By Prof. Swaran Singh
For all IPEF partners, the pandemic experience has revealed an acute urgency for redesigning global supply chains — origins, structures, flows — to fight against the twin evils of monopolies as well as protectionism
On Wednesday New Delhi started hosting a four-day long, third in-person, ministerial special negotiations session of the Indo-Pacific Economic Framework (IPEF).
Last May in Tokyo, at the second in-person summit of the Quadrilateral Security Framework — constituting of the national leaders of the US, Japan, Australia and India — President Joe Biden had launched IPEF. Leaders of additional 10 regional partner nations had joined Quad leaders online making it a 14-nation initiative. Hectic ministerial parleys have continued since to evolve their final shape and structure.
To begin with, the Framework focuses on four pillars covering a huge spectrum of economic cooperation: from fair and resilient trade to supply chain resilience to infrastructure, clean energy and decarbonisation and finally tax and anti-corruption. However, in their very first in-person ministerial meeting in Los Angeles last September, their third largest economy, India, had opted out of the first pillar of fair and resilient trade casting some doubts about its future.
India opting out of trade pillar had rekindled comparisons with India, in November 2020, walking out of China-dominated 15-nation Regional Comprehensive Economic Partnership (RCEP). India had explained that exit in the name of its large trade deficit with 11 of its 15 member nations, their access denial for India’s skilled workforce and, most of all, vulnerabilities of India’s Micro, Small and Medium Enterprises (MSMEs).
This was soon followed by India showcasing a newfound enthusiasm by signing trade deals with Australia and UAE respectively in April and May 2022. But India’s trade negotiations with Canada and European Union, and even the United States, have since become lacklustre.
How then can India use this 14-nation IPEF to provide a boost to its trade and commerce which must become its locomotives in making India a $5 trillion economy by 2025?
India’s agenda
First and foremost, supply chains resilience has come to be the key issue for India’s interlocutors at IPEF deliberations. This is because for all IPEF partners, pandemic experience has revealed an acute urgency for redesigning global supply chains — origins, structures, flows — to fight against twin evils of monopolies as well as protectionism.
In September 2021, India and Australia had joined Japan’s trilateral Supply Chain Resilience Initiative. India has since accelerated reforms and diversifications in a whole range of sectors. Highlighting Modi’ government’s priorities, President Droupadi Murmu’s inaugural speech to both house of Parliament on 31 January reiterated commitment to “reinforcing the trust in the global supply chains.”
India has also sought to redress core vulnerabilities of MSMEs that were the primary cause for Modi government’s exit from the RCEP. In addition to structural reforms and a slew of budgetary announcements for 2023-2024, ensuring resilience and integration of MSMEs into global value chains was mentioned thrice in last week’s budget speech of India’s finance minister.
Tensions with China have been a major driver behind this determination. India must rectify its inordinately enduring dependency on . imports from China. The bulk of these can be produced in India. But, even in face of border tensions, the year 2022 saw India’s imports from China reaching $118 billion accounting for 17 per cent of India’s total imports.
Pandemic has especially exposed India’s pharmaceutical sector, that makes India the pharmacy of the world, being hugely dependent on China’s active pharmaceutical ingredients (APIs). But the same is true of industrialised Europe that imports 45 per cent of APIs from China. Indeed, most of the IPEF partners, over the decades, have developed similar dependencies with China.
This dichotomy of India as world’s biggest producer of generic medicines and vaccines and at the same time inordinately dependent on China not just unites IPEF together and make India an ideal venue to redesign global supply chains. To set the stage for New Delhi negotiations, already all of them have been talking of friend-shoring and on-shoring their supply chains.
Aligning with US
The second round of in-person IPEF ministerial special negotiations was held in-person in December in Brisbane (Australia). India’s Commerce and Industry Minister Piyush Goyal had joined them online and extended invitation to host their third special negotiations in India. Only, this is their first IPEF ministerial to not have the first of their four pillars up for discussion which could trigger a difficult start for the host.
However, instead of looking at it as its limitation, India has argued that IPEF should focus on early harvest of deliverables. New Delhi hopes to clinch consensus on supply chain resilience and has already earmarked pharmaceuticals, semiconductors, critical minerals and clean technologies. India proposes to deploy these beyond IPEF partners as well. But experts are not sure if, at this third round of ministerial negotiations, the first of its four pillars, on fair and resilient trade, can be separated from the other three pillars?
What brings hope is that the leading economy of the IPEF, the United States, seems inclined to support India’s argument. Responding to this question during her December visit to New Delhi to participate in US-India Economic and Financial Partnership Dialogue, US Treasury Secretary Janet Yellen had reinforced India’s role in friend-shoring the supply chains resilience pillar of the IPEF. To carry forward these confabulations, US Secretary of State, Antony Blinken — who recently cancelled his visit ot China — is scheduled to visit New Delhi’s to participate in Raisina Dialogue 2023 to be held during 2-4 March.
Last Tuesday, India’s national security advisor, Ajit Doval’s was in Washington to attend the inaugural meeting of the US-India Initiative on Critical and Emerging Technologies (iCET) that was launched by Quad leaders summit last May seeks. This too aims to enhance “bilateral collaborations on resilient semiconductor supply chains” and some in media have compared the potential of iCET to the historic Indo-US nuclear deal of 2005.
More seriously, the iCET is part of Biden administration’s countering of China by expanding collaborations with India. So, it promises to facilitate technology transfers in security sector with specific focus on advanced artificial intelligence and semiconductors. Contrary to slapping severe restrictions on its companies and personnel working with China, iCET welcomes India’s chip specialists and will deploy western 5G networks in India. The General Electric will produce jet engines for India’s indigenously built aircraft. In spite of half a century of license production of Russian weapons systems, engines remain a weakest link in India’s defence production.
Doval’s Washington visit has also led to reports of President Biden’s invitation to Prime Minister Narendra Modi to visit White House and this may take place before President Joe Biden visits India for the G20 summit in September. The month of May will see both leaders meeting back to back at the third Quad and 49th G7 summit in Sydney and Hiroshima. This line up of summits is bound to rub off some enthusiasm on their interlocutors at IPEF that holds great promise for representing 40 per cent of global GDP and 28 per cent of global trade.
Of course, these interlocutors will also be conscious of their enduring disjunctions. Given India’s niche in trade in services, especially with the United States, the issue of data flows has been one persistent bone of contention. India’s propagation of localisation data is met with the US demanding for free cross-border flows to ensure its global dominance. This has impacted India’s trade in services just as linking labour and environmental standards to meet US expectations generates barriers against India’s commodity exports. It is to bridge these gaps that, like in the past, their strategic partnership will see them negotiate some tactical accommodations.
Originally published: First Post, February 09, 2023.
Posted in SIS Blog with the authorization of the author.
Swaran Singh is visiting professor at the University of British Columbia, fellow of the Canadian Global Affairs Institute in Calgary, Alberta, and professor of diplomacy and disarmament at the School of International Studies, Jawaharlal Nehru University, New Delhi.