The Indo-Pacific economic bloc offers India a new opportunity
5 min read 25 May 2022, 10:40 PM ISTWe’ll have to re-examine our traditional positions wherever needed to make the most of economic integration under the IPEF
PremiumThe Indo Pacific Economic Framework (IPEF), launched by the US at the Quad meeting in Tokyo, was joined by India, Japan and Australia, and, going beyond the Quad, also by Korea and eight other East Asian countries. China is not a member, which gives the group a distinct geo- political flavour since all its members share worries about China’s muscular nationalism and expansionist ambitions.
Apart from geopolitics, the group will also produce many immediate benefits on the economic front in terms of cooperation in investment and technology development for clean energy. But what is much more important is the possibility that it could become the foundation for longer term economic integration of like-minded countries. If the world is indeed dividing itself into autocracies and democracies, and this division is reflected in economic alignments, as it seems to be, India has a deep stake in aligning with the democratic group.
Prime Minister Narendra Modi has already signalled India’s support of the new initiative, but does this mean we can now leave it to teams of officials from relevant ministries to negotiate the details? This may not work, and it is important to anticipate the problems that might arise and try addressing them.
Economic integration must ultimately be reflected in trade integration, but the IPEF is not a conventional free trade agreement (FTA). The US Congress currently has no appetite for FTAs. Recognizing this, US President Joe Biden’s proposals explicitly avoid market access issues. They focus instead on the need to establish high standards of “inclusive free and fair arrangements". This allows the US administration to proceed without having to get the approval of Congress. Trade integration could come later.
The problem is that progress in some of the areas identified under the IPEF may run into problems from our side because it will involve many departures from our traditional positions. It can be nobody’s case that our negotiators should simply accept what is demanded by advanced-country participants. But we should also recognize that we are no longer in the old world of multilateral trade negotiations, where any country could hold up progress of negotiations by not agreeing. The new arrangements will not require a consensus. Countries that don’t agree will simply be left out. They may have an option to join later if they wish, but the terms of joining would have to be negotiated. We will not get a better deal later.
The solution lies in identifying areas where the negotiations require a departure from past practice and consider whether these departures are in the national interest in the light of changed circumstances. If they are, suitable directions should be given to the bureaucracy early in the process to avoid India engaging in prolonged negotiations only to opt out in the end, as happened with the Regional Comprehensive Economic Partnership.
The immediate focus on common standards, which could form the basis of deeper integration in the future, will cover labour rights, environmental standards, protection of intellectual property rights and rules covering the digital economy. We have in the past resisted such behind-the-border alignment of standards because they reduce our policy space. It is true that all agreements at this level reduce our policy space. The question to ask is whether it furthers the national interest.
We have in the past resisted standards that did not actually hurt us. In the case of labour, for example, what advanced countries were demanding was freedom for workers to form trade unions. This is something we allow in any case. It was China that had problems with these requirements, and there was no reason for India to object.
The government has repeatedly clarified that ‘atmanirbharta’ (self-reliance) does not mean isolation and protectionism. On the contrary, we want India to attract foreign investment and become part of global supply chains. This is the right approach and building reliable supply chains is an explicit part of the IPEF agenda. However, if this requires alignment of behind-the-border standards, we should look at this possibility constructively.
We can try to carve out exceptions for specially sensitive areas and build in a suitable adjustment period to comply with these standards. Most importantly, we need to keep in mind that if the standards are acceptable to other developing countries, they should also be acceptable to us.
Taxes and anti-bribery provisions are another element of the IPEF that could pose problems. We tend to take taxation as a sovereign function and therefore not subject to negotiation. However, we must also recognize that businessmen, both Indian and foreign, have often complained of our tax system as a form of “tax terrorism". Negotiations under the IPEF could be a mechanism for bringing our system in line with the best practices in the rest of the world. This would add to India’s attractiveness as a trading partner and as a destination for investment, especially in new supply chains. In fact, we should initiate an internal review of our tax administration, involving experts and not just the Department of Revenue, and come up with changes that we think are desirable in any case.
Digital trade and e-commerce is another critical area included under the IPEF. It is certain to gain importance in the years ahead, and given India’s comparative advantage in software development and application, it would be highly desirable to evolve an agreed set of rules that could be applied across like-minded countries. There are many contentious issues here, including issues of transparency, the requirements of fair competition in a world dominated by a few players, and the ownership and localization of personal data. The US and Europe have differences on these issues. We need to play a constructive role in evolving a global consensus and our negotiators may need flexibility.
Indian business also needs to be mobilized in support of the new integration. As Naushad Forbes has pointed out in his excellent book, The Struggle and the Promise, the views of Indian businesses that are potentially competitive globally are often not heard. The voices that are heard are of businesses that are afraid of competition and happy to lobby for protectionism to survive. This has to change. Business groups will be much more willing to express a view if consulted at an earlier stage, before the government takes a view, rather than later.
Finally, negotiations involve multiple ministries, which then engage in cumbersome inter-ministerial consultations . Trade negotiations are too complex to be handled by individual ministries acting in silos inevitably burdened by precedence. We need an empowered trade negotiator to consult with concerned ministries and report to the Prime Minister and key ministers with an assessment of pros and cons. The Niti Aayog should be mobilized to conduct broad consultations and elicit the opinions of stakeholders, including state governments. It should also engage in the education of the Indian public on the benefits to India from greater integration.
Montek Singh Ahluwalia is former deputy chairman, Planning Commission, and currently distinguished fellow at the Centre for Social and Economic Progress
