Why must India tread cautiously as it joins IPEF?

While addressing delegates at the launch of the Indo-Pacific Economic Framework (IPEF), Prime Minister Narendra Modi said that the pact will pave the way for development, peace and prosperity in the region.

While joining the block floated by US President Joe Biden, India made its intentions very clear. Peace in the region was the foremost priority for it, without which business and prosperity was not possible.

IPEF is a critical part of the US President Joe Biden’s plan to counter China’s growing influence in the Asian economic sphere. Biden plans to do so by partnering with other countries which are India, Australia, Brunei Darussalam, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam.

Indo-Pacific Economic Framework (IPEF) has four pillars.  The first is supply-chain resilience. The second involves clean energy, decarbonisation, and infrastructure. The third deals with taxation and anti-corruption. And, the fourth one is fair and resilient trade. The US is also seeking to include digital economy issues like the cross-border flows and localisation of data.  

So what will be the shape of the pact? According to a February report by the US Congressional Research Service, US officials have stated that they do not envision the IPEF taking the form of a “traditional trade agreement”.

The report cited a USTR official saying in February that the initiative would include different modules covering "fair and resilient trade, supply chain resilience, infrastructure and decarbonisation, and tax and anticorruption".

Basically, the pillars we spoke of before. Countries will have to sign up to all of the components within a module, but will not have to participate in all modules. 

In particular, the “fair and resilient trade” module will be led by USTR and include digital, labour, and environment issues, with some binding commitments. 

As reported by Business Standard, the IPEF joint statement does not call for launching negotiations for a trade pact. Instead, it only promises to begin “collective discussions towards future negotiations”.  

Without ruling out tariff negotiations under the proposed trade pact, the joint statement said that cooperation in the digital economy would be part of the efforts under IPEF.  

A White House fact sheet spoke of pursuing high-standard digital economy rules with regard to cross-border data flows and data localisation, along with seeking strong labour and environment standards and corporate accountability provisions.    

And, it is in these details that the devil lies. As explained previously by Business Standard, India and the US have contrasting views on digital commerce, labour, and environmental standards.

In fact, India strongly resists putting such standards in any of the free-trade agreements it enters into.  

Speaking to Business Standard, Biswajit Dhar, Professor of Economics, Jawaharlal Nehru University said IPEF intends to bring about regulatory coherence, which is similar to what was happening with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. It will impact digital economy, e-commerce, environment and labour regulations, but data portability is one of the key issues for India that remains unaddressed, he said. E-commerce rules are another key issue. India’s labour standards have actually become weaker. Indian institutions lack the depth to address these regulatory issues. All the other countries in the IPEF have a certain amount of preparedness. India is an outlier in this regard, Dhar says. India will have to see what kind of sensitivity other members show towards its concerns.

The nature of the framework itself could be a cause for concern. According to a brief written by the Washington-based Center for Strategic and International Studies, or CSIS, the Biden administration has domestically portrayed the IPEF as an initiative that will enable the US to better compete with China in the region. 

Due to this, some of the Indo-Pacific partners are apprehensive that instead of being a sincere and thoughtful economic programme, the IPEF was primarily a political endeavour meant to counter China. 

The same CSIS brief also described India as possibly not being an ideal IPEF participant under current conditions. Although, it did say that India's exclusion from the IPEF "would raise questions about how ‘Indo’ the Indo-Pacific Economic Framework truly is". While IPEF's success or failure is far ahead in the future, it is clear that at present, it poses a particularly tough challenge to India.