TOPIC : INDO – PACIFIC ECONOMIC FRAMEWORK

Print

THE CONTEXT:Indo-Pacific Economic Framework for Prosperity (IPEF) is an economic initiative launched by United States President Joe Biden on May 23, 2022. It marks the beginning of a new phase of economic cooperation and integration in the region juxtaposed against China’s ambitious Belt and Road Initiative (BRI) and Regional Comprehensive Economic Partnership (RCEP) led by it. This article explains the Indo-Pacific Economic Framework and its significance and challenges in detail.

WHAT IS THE IPEF?

• The Indo-Pacific Economic Framework for Prosperity (IPEF) aims to reassert U.S. economic engagement and provide a U.S.-led alternative to China’s economic statecraft in the region.
• The 12 countries other than the U.S. are India, Australia, Brunei, Indonesia, Japan, South Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, and Vietnam (Taiwan is not part of it).
• Among 12, Seven are ASEAN Countries. In Myanmar, Laos and Cambodia have not joined the group.
• It aims to strengthen economic partnerships among participating countries to enhance resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness in the Indo-Pacific region.
• They together account for 40% of the world’s GDP.
• U.S. officials have emphasized that IPEF is not a free trade agreement but one that will offer flexibility.

The negotiations will be along four main pillars:

FEATURES OF THE INDO-PACIFIC ECONOMIC FRAMEWORK

• The U.S. Trade Representative (USTR) will be spearheading the trade pillar, while the others (I.e., supply chain resilience, clean energy and decarbonization, and taxes and anti-corruption measures) will fall under the purview of the U.S. Department of Commerce.
• On the trade front, the endeavour is to establish “high-standard, inclusive, free, and fair-trade commitments” to fuel economic activity and investments benefitting both workers and consumers. What stands out, however, is U.S.’s willingness to extend cooperation for enhancing the digital economy and trade.
• Digital trade incorporates not just the purchase and sale of goods online but also data flows that enable the operation of global value chains and services, like smart manufacturing, platforms and applications. The idea here is to overcome downstream costs for businesses as well as upscale the ability to utilize data processing and analysis and enhance cybersecurity outside their geographies.
• As 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. U.S. Commerce Secretary Gina Raimondo, in a press briefing, explained how workers at auto-manufacturing plants in Michigan experienced massive furloughs when semiconductor packaging operations were closed in Malaysia because of a COVID outbreak.
• In line with the Paris Agreement, the clean energy, decarbonization and infrastructure pillar would provide technical assistance and help mobilize 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.
• Renewable energy is cheaper than fossil fuels; however, its high start-up costs when compared to using existing infrastructure stave off its adoption by the mainstream. Public policy analysts at the Centre for Strategic and International Studies (CSIS) suggest that regional partners would like the U.S. to help close the gap through climate financing and expertise sharing.
• Lastly, the pillar on tax and anti-corruption is aimed at promoting fair competition by enforcing the 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.

SIGNIFICANCE OF INDO-PACIFIC ECONOMIC FRAMEWORK (IPEF)

• Indo-Pacific Economic Framework for Prosperity (IPEF) aims to strengthen economic partnerships among participating countries to enhance resilience, sustainability, inclusiveness, economic growth, fairness, and competitivenessin the Indo-Pacific region.
• The IPEF was launched with a dozen initial partners who together represent 40% of the world GDP.
• It is a declaration of a collective desire to make the Indo-Pacific region an engine of global economic growth.
• China not being a member gives the group a distinct geopolitical flavour since all its members share worries about China’s muscular nationalism and expansionist ambitions.
• India’s joining of IPEF is a strong statement of commitment to Indo-Pacific goals and to broadening regional economic cooperation, particularly after it walked out of the 15-nation RCEP.
• The Indo-Pacific covers half the population of the world and more than 60% of the global GDP, and the nations who will join this framework in the future are signing up to work toward an economic vision that will deliver for all people.

WHAT IS THE IPEF, IF NOT A TRADE DEAL?

