On the Indo-Pacific Economic Framework- IPEF agreement: India has played its cards quite well

Source: The post on the Indo-Pacific Economic Framework has been created based on the article “IPEF agreement: India has played its cards quite well” published in “Live Mint” on 24th November 2023.

UPSC Syllabus Topic: GS Paper 2- International relation– Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests

News: The article discusses India signing the Supply Chain Resilience Agreement of the Indo-Pacific Economic Framework for Prosperity (IPEF) to diversify trade and reduce dependence on China. It also highlights the IPEF’s challenges, such as limited market access and internal conflicts among member countries.

What is the Indo-Pacific Economic Framework (IPEF)?

The IPEF was started in May 2022 by the United States along with 13 countries including Australia, India, and Japan. This group represents about 40% of the global GDP and 28% of world trade.

The IPEF focuses on four areas: trade, supply chains, clean energy, and creating a clean economy.

It’s unique because member countries can choose which of these areas they want to be involved in, without needing to commit to all four. This flexibility sets the IPEF apart from other international agreements.

India had joined Pillars II to IV of IPEF while it has an observer status in Pillar-I.

What are the key outcomes of the 3rd IPEF Ministerial Meeting?

The 3rd Indo-Pacific Economic Framework (IPEF) Ministerial Meeting in San Francisco produced significant outcomes:

Supply Chain Agreement: Signed in San Francisco, this first-of-its-kind agreement aims to enhance the resilience and responsiveness of supply chains.

Clean Energy, Decarbonisation and Infrastructure: Commitment to accelerate clean energy technologies and decarbonize economies, supporting sustainable livelihoods and aligning with Paris Agreement goals.

Trade Pillar: Progress has been made towards a mutually beneficial outcome that emphasizes strong labor standards and fair trade.

IPEF Critical Minerals Dialogue: Launched to foster closer collaboration on strengthening IPEF critical mineral supply chains and boosting regional economic competitiveness.

Financing Initiatives: Emphasis on mobilizing financing for supply chain resilience and sustainable development.

Future Meetings: Plans for an annual ministerial-level IPEF Council from 2024 and biennial leaders’ meetings.

What challenges does the IPEF face?

US Domestic Politics and Trade Barriers: The United States, despite advocating for free trade, has been implementing trade subsidies and erecting trade barriers in the name of quality, labor, and environmental standards. This creates a challenge for IPEF, as the US’s own policies might contradict the framework’s objectives.

Concerns about the Stability: The scrapping of the Trans Pacific Partnership (TPP) by former US President Donald Trump adds to the skepticism around the IPEF. This past action raises concerns about the stability and commitment of the US towards such international trade agreements.

Differing Member Interests: The diverse interests of IPEF member countries can lead to conflicts, making it difficult to reach a consensus, particularly on trade issues. This challenge became evident during the recent San Francisco dialogue, when members failed to reach an agreement on the trade pillar, resulting in its deferment.

What is the significance of IPEF for India?

Counterbalancing China’s Influence: Through the IPEF, India is diversifying its trade and supply chains, reducing its dependency on China. This strategic move not only improves India’s supply stability but also serves as a countermeasure to China’s growing regional influence.

Economic Growth: The IPEF, representing about 40% of global GDP, opens up significant new trade and economic opportunities for India.

Strategic Positioning: Participation in IPEF strengthens India’s position as a reliable partner in regional supply chains, boosting its role in global value chains.

Navigating Geopolitical Challenges: India’s involvement in IPEF helps it manage complex geopolitical dynamics, such as the Ukraine-Russia conflict, while maintaining beneficial relationships and economic interests.

Question for practice:

Examine the challenges faced by the Indo-Pacific Economic Framework (IPEF) and how they may impact its effectiveness and member consensus.