commitments, environment, trade facilitation, transparency and good regulatory practices. It will also include corporate accountability, standards on cross-border data flows and data localisations.

Supply Chain Resilience: To develop ‘a first-of-its-kind supply chain agreement’ that would anticipate and prevent disruptions.

Clean energy and decarbonisation: It will include agreements on ‘high-ambition commitments’ such as renewable energy targets, carbon removal purchasing commitments, energy efficiency standards, and new measures to combat methane emissions.

Tax and anti-corruption: It includes commitments to enact and enforce ‘effective tax, anti-money laundering, anti-bribery schemes in line with [American] values’.

The member countries do not plan to begin negotiations for a trade pact immediately. They only promised to launch ‘collective discussions towards future negotiations’ with the ambitious wish list.

What is the significance of IPEF?

First, it is a salient attempt to allow countries to decouple from Chinese over-dependence. The framework will strengthen the existing free and open rules-based global order, which China has been targeting to upend.

Second, it will help the U.S regain its dominant position in the geopolitics which it has been losing to China and Russia. The aim is to reclaim economic leadership in East Asia and the ASEAN region without giving away concessions that would anger domestic lobbies.

Third, it will help in setting the rules of the road for the digital economy, ensuring secure and resilient supply chains. It will also play a pivotal role in raising standards for transparency, fair taxation, and anti-corruption.

Fourth, it complements the “Quad Plus” process. It brings together seven critical countries of the Association of Southeast Asian Nations (ASEAN), all Quad states, and dialogue partners. This grouping solidifies a case for the “plus” characterisation of the Quad process.

Fifth, it will counter the other regional groupings; the TPP, the CPTPP and the RCEP. None of them had India or the U.S as participants.

Sixth, it will also improve mitigation and adaptation efforts towards climate change by helping in inducing major investments necessary in clean energy infrastructure and the clean energy transition. 

Will IPEF be beneficial for India?

First, IPEF gives India an opportunity to be part of the value chain in the Asia-Pacific region after it exited the RCEP trade deal in 2019. 

Second, it also takes care of India’s concern of China being part of RCEP. The IPEF by design excludes China.

Third, it presents an opportunity to concretize India’s position as a responsible and robust economic power in the world order.

What are the associated challenges?

Data Localization: As per U.S, India’s proposed data localisation requirements will serve as a hurdle to digital trade between the two countries. It will act as market access barrier, especially for smaller firms. However, India strongly supports data localization for protection of personal data and upholding national security.

Environment and Labour standards: The IPEF imposes stricter environment and labour standards that are way above the prevailing norms in India. Such strict measures may hamper investment flows into India thereby limiting the benefits. Moreover, incorporation of such standards in Free Trade Agreements is against India’s official stand.

Different Stance over Russia -Ukraine Conflict: India hasn’t openly criticized Russia unlike Australia, U.S and Japan. Further, India has continued to purchase oil from Russia. This hasn’t significantly impacted India’s relations with the west until now. However, if the war persists for long, it might be difficult for India to hold on to the same position.

China’s Discontent: China views the framework as a U.S led ‘Anti China’ tool. India’s joining may antagonize China and may escalate border tensions along the Line of Actual Control (LAC).

What lies ahead?

First, the 13 countries are yet to begin negotiations. The US hopes it will draw in more members as a reasonable degree of flexibility is provided in the agreement. According to the US Congressional Research Service, countries would have to sign up to all components within a pillar, but do not have to participate in all pillars.

Second, IPEF is likely to complement the other Indo-Pacific projects like the Supply Chain Resilience Initiative that also seeks to build resilient and secure trade linkages by reducing dependence on China. Further, there must be inclusion of key players like Taiwan into SCRI and IPEF as Taiwan enjoys a critical hold over semiconductor supply chain networks.

Third, IPEF will now help to expedite the discussion and deliberation of a ‘QUAD Plus’ grouping and formally concretize the idea into reality. It is now incumbent on the Quad states to allow for the creation of a “corridor of communication” that ultimately leads to a “continental connect” to strengthen a rules-based order.

Fourth, states must envision a broad, all-embracing, and comprehensive framework that can stand as a pillar for regional security and stability, multilateralism, and defence of global institutionalism. Establishing a stronger regional economic framework that promotes a resilient and secured supply-chain connect is just the beginning.

Conclusion

India is committed to a free, open, and inclusive Indo-Pacific region. It is keen to collaborate with partner countries under the IPEF and work towards advancing regional connectivity and integration for continued growth, peace, and prosperity.

Source: The Hindu, Indian Express, Indian Express, Business Standard