By Prof. Gulshan Sachdeva
Staying away from a key IPEF pillar negotiations is not good optics for a confident nation, and a key Indo-Pacific player
At the recently-held ministerial meeting of the Indo-Pacific Economic Framework (IPEF), India decided to join its three pillars related to supply chains, tax and anti-corruption, and clean energy. However, due to possible binding commitments on labour, environment, and digital trade, New Delhi opted out of its trade pillar.
The United States-led IPEF was launched in May. Currently, it consists of 14 Indo-Pacific nations viz. Australia, Brunei Darussalam, Fiji, India, Indonesia, Japan, Malaysia, New Zealand, Philippines, Singapore, South Korea, Thailand, Vietnam, and the US. The grouping represents 40 percent of the global GDP, and 28 percent of global trade in goods and services.
Many view the establishment of the IPEF as a move to counter China’s growing economic influence in the Indo-Pacific. Although growing in economic significance, the region is recognised by all major players, and its economic architecture is still evolving.
Both the US and India are out of the Indo-Pacific megadeals. They are not members of the Regional Comprehensive Economic Partnership (RCEP) or the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). So, the IPEF has the potential to provide a solid platform to both of them in framing economic rules in an economically-dynamic Indo-Pacific region.
Two years ago, India moved out of the China-dominated RCEP. The 15 nations RCEP now consists of 10 ASEAN nations as well as China, Japan, South Korea, Australia, and New Zealand. Similarly, the CPTPP is an FTA between remaining 11 members of the proposed Trans-Pacific Partnership (TPP) when the Donald Trump administration withdrew from it in 2017. The membership now includes Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore, and Vietnam. The United Kingdom, China, Taiwan, and Ecuador have also applied for its membership.
The key provisions of the CPTPP includes goods tariff, digital trade, procurement, IPR, investment, services etc. Unlike the CPTPP, the RCEP does not include labour and environmental issues or support to State-owned enterprises. But it encourages deep supply chain integration among members.
Some countries such as Japan, Australia, Malaysia, New Zealand, Singapore, Vietnam, and Brunei are members of all three groupings viz. CPTPP, the RCEP and the IPEF. Some of them have close strategic ties with the US. But all of them are also integrated with China-centred value chains. For them, the IPEF is one additional layer of integration in the Indo-Pacific under US patronage. It is also good for rebalancing increasing Chinese economic dominance.
Through the IPEF, the US along with its allies and partners wants to enhance its economic engagement in Asia, and the Indo Pacific. Being a large, fastest-growing economy, and an important part of the QUAD, India also has an ambition to play a crucial part in the Indo-Pacific security, and economic architectures. It also wants to emerge as an alternative to companies relocating their value chains from China.
Since we are absent both from the CPTPP and the RCEP, the IPEF is an opportunity to build multilateral economic linkages in the Indo-Pacific. As trade and supply chains are deeply integrated with each other, all the IPEF members except India have agreed to take part in negotiations in all four pillars of the IPEF.
The labour issue has been cited as one of the major concerns for not joining the IPEF trade pillar. But even in the supply chain pillar, it is clearly mentioned that partner countries “will seek to ensure that the work promotes the labour standards that underpin fair, sustainable, and resilient supply chains”.
India’s reluctance to participate in the trade pillar of the IPEF indicates a lack of confidence in its competitiveness. Recent trade agreements with Australia and the United Arab Emirates and fast track negotiations with the UK showed the world that India is changing its cautious approach towards trade pacts. It is not just bilateral deals, India is also hopeful of trade and investment agreements with the 27-member European Union (EU) soon. The agenda with the EU also includes labour and sustainability issues.
Today, India’s foreign policy discourse is dominated by the Indo-Pacific. This narrative has to be synchronised with the confident external economic arrangements in the region. A short-term transactional approach may not be helpful in making India a crucial Indo-Pacific player. Staying away even for negotiations in a key IPEF pillar is not good optics for a confident nation.
Originally published: Money Control, September 14, 2022
Posted here with the authorization of the author.
Gulshan Sachdeva is Professor at the Centre for European Studies and Coordinator, Jean Monnet Centre of Excellence, Jawaharlal Nehru University. Views are personal.