The Indo-Pacific economic bloc offers India a new opportunity

News: Recently, the US launched the Indo Pacific Economic Framework (IPEF) at the Quad meeting in Tokyo.

Significance of IPEF

In General

Geopolitical: All its members (the US, India, Japan, Australia, South Korea and 8 other East Asian countries), share worries about China’s muscular nationalism and expansionist ambitions. Therefore, this gives the group a distinct geo- political flavour.

On the economic front, the group could become the foundation for longer term economic integration of like-minded countries. It would lead to cooperation in investment and technology development for clean energy.

The immediate focus is on common standards in areas of labour rights, environmental standards, protection of intellectual property rights and rules covering the digital economy.

For India

The world is dividing itself into autocracies and democracies. This division is reflected in economic alignments. India has a deep stake in aligning with the democratic group. Therefore, India leadership has already signalled India’s support of the new initiative.

Negotiations under the IPEF could be a mechanism for bringing our system in line with the best practices in the rest of the world.

It would make India an attractive trading partner and as a destination for investment, especially in new supply chains.

Digital trade and e-commerce are another critical area included under the IPEF. India has a comparative advantage in software development and application.

What are the challenges?

Economic integration must ultimately be reflected in trade integration. But the IPEF is not a conventional free trade agreement (FTA).

Progress in some areas identified under the IPEF may run into problems from India’s side. It will involve many departures from its traditional positions.

The new arrangements will not require a consensus. IPEF is not a multilateral trade negotiation, where any country could hold up progress of negotiations by not agreeing. India may simply be left out, if India does not accept terms.

In the past, India has resisted such behind-the-border alignment of standards because they reduce our policy space.

Taxes and anti-bribery provisions are another element of the IPEF that could pose problems. India takes taxation as a sovereign function. Therefore, it is not subject to negotiation. However, India’s taxation system is often accused of being a form of “tax terrorism“.

The US and Europe have differences on the issues of digital trade and e-commerce businesses.

Trade negotiations are too complex. It cannot be handled by individual ministries acting in silos.

There are many contentious issues in digital trade and e-commerce. For example, issues of transparency, the requirements of fair competition in a world dominated by a few players, and the ownership and localization of personal data.

Way Forward

Areas should be identified where the negotiations require a departure from past practice. India should consider whether these departures are in the national interest in the light of changed circumstances.

– For example, India adopted what advanced countries were demanding like freedom for workers to form trade unions because this was in our national interest.

If India decides to go ahead with IPEF, it should avoid prolonged negotiations as were done in the RCEP.

The ‘atmanirbharta’ (self-reliance) does not mean isolation and protectionism. It involves attracting foreign investment and becoming part of global supply chains. Therefore, India should become part of IPEF as building reliable supply chains is part of its agenda.

The exceptions can be carved out for specially sensitive areas. India can build in a suitable adjustment period to comply with these standards.

India should initiate an internal review of its tax administration with involvement of experts and not just the Department of Revenue.

Indian business should be mobilized in support of the new integration. Indian businesses that are potentially competitive globally and are often not heard.

Finally, negotiations involve multiple ministries. Therefore, there should be inter-ministerial consultations. We need 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 mobilized to conduct broad consultations and elicit the opinions of stakeholders, including state governments.

The NITI Aayog should engage in the education of the Indian public on the benefits to India from greater integration.

Source: The post is based on an article ‘the Indo-Pacific economic bloc offers India a new opportunity” published in the Live Mint on 26^th May 2022.