Indo-Pacific EConomic Framework: Challenges and Opportunities

Source– The post is based on the article “Indo-Pacific Economic Framework: Challenges and Opportunities” published in The Business Standard on 9th September 2022.

Syllabus: GS2- Bilateral regional and global grouping

News: The article explains challenges are opportunities presented by the Indo-Pacific Economic framework and what should be India negotiating strategy for IPEF.

The USA is hosting the first in-person meeting of the grouping on 8-9 September in Los Angeles. The formal launch of rule-setting for the group is expected at this meeting.

Indian earlier participated in its meetings as an “observer”.

What are specific features of IPEF when compared with mega regional trade agreements?

It is not an alternative to RCEP and Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). IPEF has a trade pillar but it is not a trade agreement.

Trans-Pacific Partnership, which seems to be a subset of CPTPP, was an economic instrument as part of the USA’s “Pivot to Asia” strategy for containing China. Its WTO++ provisions related to IPR; state-owned enterprises was to establish a rule-based world order that China will find difficult to abide by.

CPTPP is a water-down provision of TPP with relaxed provisions related to investment, labor, and environmental standards to make it for China easier to seek its membership.

Membership of both RCEP and CPTPP will give China a dominant position in rule setting. This is the reason behind IPEF gaining salience by excluding China.

What are the opportunities provided by IPEF for India?

First, it has nine members from East Asia and its two pillars are focused on trade and connectivity and supply chain resilience. It provides an opportunity to integrate with East Asian value chain hubs.

Second, In the post-pandemic era and in the wake of the Ukraine crisis, large corporations are seeking China plus one relocation strategy.

Third, ASEAN is also looking for supply chain resilience through bilateral FTAs and diversification beyond RCEP.

Fourth, it provides a flexible framework to seek remedial action against non-tariff barriers in the context of the ASEAN-India FTA.

What are the challenges for India?

First, it does not include tariff preferences and there is less scope for India to have enhanced market access.

Second, it may have deliberately designed to have focus on modern day provision related to digital trade, regulatory policies, trade facilitation, labour and environmental standards and sustainable social development similar to US-Mexico Canada agreement. These rules are not in confirmation with India negotiating position on trade agreements.

Third, trade facilitation rules are likely to be drawn from Asia-Pacific Economic Cooperation rules. All members of IPEF are also APEC members and they have reached consensus on modern day provision related to trade facilitation at APEC summit in 2017. Almost all of them have unleashed domestic reforms. India will have to overcome these challenges.

How can India deal with these challenges?

India is in the midst of advanced negotiation on a free trade agreement with the EU and Australia.

The EU is providing leadership in concluding free trade agreements with emphasis on provisions like labour and environmental standards.

Australia is a founding and leading member of the APEC and has been acknowledged for its contribution to trade and investment facilitation and establishing regulatory ease for cross-border supply chains.

India’s ability to conclude FTA with these countries will help in unleashing domestic reforms and signaling mechanisms to the world of its readiness to be part of IPEF.