General Studies Paper 2
- India chose to join the Indo-Pacific Economic Framework for Prosperity (IPEF) but declined the Regional Comprehensive Economic Partnership (RCEP).
About Regional Comprehensive Economic Partnership (RCEP)
- RCEP is a regional Free Trade Agreement between ASEAN and 6 other countries, viz. India, China, Japan, South Korea, Australia and New Zealand.
- It was signed in November 2020 after 8 years of negotiations.
- Although, India walked out of the negotiations. Therefore, it is now an agreement between 15 countries.
- RCEP members constitute nearly a third of the global population and 29% of global GDP.
- Significance of India pulling out of RCEP:
- India pulled out of the RCEP negotiations, citing its negative impact on the domestic producers.
- India has said that the international groupings have many times led to de-industrialisation and an unfair competition imposed on domestic producers.
- In a veiled reference to China, India has also said that many countries preach openness, but are not so transparent about their own policies.
- Other members have said that the doors of RCEP would be open for future participation of India.
About Indo-Pacific Economic Framework for Prosperity (IPEF)
- It is aneconomic framework for enhancing US involvement in Asia.
- It is tocounter the influence of China in the region and fill the vacuum created by not being a partner to RCEP.
- Not a traditional trading block:
- The IPEF, unlike FTA, is more of a tailor-made mechanism that seeks the benefits of trade partnerships while insulating Americans from the downsides of trade liberalisation.
- Unlike FTAs, it does not include market access commitments such as lowering tariff barriers, as the agreement is more of an administrative arrangement.
- Stress on supply chain:
- IPEF manifests US’ ambitions to expand ties with key Indo-Pacific economies through robust supply chains excluding China.
- Focus Areas: It is based on 7 strategic pillars:
- Trade facilitation, particularly for small and medium enterprises (SMEs)
- Standards for a digital economy and technology
- Supply-chain resilience
- Decarbonisation and clean energy
- Workers’ standards
- Other areas of shared interest
- ‘Menu’ based approach:
- The 7 pillars will have specific modules and countries would have to sign up to all of the components within a module, but do not have to participate in all modules.
- Member countries can opt to participate in parts of the framework.
- Strategic importance:
- The US-led Indo-Pacific Economic Framework for Prosperity (IPEF) is strategically important for India.
- It will enhance India’s economic engagement in the region.
- The IPEF will help control the damage caused by the RCEP withdrawal as all the IPEF members save India and the US are signatories to the RCEP.
- Supply chain building:
- Building resilient supply chains is one of the motives of the IPEF.
- India can consider members as alternative sources for its raw materials requirements.
- This could reduce India’s overdependence on China for these inputs.
Challenges & criticisms of IPEF
- India’s economic issues with USA:
- India has economic issues with the U.S., e.g. about agriculture, intellectual property, labour and environment standards, and the digital economy.
- And the Strategic partnership should not mean accepting a completely U.S. self-interest-driven economic framework that does not suit India’s current economic interests.
- Centring USA:
- According to the early assessment by many experts, it shows that the IPEF would result in a complete stranglehold over the economic systems of the participating countries, in a manner that is to the complete advantage of the U.S.
- The IPEF is really about developing a strategic-economic bloc — an integrated economic system centred on the U.S., and, as importantly, excluding China.
- Detrimental to domestic policies:
- According to critics, the systemic integration caused by the IPEF’s actual long-term impact willleave little leeway for domestic policies to help a country’s own industrialisation.
- For example., through tight supply chain integration that many elements of the IPEF contribute to.
- Deep implications for India:
- The IPEF can already be seen to have deep implications in
- Agriculture,in terms of genetically modified seeds and food,
- Surrendering policy space for regulating Big Tech, and
- Compromising a comparative advantage in manufacturing because of unfair labour and environment standards.
- It will also seriously affect India’s ability to create a vibrant domestic ecosystem in emerging areas such as a digital economy and green products.
- Digital Governance:
- IPEF formulation contains issues that directly conflict with India’s stated position. These are:
- Prohibition on cross-border data flows and data localization requirements including for financial services
- Prohibition of the levying of customs duties on digital products distributed electronically
- Promotion of the interoperability of privacy rules and related enforcement regimes, such as the APEC Cross-Border Privacy Rule, while respecting U.S. federal and state privacy laws and regulations.
- Huge investment demand:
- Though it’s stated to be beneficial for the countries in the region it would require huge investments and active participation in the implementation phase.
- Silent on market access:
- The arrangement is silent on providing access to the indigenous goods and services to the markets of would be member states including U.S.
- India would stand to gain by being part of the supply chain initiative of the arrangement but it would need flexibility on the other initiatives.
- The IPEF has four pillars: trade, supply chains, clean economy, and fair economy. Already fearful of a possible trap, India has joined the other three pillars but not trade.
The one clear difference is of China versus the U.S. Developing a strategic partnership with the U.S. is India’s top foreign policy priority. Its relationship with China has, meanwhile, further deteriorated.