BL Explainer

What does a US-led economic pact focused on Asia-Pacific hope to achieve?

What is the Indo-Pacific Economic Framework for Prosperity (IPEF)?

IPEF is a US-led economic initiative launched by US President Joe Biden in Tokyo this week, ahead of the Quad Summit. It seeks to formulate a common set of rules and standards for member countries around the four pillars of connectivity and digital trade; resilient supply chains; clean energy; and corruption-free fair trade. India agreed to be amongst the first 13 members of the grouping, which also includes Australia, Brunei, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam.

What are its objectives?

Many political observers believe that the primary objective of the US in proposing the IPEF is to counter the growing economic and strategic influence of China in the Indo-Pacific. While the Biden government has not mentioned China directly in discussions on the organisation, it has been open about wanting to expand US economic leadership in the region.

India, Australia and Japan, too, are keen to explore opportunities to align with economic powers outside the influence of China.

According to the Ministry of External Affairs, the IPEF seeks to strengthen economic partnership among participating countries to enhance resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness in the Indo-Pacific region. It is also an open platform, with other interested countries free to join it.

Is it a free trade agreement?

No, the IPEF is not a free trade agreement. The Biden regime is clear that Americans do not want to get into any more traditional free trade pacts. The new economic grouping of countries will, therefore, not lower tariffs on each other’s items. Instead, it will attempt to establish high-standard commitments in digital economy, labour and environment standards, and clean energy, besides establishing fair economy through the enactment and enforcement of effective tax, anti-money laundering, and anti-bribery regimes.

Why has India chosen to join this after walking out of RCEP?

The main reason for India to walk out of RCEP, which is now the largest regional trading bloc globally, was its concern that the pact would allow China to flood the country’s market with cheap products at preferential import duties, leaving domestic producers uncompetitive. The IPEF, with a membership accounting for about 40 per cent of the global GDP, is providing India another opportunity to be part of a mega economic arrangement, but outside the influence of China.

What must India watch out for during IPEF negotiations to protect its interests?

The concern around IPEF flows from the fact that little is known about the final shape the agreement might take. For India, a major point of worry is that the stated objectives of the arrangement include pursuing high-standard rules in digital economy, such as standards on cross-border data flows and data localisation. This is something India has been avoiding in all its free trade deals as it does not want to lose sovereignty over its data. The IPEF also wants to frame rules on labour standards, environment norms and decarbonisation, which India has never been keen on, including in its free trade pacts.

Prime Minister Narendra Modi, in his speech at the launch of the arrangement, called for a fair and flexible IPEF while several civil society organisations are insisting on the need for transparent and inclusive negotiations.

Published on May 25, 2022