Understanding/Evaluating the Indo Pacific Economic Framework
The Indo Pacific region is emerging as the new theatre of command today with countries coming together to ensure a free, open, fair, inclusive, interconnected, resilient, secure, and prosperous region. While geopolitical factors are at play in the region, an aggressive China is furthering its economic ambitions and uncertainties like the COVID-19 pandemic have caused massive disruptions to trade, commerce and livelihoods. Recent events have proven that the study of the region’s prospects and problems is incomplete without an assessment of the economic interlinkages between the countries of the region. These interlinkages will bring about economic growth and development in the region and create jobs. Economic competitiveness can be fostered by the sharing of technology, supporting innovation, strengthening the digital economy, promoting energy security and resolving the climate crisis.
The need to evaluate the economic dimensions was felt by the leaders of the Indo Pacific countries and thus, the “Indo-Pacific Economic Framework for Prosperity’’ was officially launched by United States President Joe Biden and leaders of 12 regional countries (namely Australia, Brunei, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand and Vietnam) on May 23, 2022, in Tokyo, Japan.
This framework also comes about five years after the United States withdrew from the Trans-Pacific Partnership (TPP) and can be viewed as the US’ way of reasserting its economic engagement in the region to counter China’s economic manoeuvres.
The four pillars of the IPEF are: 1) Fair and resilient trade; 2) Supply chain resilience; 3) Clean economy - Infrastructure, clean energy, and decarbonization; 4) Fair economy - Tax and anti-corruption
The IPEF follows a decentralised approach by which countries can join and participate in negotiations for any number of the four pillars instead of the regular approach of signing on to all the clauses of an all-encompassing agreement. This approach brings flexibility to the process of negotiation allowing countries to be a part of such a robust framework while only accepting the rules they find appropriate. However, the countries must agree on all aspects covered by each pillar that they join.
Another interesting fact about the IPEF that distinguishes itself from other geoeconomic instruments is that it is not a traditional trade agreement but will work as an Executive Order that does not need congressional approval in the United States. This may help avoid delays and political implications that accompany the domestic ratification of trade agreements. The Biden administration has indicated that it hopes to conclude the Executive Agreement by the end of 2023 when the United States will host APEC and before the stir of the US presidential election takes over. Thus, the IPEC will hopefully not fall prey to political ambitions, that often trump economic decision making.
However, critics say that the nature of the framework will cause its progress to remain unchecked, leading to a tardy pace of negotiations along with a lack of appropriate enforcement mechanisms. There is also a scare that the next US president may pull out of the IPEF, leaving it without any credible leadership.
After a few initial virtual meetings on the IPEF since May 2022, United States Trade Representative Katherine Tai and United States Secretary of Commerce Gina Raimondo co-hosted an in person IPEF Ministerial in Los Angeles, California on September 8-9, 2022 to flesh out the pillars of the framework and for countries to select the pillars on which they will enter negotiations.
The detailed pillars of the framework are at the moment as follows:
Trade Pillar : focusses on the provisions and initiatives related to nine key issues: labour, environment, digital economy, agriculture, transparency and good regulatory practices, competition policy, trade facilitation, inclusivity, and technical assistance and cooperation.
Supply Chains Pillar : focusses on finding ways to forecast, withstand and recover from supply chain disruptions in the following ways: establishing criteria for critical sectors and goods, increasing resiliency and investment in critical sectors and goods, establishing an information-sharing and crisis response mechanism, strengthening supply chain logistics, enhancing the role of workers, and improving supply chain transparency.
Clean Economy Pillar : focusses on working jointly to pursue provisions and initiatives as part of a future oriented effort that expands market opportunities, spurs innovation and growth, and improves livelihoods during the process of energy transition in the areas of : energy security and transition; greenhouse gas (GHG) emissions reductions in priority sectors; sustainable land, water, and ocean solutions; innovative technologies for GHG removal; and incentives to enable the clean economy transition.
Fair Economy Pillar : focusses on working jointly to pursue provisions and initiatives as part of individual and collective efforts to innovate and strengthen approaches to implementing anti-corruption and tax measures to boost flows of trade, commerce and investment in the areas of: anticorruption, tax, capacity building and innovation, and cooperation, inclusive collaboration, and transparency.
With the exception of India, all IPEF participants joined all four pillars—a credible feat for any country leading global negotiations and also an indicator of interest from participating countries to engage with the United States on economic issues. India has indicated that it does not agree with the current provisions on trade, digital governance, data security and privacy, binding environment and labour provisions, that directly conflict with its stated position.
While India is crafting its own digital framework and laws, it would like to wait for more information on commitments required on environment, labour, digital trade and public procurement as the negotiations progress. It has indicated that, while it will continue its engagement on the trade pillar, it may take a definitive view and may decide on signing on to it at a later stage.
India, on environmental issues has always maintained that developed countries should pitch in their support to developing countries on funding, investment and clean technology, as they make climate related commitments. In the IPEF as well, India may wish to wait out and see how negotiations progress on this aspect. This was indicated by India’s Commerce Minister Piyush Goyal at a press briefing following the IPEF ministerial meeting where he also said, “We have to see what benefits member countries will derive and whether any conditionalities on aspects like environment may discriminate against developing countries who have the imperative to provide low cost and affordable energy to meet the needs of our growing economy”.
As India is negotiating FTAs with partner countries like the UK, Canada and the EU, and hopes to renegotiate existing FTAs with South Korea, Japan, Singapore etc, in which these issues will also feature, India may want to ensure that commitments to the IPEF do not become a precedent for the negotiation and renegotiation of these other agreements and so prefers to wait it out.
India should evaluate its position on the Trade pillar carefully especially since the international trade scenario is gaining momentum, with ongoing reforms at the WTO, the rethinking of India’s own FTA framework and India’s upcoming G20 presidency of 2023 where trade and economic discussions will take centre stage and some of these issues will come up for consideration under India’s leadership.
Next steps for the IPEF
Within six months of its launch, IPEF has shown considerable progress. The detailing of the four pillars has given it shape and character and the first round of negotiations on each pillar will take place soon, as indicated by Ambassador Katherine Tai in her official statements at the September ministerial meeting.
The participating countries need to be clear on issues like financing, investment, technical knowhow and long-term commitment and leadership, required to make the IPEF a success. Whether IPEF’s informal nature will be an advantage or an impediment, is another issue to consider.
While the US aims at concluding the IPEF negotiations by November 2023, ahead of its hosting of the APEC Leaders’ Meeting, this ambitious timeline could prove challenging.
Following a promising launch and a successful Ministerial meeting, attention now turns to how effective the negotiations will be and how the US administration can entice participating countries in the region to remain engaged and make mutually agreeable commitments.