19 Sep 2022 Indo-Pacific Economic Framework for Prosperity(IPEF)
Sources: Indian Express; Livemint; The Hindu
News: India joined the IPEF declaration and agreed to three pillars out of four pillars of the Indo-Pacific Economic Framework for Prosperity.
About Indo-Pacific Economic Framework for Prosperity (IPEF):
- It is a U.S.-led economic grouping comprising India and 13 countries located in the Pacific ocean.
- Members of IPEF are the U.S.A, Australia, Brunei, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, Vietnam, and Fiji.
- IPEF members account for 40 percent of the global GDP.
- IPEF is not like a “traditional” free trade agreement having reciprocal market access. On the other hand, It allows members to negotiate the parts of the agreement they want to.
Four key pillars of IPEF:
- Connected Economy by enhancing digital economy and trade: Aim is to fuel economic activity and investments benefitting both workers and consumers by establishing high-standard, inclusive, free, and fair-trade commitments. Here, the U.S. is willing to extend cooperation for enhancing the digital economy and trade.
- Resilient Supply Chain Economy: As a crisis response measure and ensuring business continuity this framework ensures access to key raw and processed materials, semiconductors, critical minerals, and clean energy tech.
- Clean Economy through decarbonization, clean energy, and infrastructure: Development of sustainable and durable infrastructure for adopting renewable energy through technical assistance and mobilizing finance, including concessional finance.
- Fair Economy through anti-corruption and good corporate governance measures: Through enforcing the robust tax, anti-money laundering, and anti-bribery regime, and curbing tax evasion.
Reasons for the inception of IPEF:
- The emergence of multi-country trade agreements such as the Regional Comprehensive Economic Partnership (RCEP) led by China.
- U.S. withdrawal from Trans-Pacific Partnership (TTP) during the Donald Trump era left the U.S. without an economic and trade strategy to counter China’s increasing economic influence in the Indo -Pacific region.
- To reap the economic benefits of growth in the Indo-Pacific as IPEF tries to form an economic accord allowing like-minded nations to set technical rules. As the White House Fact Sheet on IPEF projected Indo‑Pacific to be the largest contributor to global growth over the next 30 years.
- Assured supplies of common goods at lower costs: With the inception of IPEF supply chains will become more resilient in the long term, protecting consumers against costly disruptions and higher prices.
- Achieving emissions reduction goals through decarbonization and clean supply chains.
- Countering China: IPEF will provide the ground for the U.S. to regain its position as a major economic player in Asia from China. Various provisions of the IPEF such as setting digital norms or corporate governance, and focusing on securing supply chains and critical minerals aim to prevent China from framing global economic rules.
- Reducing the economic dependencies of IPEF nations on China as many U.S. companies are moving away their manufacturing from China. Participating countries through IPEF will be able to bring those businesses into their territory.
Concerns and Challenges associated with IPEF:
- Lack of market access negotiations with members: The United States mostly focuses on high-standard agreements in its trade accord like Trans-Pacific Partnership. In IPEF, also America may demand the same standards from its partners without any inducements in the form of market access and trade agreements. Developing nations like Vietnam and Indonesia may find it difficult to make binding commitments on issues such as anti-corruption standards without trade inducements.
- Feasibility of IPEF grouping: As IPEF is neither a forum to discuss tariff reductions or increasing market access nor it constitutes a free trade agreement.
- Doubt among potential participants about U.S.’s willingness to offer significant concessions under the agreement: As U.S. does not need congressional approval to act under the IPEF like other traditional trade agreements.
- Volatile domestic politics in the U.S.raising concerns regarding IPEF’s durability: Abrupt withdrawal of the U.S. under the presidential leadership of Donald Trump from the TPP, still haunts many regional partners.
- Geopolitical caution pursued by the U.S. by excluding its ally Taiwan from the IPEF, despite its willingness and economic merit to join IPEF: U.S. does not want to further politicize and heighten China’s opposition to the IPEF framework by including Taiwan.
- Possibility of Bipolar World: Due to IPEF regional partners may be forced to respect either Washington or Beijing’s imperatives.
India’s stand on IPEF:
- India has joined the declaration and agreed to three out of four pillars of trade relating to supply chains: tax, anti-corruption, and clean energy.
- India has not joined the fourth pillar that deals primarily with trade as IPEF’s digital governance framework came in direct conflict with India’s digital framework and laws.
- India is planning a comprehensive legal framework to regulate the overall Internet ecosystem, such as data privacy, data localization, cybersecurity, etc. The U.S. is apprehensive that the Indian side may demand data localization even in the case of data of US-based companies.
Importance of IPEF for India:
- IPEF will help India to strengthen its presence in the Indo-Pacific region.
- India can act in the Indo-Pacific region, without being part of regional groupings like the China-led Regional Comprehensive Economic Partnership or Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
- IPEF will help India to get disengaged from supply chains that are dependent on China and will further help it to build resilient supply chains through the network of the global supply chain.
- IPEF will help India to reduce its reliance on China for raw materials as the IPEF partners will act as new sources of raw materials and other essential products.
Short Summary:
- The U.S. tries to regain its position in Asia precisely in Indo-Pacific through Indo-Pacific Economic Framework for Prosperity(IPEF) that it lost to China. Despite strong reasons for the inception of IPEF, it came up with its challenges. IPEF is different from the traditional framework without reciprocal market access allowing members to negotiate the parts they want to. India has agreed to three out of four pillars of the IPEF declaration i.e. supply chains, clean economy, tax& anti-corruption. But, there is a deadlock on the fourth pillar related to trade due to the digital governance framework. India is also successful in balancing between the U.S.-led Indo-Pacific Economic Framework for Prosperity and Russia-led Eastern Economic Forum(EEF).
Articles:
1.Indian Express Explained: India accepts three out of four pillars of US-led IPEF, so why has it stopped short of a total agreement?
2.Livemint:What-does-the-indo-pacific-economic-framework-mean-for-india-and-the-world?
3. The Hindu Explained: What is the Indo-Pacific Economic Framework for Prosperity?
Article Links:
- https://indianexpress.com/article/explained/explained-economics/us-ipef-india-accepts-three-pillars-stopped-short-total-agreement-8142554/
- https://www.livemint.com/news/world/what-does-the-indo-pacific-economic-framework-mean-for-india-and-the-world-11662719818970.html
- https://www.thehindu.com/news/international/explained-what-is-the-indo-pacific-economic-framework-for-prosperity/article65460071.ece
Yojna IAS Daily current affairs eng med 19th Sep
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