Central Idea

• India’s recent shift from the Regional Comprehensive Economic Partnership (RCEP) to the Indo-Pacific Economic Framework for Prosperity (IPEF) has raised questions about the motivations behind this decision and the potential implications for the country.

What is Regional Comprehensive Economic Partnership (RCEP)?

• RCEP is a trade agreement involving 15 countries in the Asia-Pacific region, namely the 10 member states of the Association of Southeast Asian Nations (ASEAN) — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam — as well as China, Japan, South Korea, Australia, and New Zealand.
• RCEP is aimed at creating a regional free trade area, covering a significant portion of the global economy. It is considered one of the largest trade agreements in the world in terms of population, GDP, and trade volume.
• The RCEP negotiations began in 2012 and were concluded in November 2020. The agreement is seen as a significant development in regional trade integration, particularly in light of rising protectionism and uncertainties in the global trading system.

What is Indo-Pacific Economic Framework for Prosperity (IPEF)?

• The IPEF is an economic framework proposed by the United States as an alternative or complement to RCEP.
• The purpose of the IPEF is to promote economic cooperation, trade, and investment among participating countries in the Indo-Pacific region, with the United States taking a leading role.
• The article highlights that the IPEF focuses on non-tariff areas such as intellectual property, services, investment, domestic regulations, digitalization, labor, and environmental standards.
• Unlike traditional trade deals that primarily address tariffs, the IPEF seems to emphasize these broader aspects of economic integration.

Potential reasons for India’s shift from the RCEP to the IPEF

• Strategic Partnership with the United States: India’s top foreign policy priority is to develop a strategic partnership with the United States. The shift to the IPEF may reflect India’s desire to align itself more closely with the United States and its Indo-Pacific strategy.
• Deteriorating Relationship with China: India’s relationship with China has further deteriorated. The decision to join the IPEF could be seen as a way for India to distance itself from China and align with countries that share similar economic and strategic interests.
• Economic Concerns: India may have had concerns about the potential impact of the RCEP on its manufacturing sector. The fear of cheap Chinese goods flooding the Indian market might have influenced India’s decision to explore alternative economic frameworks like the IPEF.
• Non-Tariff Issues and Economic Interests: The IPEF’s focus on non-tariff areas such as intellectual property, services, investment, and digital economy might align more closely with India’s economic interests. By joining the IPEF, India may seek to address these issues and negotiate agreements that are more favorable to its domestic industries and economic priorities.
• Balancing Regional Influence: Joining the IPEF could be part of India’s broader strategy to balance China’s growing influence in the region. By aligning with countries like the United States, Japan, South Korea, Australia, and others in the Indo-Pacific, India may aim to assert its own influence and shape regional economic dynamics.

IPEF’s four Pillars

1. Trade: This pillar focuses on facilitating trade and reducing barriers among the participating countries. While India has not joined the trade pillar, there may be pressure for it to do so.
2. Supply Chains: This pillar aims to establish integrated and efficient supply chains within the participating countries. It likely involves promoting cooperation and coordination in areas such as logistics, infrastructure, and connectivity to facilitate smooth trade flows.
3. Clean Economy: The clean economy pillar focuses on promoting sustainable development, environmental conservation, and green technologies. It likely involves commitments and cooperation to address climate change, reduce emissions, and promote clean energy and sustainable practices.
4. Fair Economy: The fair economy pillar aims to establish a fair and level playing field for businesses and promote inclusive economic growth. It likely includes provisions related to competition policy, fair trade practices, and addressing inequalities within and among the participating countries.

Serious implications for India Joining the IPEF

• Economic Dependency: Joining the IPEF could result in increased economic dependency on the United States. If the IPEF aims to establish an integrated economic system centered on the U.S., India may become heavily reliant on U.S.-driven policies, which may not align with India’s specific economic interests and priorities. This could limit India’s ability to pursue independent economic strategies.
• Trade-offs and Market Access: The framework may require India to make trade-offs in various areas, such as agriculture, intellectual property, labor and environment standards, and the digital economy. These trade-offs may involve compromising certain domestic policies or sectors in exchange for market access or participation in the IPEF.
• Impact on Domestic Industries: The IPEF particularly related to non-tariff barriers, intellectual property rights, and labor and environment standards, could impact India’s domestic industries. Depending on the specific terms, India’s manufacturing sector and other industries may face challenges related to competition, compliance, or market access, which could have implications for employment, growth, and economic development.
• Policy Constraints: Joining the IPEF could limit India’s policy-making autonomy in key areas such as agriculture, labor, environment, and digital economy. The IPEF may entail commitments that restrict India’s ability to design and implement policies aligned with its national interests, potentially constraining its ability to protect domestic industries, regulate markets, or enact necessary reforms.
• Implications for Small and Medium Enterprises: The IPEF’s provisions and requirements may disproportionately impact small and medium-sized enterprises (SMEs) in India. Compliance with standards, regulations, or market access requirements could pose challenges for SMEs, potentially hampering their growth and competitiveness.
• Loss of Sovereignty: Depending on the nature of the IPEF, India joining the framework may entail ceding a degree of sovereignty or decision-making authority to the collective interests of participating countries. This loss of sovereignty could limit India’s ability to shape its own economic policies and respond to emerging challenges or priorities.

Way ahead

• Comprehensive Assessment: Conduct a thorough and comprehensive assessment of the potential benefits and risks associated with joining the IPEF. Evaluate the specific terms, provisions, and potential impacts on various sectors of the economy, including agriculture, manufacturing, services, intellectual property, and labor standards.
• Prioritize National Interests: Clearly define and prioritize India’s national interests in terms of economic growth, job creation, industrial development, and sustainable development.
• Engage in Negotiations: Actively engage in negotiations and discussions with the participating countries of the IPEF to ensure that India’s concerns, interests, and objectives are adequately represented and addressed. Seek to negotiate favorable terms and provisions that protect and promote India’s economic priorities.
• Strengthen Domestic Industries: Focus on strengthening domestic industries and sectors to enhance competitiveness and resilience. Invest in research and development, innovation, infrastructure, and skill development to ensure that Indian industries can withstand competition and capitalize on opportunities that arise from participation in the IPEF or other trade frameworks.
• Diversify Trade Partnerships: While considering the IPEF, continue efforts to diversify trade partnerships beyond the United States and the Indo-Pacific region. Explore opportunities to strengthen trade and investment ties with other countries or regions that align with India’s economic interests and offer potential growth prospects.
• Foster Regional Cooperation: Promote regional cooperation within the Indo-Pacific region through alternative frameworks or platforms that better align with India’s priorities and ensure a more inclusive and equitable approach to economic integration.
• Domestic Policy Reforms: Strengthen domestic policy frameworks and institutions to support economic growth, enhance competitiveness, and address challenges related to labor, environment, intellectual property, and other areas covered by the IPEF.
• Public Consultation and Transparency: Ensure transparency and engage in public consultation processes to seek inputs and feedback from stakeholders, including industry associations, civil society organizations, academia, and experts.

Conclusion

• It is essential for India to approach the decision on joining the IPEF with a long-term perspective, taking into account its national interests, economic priorities, and the potential impact on various sectors. A well-informed and strategic approach will enable India to make decisions that maximize benefits and minimize risks for its economy and society.

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