IPEF agreement: India has played its cards deftly
- India recently signed up for the supply chain resilience pillar of the Indo-Pacific Economic Framework for Prosperity and this can help the country join global value chain networks. New Delhi has been careful to join only those aspects of the framework that are deemed to be in the national interest.
In a world of rapidly changing geopolitical realities with growing uncertainty and instability, international trade is striving to cope with emerging challenges. After abrupt supply-chain disruptions during the pandemic, revealing global overdependence on China for trade as well as investment, national governments and corporates worldwide sought to diversify both and establish alternative supply chains.
At a recent meeting at San Francisco in the US, India, led by Union commerce minister Piyush Goyal, signed the Supply Chain Resilience Agreement of the Indo-Pacific Economic Framework for Prosperity (IPEF), which should help the country leverage its growing economic strength to participate in global value chain (GVC) networks. It is expected to strengthen India’s position as a reliable partner in the creation of resilient supply chains in the region and help mitigate disruption risks at times of crisis.
Supply stability is a major cause of concern for global trade ,especially for fast-rising economies like India. Given rising conflicts across the world, from Ukraine-Russia and US-China-Taiwan to Israel-Palestine and many more in the Middle-East, with their geopolitical dynamics gaining complexity, India needs to secure its interests and has been playing its cards deftly. Signing the IPEF supply chain agreement is another example of it. An earlier one is how India’s non-alignment on the Ukraine-Russia war let it import petroleum from Russia at discounted prices, saving billions of dollars, despite Western displeasure, while maintaining harmonious relations with the West.
To counter China’s rising influence in the region, the IPEF was launched in May 2022 by the US with 13 other countries—Australia, Brunei Darussalam, Fiji, India, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand and Vietnam—representing about 40% of global GDP and 28% of world trade. IPEF negotiations include four major pillars: trade, supply chains, clean energy and a clean economy (by rooting out corruption). Unlike most other such international agreement frameworks, the IPEF offers in-built flexibility. Its member countries are not required to join all its four pillars and can opt to join any pillar/s of their choice.
India enjoys strong economic and strategic relations with IPEF members based on mutual trust and complementarity. This should help the country explore and capitalize on new opportunities to become a vital part of GVCs—which is the secret of success in trade and investment promotion. Under current economic realities, with increasing worldwide economic integration despite domestic constraints and some resistance, remaining aloof is hardly an option.
Moreover, during India’s G20 presidency, a consensus forged with warring nations on the same platform gave India a significant role in world diplomacy that is well suited to the global multi-polarity in the making. Another outcome of India’s G20 presidency was the India Middle-East Europe Economic Corridor (IMEC), which, if brought to fruition, can bolster trade links between Asia and Europe via West Asia to counter China’s much hyped Belt and Road Initiative, which faces severe criticism for its financing patterns leading to bankruptcy in some of the world’s most vulnerable countries.
The IPEF’s trade pillar falls short of a traditional trade deal, as it does not offer enhanced market access. Despite erudite theorists in the US advocating free trade as the panacea for the world’s economic woes, the US itself has championed trade subsidies to promote domestic production and also erected innovative trade barriers in the name of quality, labour, the environment, transparency and other novel issues.
As a matter of ground reality, election rhetoric in the US has been about protecting American industries and jobs and there is enormous resistance to any concessional market access to foreign goods—so much so that democratically elected governments find it a formidable task to strike any free trade agreement (FTA) with it.
Note that former US president Donald Trump had scrapped a much more ambitious trade deal, the Trans Pacific Partnership (TPP), on the charge that it ignored the interests of US workers. It was part of previous president Barack Obama’s outreach to Asia, but fellow Democrat Joe Biden’s approach is IPEF-led. Recently, a member of Biden’s own Democratic Party, Senator Sherrod Brown, facing polls in Ohio next year, went to the extent of demanding that the IPEF’s trade deal be called off.
Although some progress was made on a clean and fair economy at the San Francisco dialogue , there seems stiff resistance within the US to open up its market further to imports. Owing to conflicts and divergences of interest, IPEF members failed to reach a consensus on the trade pillar and its adoption got deferred.
India’s economic emergence is a reality and also the power that comes with it. The world is slowly and surely coming around to accept this. The views of a democratic India, with 1.4 billion plus people, matter. The country has done well to publicize its capacity for innovation, especially in technology, and readiness to take on big challenges. It is welcome, then, that we have only signed international deals that are in our national interest and not signed those that have been judged otherwise, in spite of pressure.
