Context of Formation
- In the backdrop of US withdrawal from the Trans-Pacific Partnership under Donald Trump, there has been concern over the absence of a credible US economic and trade strategy to counter China’s economic influence in the region.
- China is already an influential member of RCEP in the region and has applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which is the child of TPP after the US declined to join it. As such the US is projecting IPEF as the new US vehicle for economic re-engagement with East Asia and Southeast Asia.
- The US President first talked about it at the at the October 2021 East Asia Summit. It has been launched at present Quad summit 2022.
|Aspects of IPEF||Highlights|
|Four Pillars||TradeSupply chain resilienceClean energy and decarbonisation Taxes and anti-corruption measures.|
|Objective||To “advance resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness” in these economies.|
|Members||Australia, Brunei, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand and Vietnam. Together, these countries account for 40% of global GDP.|
|How a country becomes a member?||Countries are free to join (or not join) initiatives under any of the stipulated pillars but are expected to adhere to all commitments once they enrol.|
|How the Framework Works||U.S. Trade Representative (USTR) will be spearheading the trade pillar,Supply chain resilience, clean energy and decarbonisation, and taxes and anti-corruption measures will fall under the purview of the U.S. Department of Commerce.|
|Key areas of Cooperation||Trade Pillar: To establish “high-standard, inclusive, free, and fair-trade commitments” to fuel economic activity and investments benefitting both workers and consumers. Digital Trade Pillar: Incorporates not just the purchase and sale of goods online but also data flows that enable the operation of global value chains and services, like smart manufacturing, platforms and applicationsSupply chain resilience Pillar: The framework aspires to secure access to key raw and processed materials, semiconductors, critical minerals and clean energy, tech, particularly for crisis response measures and ensuring business continuityClean energy, decarbonisation and infrastructure Pillar: In line with the Paris Agreement, provide technical assistance and help mobilize finance, including concessional finance, to improve competitiveness and enhance connectivity by supporting countries in the development of sustainable and durable infrastructure for adopting renewable energy. Tax and anti-corruption Pillar: Aimed at promoting fair competition by enforcing robust tax, anti-money laundering and anti-bribery regimes in line with existing multilateral obligations, standards and agreements to curb tax evasion and corruption in the region.|
|Pros||1. A new US vehicle for economic re-engagement with East Asia and Southeast Asia. It would help in countering China dominated Regional Comprehensive Economic Partnership (RCEP) and other regional trade initiatives like Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Digital Economic Partnership (DEPA) (A new type of trade agreement to facilitate digital trade and creating a framework for the digital economy, was born out of the common interest of Chile, New Zealand and Singapore) of which US and India are not a party.|
2. Would help U.S. companies that are looking to move away from manufacturing in China.
3. It is significant that 7 of 10 ASEAN countries and 11 out of 15 of countries that form RCEP took part in the launch.
4. Signifies first multilateral attempt to boost supply chain resilience to ease global inflationary pressures and mitigate effects of future disruptions, particularly key raw materials, critical minerals, and semiconductors.
|Challenges||1. IPEF is not a traditional trade agreement. It would include different modules covering “fair and resilient trade, supply chain resilience, infrastructure and decarbonization, and tax and anticorruption.”|
2. Countries would have to sign up to all the components within a module, but do not have to participate in all modules. The “fair and resilient trade” module will be led by the US Trade Representative and include digital, labour, and environment issues, with some binding commitments.
3. IPEF will not include market access commitments such as lowering tariff barriers, as the agreement is “more of an administrative arrangement,” and Congressional approval, which is a must for trade agreements, is not mandatory for this.
4. Critics suggest it would be security, and not economics, which will drive U.S. trade engagement in the region.
5. Exclusion of U.S. ally Taiwan from the arrangement, despite its willingness to join, exhibits USA’s geopolitical caution to call out China. Despite Taiwan being eligible on economic merit.
|Concerns for India||1. US’ preference to allow free and open data flows under digital economy pillar will constrict India’s ability to regulate data for domestic purposes. |
2. India might be reluctant to sync its tax policies with the push for a global tax standard amongst US partners to mitigate tax avoidance and evasion.
3. Labour Standards and non-Tariff barriers will remain a bone of contention for India.