Indo-Pacific Economic Framework (IPEF)

In News

• The U.S President is set to launch IPEF to boost its economic presence in the Indo-Pacific region during the upcoming QUAD summit.

What is IPEF?

• It is an economic framework for enhancing US involvement in Asia. It is to counter the influence of China in the region and fill the vacuum created by not being a partner to TPP and 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.

• It seeks to establish trade rules covering the 7 focus areas.

• 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
• infrastructure
• 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.

Issues with the IPEF

• Uncertainty: It is set to be based on a presidential executive order and could be discarded by the coming US administrations as it is not a senate-ratified treaty.
• 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.
• Tilted more in favour of USA: It doesn not talk about lowering tariff rates rather it seeks to integrate USA in the supply chain of the region thus making it immune from the downsides of trade liberalisation.
• More unilateral and not consensus based: Unlike traditional trade blocks where the agreements are results of arduous negotiations by the members, the IPEF is driven primarily by the USA.
• Binding trade rules: It might fail to bring all countries in the region on board as it comes with binding trade rules but no guarantees on market access.

How have  the countries responded so far ?

• Mixed response: The initiative has seen mixed receptions from the countries in the region.
• In favour: Japan, Thailand, Australia and New Zealand have welcomed the IPEF and have said that they would join the negotiations.
• Cautious: South Korea, Philippines and Singapore have expressed concerns with respect to the provisions of the IPEF.
• Ambivalent: India so far has not officially communicated its stance however it is reading into the provision of the agreement.

India and IPEF

• 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. IPEF does not appear to serve India’s interests on various fronts.
• Higher standards: Concerned stakeholders have casted doubts over the arrangement pertaining to US high standards and parameters with respect to manufacturing and services.
• 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.

• No 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.

Way Forward

• Multilateral: The unilateral character of the arrangement should be tweaked to give way to more plural and multilateral arrangement.
• Robust institutionalisation: It should be a senate ratified treaty so that it could see a level of certainty by the member states before they could invest their diplomatic capital.
• Secretariat based: There is a need of an organisation or secretariat to drive and oversee the arrangement which houses representatives from all the member states, in the absence of which, the arrangement would lose its relevance.
• Provisions for market access and reduced tariff: The developing countries would largely stand to not gain much from the arrangement if it would not have provisions pertaining to market access and lower tariffs. 

• These legitimate concerns should be addressed by the stakeholders.

Source:IE