Indo-Pacific Economic Framework for Prosperity (IPEF)

IN NEWS:

• Recently, India agreed to be a part of the Indo-Pacific Economic Framework for Prosperity (IPEF).

ABOUT IPEF:

• Indo-Pacific Economic Framework for Prosperity (IPEF) is a U.S.-led framework for participating countries to solidify their relationships and engage in crucial economic and trade matters that concern the region, such as building resilient supply chains battered by the pandemic.
• The IPEF seeks to strengthen economic partnership amongst participating countries with the objective of enhancing resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness in the Indo-Pacific region.
• It is not a free trade agreement. No market access or tariff reductions have been outlined, although experts say it can pave the way to trade deals. 
• 13 founding members of IPEF include,
  • All members of the Quad: Australia, India, Japan and the US.
  • Seven ASEAN countries like Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, as well as South Korea and New Zealand.
• The grouping represents about 40% of global GDP.
• The IPEF has four pillars:
  1. Supply-chain resilience.
     • For supply chain resilience, the framework aspires to secure access to key raw and processed materials, semiconductors, critical minerals and clean energy tech, particularly for crisis response measures and ensuring business continuity.
  2. Clean energy, decarbonisation and infrastructure.
     • In line with the Paris Agreement, this pillar would provide technical assistance and help mobilise finance, including concessional finance, to improve competitiveness and enhance connectivity by supporting countries in the development of sustainable and durable infrastructure for adopting renewable energy.
  3. Taxation and anti-corruption.
     • The pillar on tax and anti-corruption is aimed at promoting fair competition by enforcing robust tax, anti-money laundering and anti-bribery regimes in line with existing multilateral obligations, standards and agreements to curb tax evasion and corruption in the region.
  4. Fair and resilient trade.
     • The endeavour is to establish “high-standard, inclusive, free, and fair-trade commitments” to fuel economic activity and investments

SIGNIFICANCE OF IPEF:

• Promotes sustainable growth of Indo-Pacific and counters unfair trade practices of China:
  • Indo-Pacific Economic Framework seeks an open, inclusive, interconnected and secure Indo-Pacific for sustainable growth of the region and to counter an aggressively expanding China that has been accused of unfair trade practices and economic coercion.
• Makes the Indo-Pacific an engine of global economic growth:
  • The IPEF seeks to strengthen economic partnership among participating countries with the objective of enhancing resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness in the Indo-Pacific region. This will make the region an engine of global economic growth.
• Complements other Indo-Pacific projects:
  • As the IPEF covers fair trade, supply chain resilience, infrastructure, so it is likely to complement the other Indo-Pacific projects like the Supply Chain Resilience Initiative (SCRI, founded by the three Quad states, Japan, Australia, and India) that also seeks to build resilient and secure trade linkages by reducing dependence on China.
• IPEF complements the “Quad Plus” process:
  • It brings together seven critical countries of the Association of Southeast Asian Nations (ASEAN), all Quad states, and dialogue partners, including South Korea, solidifying a case for the “plus” characterisation of the Quad process.

THE SIGNIFICANCE OF IPEF FOR INDIA:

• Enhance India’s economic engagement in the Indo-Pacific:
  • IPEF will enhance India’s economic engagement in the Indo-Pacific region, which was dented after India’s withdrawal from the Regional Comprehensive Economic Partnership (RCEP) agreement.
    • India’s last-minute withdrawal from RCEP was not seen in the right spirit by ASEAN and other RCEP members.
  • The IPEF will help to control the damage caused by the RCEP withdrawal.

