This strategic-economic bloc will only tighten the leash

Source- The post is based on the article “This strategic-economic bloc will only tighten the leash” published in “The Hindu” on 15th May 2023.

Syllabus: GS2- International relations

News- India is negotiating the U.S.-driven Indo-Pacific Economic Framework for Prosperity (IPEF).

Why is India prioritising free trade bloc that include the US rather than China?

The one clear difference is China versus the U.S. India’s top foreign policy priority is developing a strategic partnership with the US. Its relationship with China has further deteriorated.

The big economic fear in the case of Chinja is the free trade deal’s impact on India’s manufacturing sector due to cheap Chinese goods.

What are issues related to IPEF?

The economic issues with the U.S. have been no less problematic. These are related to agriculture, intellectual property, labour and environment standards, and the digital economy.

Strategic partnership is not about accepting a completely U.S. self-interest-driven economic framework that does not suit India’s current economic interests.

Traditionally, trade deals used to be mostly about tariffs. But issues related to intellectual property, services, investment, domestic regulation, digital, and labour and environmental standards, are becoming more important.

The U.S. ‘s IPEF proposal is entirely about all these other areas. The U.S. has also found a tariffs-free trade deal as a good way to deal with the resistance of many countries to free trade agreements.

IPEF’s ‘new age’ language itself is the biggest trap. As per experts, the IPEF would result in a complete control over the economic systems of the participating countries by the US.

The IPEF is about developing a strategic-economic bloc. It is about an integrated economic system centred on the U.S. that excludes China.

The systemic integration caused by the IPEF’s will leave little room for domestic policies to help a country’s own industrialisation.

Developing country trade negotiators are used to the traditional language of free trade agreements. They find it quite difficult to understand and respond to the IPEF’s language.

IPEF is proposed to be concluded by November 2023, and real engagements only began late last year. Traditional free trade agreements take years to conclude. The US is rushing through IPEF.

What are the long-term economic implications of IPEF?

In the long run, IPEF will have a stronger effect on economic and trade flows. In the digitalising world, giving up policy spaces in key areas such as digital, labour and environment, and export constraints, would take the form of an economic dependency.

The IPEF can have implications in agriculture, in terms of genetically modified seeds and food. It could mean surrendering policy space for regulating Big Tech.

The country can compromise a comparative advantage in manufacturing due to unfair labour and environment standards.

It will also seriously affect India’s ability to create a vibrant domestic ecosystem in emerging areas such as a digital economy and green products.