• It is not a traditional trade pact and does not reduce tariffs or grant better access to the American market. Those features would have been a clear draw for many Asian nations, which are comparing how the new deal stacks up against other trade agreements such as the TPP’s successor, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and the Regional Comprehensive Economic Partnership minted over the past few years.
• IPEF is designed as a tool to strengthen U.S. economic cooperation with Asian partners and assist the U.S. in re-engagement with the region since the Trump Administration withdrew from Trans-Pacific Partnership (TPP) in 2017.
• It provides for the participation of members in “pillars” that include setting standards on trade in digital goods and services, obtaining commitments to ease bottlenecks in critical supply chains and enabling the transition to clean energy.

CHALLENGES WITH IPEF

• UNCERTAINTY · It is set to be based on a presidential executive order and could be discarded by the coming U.S. administrations as it is not a senate-ratified treaty.
• QUESTIONABLE PROCESS. Unlike traditional FTAs, the IPEF does not subscribe to the single undertaking principle, where all items on the agenda are negotiated simultaneously, with countries expected to sign the final agreement in its entirety or withdraw.Rather, the IPEF employs an ‘à la carte’ approach in which countries would launch separate negotiations under the four pillars.
• ·A country would be required to sign up for all components within a pillar, but participation in all pillars is optional. This indicates that negotiations on various pillars will be handled at variable speeds with different groups of countries.
• · The outcome would be a matrix, with some countries making commitments in all areas and others making in only a few. Commitments might also vary, from sharing information to binding obligations.
• NOT A FREE TRADE AGREEMENT. U.S. officials have made it clear that IPEF is not a Free Trade Agreement, nor will it discuss tariff reductions or increasing market access, raising questions about its utility.
• The four pillars also lend themselves to some confusion, drawing into question whether there is enough common ground among the 13 countries (that are part of very different economic arrangements) to set standards together or be open to issues that vary for each country.
• MORE UNILATERAL AND NOT CONSENSUS-BASED. Unlike traditional trade blocks where the agreements are the results of arduous negotiations by the members, the IPEF is driven primarily by the USA.
• ISSUE OF TAXATION. Tax provisions are another element of the IPEF that could pose problems. There is a tendency to take taxation as a sovereign function and therefore not subject it to negotiation.
• CREDIBILITY OF IPEF. Given that the U.S.’s previous initiatives (the Blue Dot Network and the Build Back Better World (B3W) Initiative) have made little headway in changing the region’s infrastructural needs, the IPEF faces a credibility challenge.

THE WAY FORWARD

1. Robust institutionalization: It should be a senate-ratified treaty so that it could see a level of certainty by the member states before they could invest their diplomatic capital.
2. Need for the uniform procedure: Consistent procedure is needed to make the process simpler and easier to reduce complexity.
3. Provisions for market access and reduced tariff: The developing countries would largely stand to not gain much from the arrangement if it would not have provisions pertaining to market access and lower tariffs.
4. Need of a permanent Secretariat: An organisation or secretariat needs to drive and oversee the arrangement which houses representatives from all the member states, in the absence of which, the arrangement would lose its relevance.
5. Need to resolve taxation Issue: India should initiate an internal review of its tax administration, involving experts and the Department of Revenue to come up with suitable changes.This would add to India’s attractiveness as a trading partner and as a destination for investment, especially in new supply chains.
6. Multilateral Arrangement: The unilateral character of the arrangement should be tweaked to give way to more plural and multilateral arrangement and a consensus-based approach should be followed.

THE CONCLUSION:Although IPEF was launched with the intention to counter China, it is still thin on details. The initiative needs more clarity and a concrete plan for economic engagement among its members. For its part, India has been focusing on bilateral free trade agreements instead of multilateral ones, as is evident from the recently concluded agreements with the UAE and Australia. Similar agreements with the U.K. and the E.U. are expected. IPEF needs to create the confidence that multilateral economic cooperation could also benefit India. For IPEF to succeed, it is important to assist India in reducing its economic dependence on China and set in motion supply chain diversification at the earliest.

QUESTION FOR MAINS EXAMINATION

1. Discuss the significance of recently launched Indo pacific economic framework for India?
2. For India, Indo – Pacific Economic Framework offers a significant opportunity as it is neither part of the RCEP nor the CPTPP. Examine.