• Alternative sources for raw materials and reduce overdependence on China:
  • Building resilient supply chains is one of the motives of the IPEF.
  •  India can consider IPEF members as alternative sources for its raw materials requirements.
  • For example, Malaysia could increase the supply of chips, whereas Australia can be a source of minerals for Indian industry. This could reduce India’s overdependence on China for these inputs.
• Cushion against future supply shocks:
  • Covid-19 has already shown how detrimental it is for industry to rely on a single source for inputs.
  • Therefore, increasing inputs trade with the IPEF members can provide a cushion against future supply shocks.
• IPEF will help to strengthen India’s ties with Australia:
  • Though India has just signed an interim Economic Cooperation and Trade Agreement with Australia in April 2022, there has been a change of government in Australia since.
  • Engagements through the IPEF could provide a boost to India-Australia renewed ties.
• Supports India’s renewed interest for free trade agreements:
  • IPEF membership is a testimony to India’s stance on bilateral and regional trade engagements.

CONCERNS:

• IPEF is not a Free Trade Agreement( FTA):
  • In the absence of an FTA, WTO rules will not permit granting of preferential treatment amongst IPEF members.
  •  Without preferential market access, trade gains and resilient supply chains envisaged through this framework will not materialise.
• IPEF may become a medium for advancing US interests:
  • The IPEF is primarily a US-led initiative and, hence, mainly driven by its interests.
  • Therefore, there will always be a danger of IPEF becoming a medium for advancing US interests.
• Difficulty in replicating the same level of supply chain integration found in China:
  • As a regional and global value chain leader, China has inseparable ties with most countries in the region. 
  • Over the years, China has evolved from a low-cost assembly site to a specialised manufacturing centre.
  • It would be very difficult for IPEF to replicate the same level of supply chain integration found in China, elsewhere.
• Volatility of domestic politics:
  • The volatility of domestic politics of the US has raised concerns about IPEF’s durability.
    • For example, the abrupt withdrawal of the US from the Trans-Pacific Partnership (TPP) agreement after presidential candidates Hillary Clinton and Donald Trump distanced themselves from it for domestic political purposes.

CONCERNS FOR INDIA:

• Not in sync with India’s position on digital economy issues:
  • The US intends to pursue, through this framework, exacting rules for the digital economy, including on cross-border data flows and data localisation.
  • This is not in sync with India’s position on digital economy issues.
  • India is in favour of retaining policy space on cross-border data flow. The regulatory framework pertaining to e-commerce is still evolving in India.
    • The draft e-commerce policy published in 2018 is still not finalised. The Personal Data Protection Bill is also in Parliament.
    • Thus, India cannot support binding rules on data flow and localisation.
• US could also use this framework to pressurise India at WTO:
  • The US could also use this framework to pressurise India on various issues at WTO.
  • For example, US may pressurise India for supporting a permanent moratorium on customs duties on electronic transmissions at the WTO.
  • As of now, there is a temporary moratorium, and it gets extended every two years through Ministerial Conference decisions.
    • India is witnessing an exponential rise in imports of electronic transmissions, mainly of items like movies, music, video games and printed matter, some of which could fall within the scope of the moratorium.
    • While the profits and revenues of digital players are rising steadily, the ability of the governments to check these imports and generate additional tariff revenues is being severely limited because of the moratorium.

WAY FORWARD:

• The 3Ts—Trust, Transparency, and Timeliness:
  • The 3Ts—Trust, Transparency, and Timeliness—mentioned by PM Modi during the launch ceremony of IPEF are very important for the success of this initiative.
  • Trust and transparency will be built only if members, particularly the US, accommodate each other’s interests.
  • If achieved, both of these will lead to timely delivery of the intended outcome.
  • If the US is not accommodative and driven by its own interests, the IPEF may not be a success.
• As outlined in India's vision for the Indo-Pacific Region,
  • The IPEF should make sure that contests must not turn into conflict and differences must not be allowed to become disputes in the region.
  • IPEF should take steps to halt the growing protectionism – in goods and in services in the region.
  • Also the framework should work for a free, open, inclusive region, which embraces all in a common pursuit of progress and prosperity.

PRACTICE QUESTION:

Q. “Indo-Pacific Economic Framework for Prosperity (IPEF) gives India an opportunity to be part of the value chain in the Asia-Pacific region after it exited the RCEP trade deal”. Discuss.