• May 16, 2023

This economic and strategic bloc will simply tighten the reins.

GS 2 International Organisations & Groupings Effect of Policies & Politics of Developed & Developing Countries on India’s Interests

In Context

• India has opted to join the Indo-Pacific Economic Framework for Prosperity (IPEF) but has rejected the Regional Comprehensive Economic Partnership (RCEP).

About Regional Comprehensive Economic Partnership (RCEP):

About

• The Regional Comprehensive Economic Partnership (RCEP) is a regional Free Trade Agreement between ASEAN and six other countries: India, China, Japan, South Korea, Australia, and New Zealand.
• After eight years of negotiation, it was finalized in November 2020.
• However, India withdrew from the negotiations. Consequently, it is now an agreement between 15 nations.
• RCEP members represent roughly one-third of the world’s population and 29% of its gross domestic product.

Significance of India pulling out of RCEP

• India withdrew from the RCEP negotiations, citing its detrimental effects on domestic producers.
• According to India, international groupings have frequently resulted in deindustrialization and unjust competition for domestic producers.
• In a veiled reference to China, India has also stated that many nations propagate openness, but their own policies are not transparent.
• Other members have stated that the RCEP is open to India’s participation in the future.

About Indo-Pacific Economic Framework for Prosperity (IPEF):

About

• It is a framework for enhancing U.S. engagement in Asia.
• This is to counter China’s influence in the region and cover the void caused by not being an RCEP partner.

Not a conventional trading bloc

• The IPEF, unlike the FTA, is more of a custom-tailored mechanism that seeks the advantages of trade partnerships while shielding Americans from the disadvantages of trade liberalisation.
• Unlike FTAs, this agreement does not include market access commitments such as tariff reductions, as it is primarily an administrative arrangement.

Emphasis on supply chain

• IPEF demonstrates US ambitions to expand connections with key economies in the Indo-Pacific through robust supply chains excluding China.

Focus Areas: It is based on 7 strategic pillars

• Trade facilitation, especially for small and medium-sized enterprises (SMEs);
• Standards for a digital economy and technology;
• Supply-chain resilience;
• Decarbonisation and renewable energy;
• Infrastructure;
• Workers’ standards;
• Other areas of shared interest.

‘Menu’ based approach

• The 7 pillars will have specified modules, and countries will be required to sign up for all of the components within a module, but not all modules.
• Member nations can opt to partake in specific framework components.

Significance:

Strategic importance

• The Indo-Pacific Economic Framework for Prosperity (IPEF), led by the United States, is strategically significant for India.
• It will increase India’s economic engagement in the region.
• As all IPEF members, excluding India and the United States, are signatories to the RCEP, the IPEF will aid in mitigating the harm caused by the RCEP’s withdrawal.

Supply chain building

• Developing resilient supply chains is one of the IPEF’s goals.
• India can view members as alternative raw material suppliers.
• This could reduce India’s reliance on China as a supplier of these inputs.

Challenges & criticisms of IPEF:

India’s economic issues with USA

• India and the United States have economic issues, including agriculture, intellectual property, labor and environmental standards, and the digital economy.
• And the Strategic partnership should not entail accepting a wholly U.S. self-interest-driven economic framework that is incompatible with India’s present economic interests.

Centring USA

• According to an early assessment by a large number of experts, the IPEF would result in a complete control over the economic systems of the participating nations, to the complete benefit of the United States.
• The IPEF is primarily concerned with the formation of a strategic economic coalition — an integrated economic system centered on the United States and, crucially, excluding China.

Detrimental to domestic policies

• According to critics, the systemic integration caused by the actual long-term effects of the IPEF will leave little room for domestic policies to aid a country’s own industrialisation.
• For example, through the IPEF’s contribution to the integration of supply chains.

Deep implications for India

• The IPEF has already been shown to have significant effects on:
• Agriculture, in terms of genetically modified seeds and food;
• Policy space for regulating Big Tech; and
• Comparative advantage in manufacturing due to unjust labor and environmental standards.It will also have a significant impact on India’s ability to develop a thriving domestic ecosystem in emerging fields such as the digital economy and ecological products.

Digital Governance

• The formulation of IPEF comprises issues that directly contradict India’s position.
• Prohibition on cross-border data flows and requirements for data localization, including for financial services

Promotion of the interoperability of privacy rules and related enforcement regimes, such as the APEC Cross-Border Privacy Rule, while respecting U.S. federal and state privacy laws and regulations.

Huge investment demand

• Even though it is said to be beneficial for the countries in the region, it would necessitate massive investments and active participation during the phase of implementation.

Silent on market access

• The agreement is silent on granting access to domestic products and services to the markets of would-be members, including the United States.

Way ahead

• Participation in the arrangement’s supply chain initiative would be advantageous for India, but it would require flexibility with regard to the other initiatives.
• The IPEF’s four pillars are trade, supply chains, a sustainable economy, and an equitable economy. India, already fearing a possible snare, has joined the other three pillars but not trade. India’s principal foreign policy objective is the formation of a strategic alliance with the United States. In the interim, its relations with China have worsened further.