Context: In November 2019, India walked out from the trade pact called the Regional Comprehensive Economic Partnership (RCEP) involving China, Japan, South Korea, Australia, New Zealand and the 10-state Association of Southeast Asian Nations (ASEAN) grouping. Fast forward to 2023, and now India along with many of the same countries, but with China replaced by the United States, is getting into the U.S.-driven Indo-Pacific Economic Framework for Prosperity (IPEF).
Moving Away from China
- 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. But a strategic partnership with the U.S. need not come at the cost of economic dependency on it. With China, the big economic fear was any trade deal’s impact on India’s manufacturing sector; of cheap Chinese goods flooding Indian markets.
- Traditionally, trade deals used to be mostly about tariffs. Increasingly though, issues related to intellectual property, services, investment, domestic regulation, digital, and labour and environmental standards, are becoming more important. The U.S.’s IPEF proposal completely removes the tariff element of typical trade deals, and is entirely about all these other areas.
Potential Negative Impact
- Early assessment by many experts 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 systemic integration caused by the IPEF’s actual long-term impact will leave 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).
- The IPEF has four pillars: trade, supply chains, clean economy, and fair economy. Fearful of a possible trap, India has joined the other three pillars but not trade. But there is great pressure on it to join trade too, and India could relent. Joining the trade pillar is the worst, but the other pillars too contribute to developing hard new economic architectures and structures that are not tariff-based.
- 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.
To read more about IPEF i.e. Background, Pros and Cons
(https://compass.rauias.com/current-affairs/indo-pacific-economic-framework-prosperity/)