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IPEF: Compulsions, Contradictions, and Compromises

While IPEF has potential and promises for India, it will involve both political accommodation and negotiation on its part to safeguard it’s interests. — KK Srivastava


PM Modi said, “The Indo-Pacific Economic framework (IPEF) is a declaration of our collective will to make the region an engine of global economic growth.” Let us be unambiguously clear, however, the IPEF is essentially aimed at reasserting the influence of the US in the region and countering that of China. Yet, there is no gain saying the fact that IPEF exhibits greater flexibility than many other economic grouping (such as RCEP), which India has wisely decided to stay away from. Notwithstanding the differences on Ukraine crisis and the ensuing challenge of food security, the Quad has decided to focus on convergences in critical technologies, climate action, trade, sustainable infrastructure and post pandemic recovery. In fact several working groups have already done a lot of work in key areas such as rare minerals and setting standards for emerging technologies. Ofcourse due to some nations’ close ties/loyalties with China, Quad has not been able to favourably influence these countries in the Indo-Pacific. But the moves are on to bring them on board by taking initiatives that should catch their imagination, for example curb on illegal fishing in the region. Biden had said in October 2021 that US will explore with partners the development of an Indo-Pacific economic framework that will define shared objectives around trade facilitation, standards for the digital economy and technology, supply chain resiliency, decarbonization and clean energy, infrastructure, worker standards and other areas of common interest. IPEF is supposed to include different module covering these areas. While countries would have to sign up to all of the components within a module, they do not have to necessarily participate in all modules.

The IPEF, to be sure, is a means by which the US is trying to regain credibility in the region after it decided to pull out of the Trans Pacific Partnership (TPP). Most notably the IPEF will only include trade agreements but will not ensure market access; hence it may not enthuse everyone like South Korea, Philippines, Singapore, etc. Yet, the fact remains that the Indo-Pacific covers half the population of the world and more than 60% of the global GDP. India has declared that it  is committed to a free, open, and inclusive Indo-Pacific region. It believes that deepening economic engagement among partners is crucial for continued growth, peace, and prosperity. This attempt towards new economic order should ensure better economic growth through open, rule based partnerships. By providing an alternative to China’s commercial clout in the region, this will forge new geopolitical realities for India, this should be taken as new opportunity to build its capacities, strengthen its partnership in global supply chains and bring overall affluence to the natives. The IPEF is not a traditional free trade deal focused on tariff rationalization and reductions. Instead the 13 member grouping aims to promote innovation, by setting high standard rules and standards, that should bring in economic transformation. But then one cannot rule out the possibility that India may be uncomfortable with the US high standards and may like to avoid risks. Indeed, as always, some areas underlined in the IPEF may not serve India’s interests. Having said that, India should aim at taking advantage of ‘China Plus One’, the compelling factor at the foundation of the group. The US and the EU have already started de-risking supply chains by reducing their reliance on China for essential imports. However, India is not an automatic replacement. India will have to diplomatically navigate certain key issues. For example, India has so far declined to debate multilateral rules for e-commerce and data localization. The US wants to address them under IPEF. Besides, China continues to dominate would trade. 

Also, the fact is that typical American voter blames globalization for American woes. So, it will be difficult for America to openly promote a barrier free world of exchange; ‘American jobs must not be compromised’, would remain the guiding force. The US labour protection and non tariff barriers may not easily go away. We should be wary of US caveats that could blunt any Indian advantage. The US should be seized of constraints on Indian export success that would essentially work against the Quad’s geopolitical goals. It remains to be seen if the US will put global aims above its home polities. Though IPEF is being positioned as an alternative to China’s growing economic might, its appeal to Asian countries, including India, been on entering huge US markets may remain constrained. You have to give at least 5-10 years to the new formation to show something substantial. All 13 partners must not merely profess a commitment to ‘a Free, open, fair, inclusive, interconnected, resilient, secure, and prosperous Indo-Pacific’, but actually work in a tangible manner to translate it into action. As Narendra Modi emphasized, the three Ts-trust, transparency, and timelines, - hold the key to the success of the IPEF project. Alliteration must be worked upon.

While, understandably, Quad cannot be defined as anti China entity, the fact remains that its origin lies in precisely that to contain Chinese threat. India has a real China threat, politically, economically, and militarily, so it has strategically decided to align with the US. Yet, it cannot wish away the unanswered questions and challenges to consider while signing up to IPEF. Thus in the trade area there will be the tricky labour and environmental standards issues, since these are politically sensitive areas. In the supply chain area India will naturally benefit if there is diversification of these chains. India should identify specific opportunities. But more importantly it should not lack the capability to play a meaningful role in global value chains, should the opportunity present itself. As of now, countries have found it difficult to reduce their dependence on China. Likewise in the climate change domain there exists a fundamental difference between the US and Indian thinking. The US insists on ‘shared goals’ whereas India’s stand is that the developed nations may pay first for their past ‘sins’. Will it be possible then to set individual targets if the participating nations commit to the larger, and common, principle of decarbonization? This may be achievable only if India has greater access to green financing. Similarly, as said above, India is likely to face a difficult negotiating environment on issues of data flows and localization. In sum, economic contradictions galore. The initiative, if not allowed to fail under these, could only then provide the platform to achieve shared strategic objectives. Like almost all global/regional initiatives IPEF is first a political initiative. All participants, including India, must exhibit flexibility and a spirit of accommodation; else it will lose a key economic forum where it can meet Chinese challenge as also secure better economic prosperity.

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