What does the Indo-Pacific economic framework mean for India and the world?

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NEW DELHI: The first ministerial-level meeting of the Indo-Pacific Economic Framework ends in Los Angeles on September 10. The coalition of 14 nations, including India, was brought together by Washington in early 2022 to set out an ambitious economic agenda for the Indo-Pacific on issues ranging from supply chain security and decarbonization to governance frameworks and corporate accountability.

Mint takes a look at what all of this entails:

What is the Indo-Pacific Economic Framework (IPEF)?

The IPEF is an economic pact that revolves around four key pillars. The first, “the connected economy”, prioritizes trade and seeks to establish the rules of the road in the digital economy. The second pillar, “the resilient economy”, focuses on building secure supply chains. Third, the Clean Economy pillar aims to secure key climate goals such as decarbonization and clean energy. Finally, the “Equitable Economy” segment hopes to push the efforts of the fight against corruption and corporate governance.

The 14 nations involved in IPEF are a mixed bag. Some, like Japan, South Korea and Australia, are longtime US allies, while others like India are major partners. In addition to this, Southeast countries like Vietnam, Indonesia and Brunei also find themselves included in the pact.

However, as America is at pains to point out, the IPEF is not a “traditional” free trade agreement. This means that things like reciprocal market access are not on the table.

What does the framework aim to do?

Part of IPEF’s motivation is to forge an economic agreement that allows like-minded nations to establish technical rules and reap the economic benefits of growth in the Indo-Pacific. As the White House IPEF Fact Sheet states, “With 60% of the world’s population, the Indo-Pacific is expected to be the largest contributor to global growth over the next 30 years.”

Lower costs and assured supply of goods are another important factor. The White House says “IPEF will help reduce costs by making our supply chains more resilient over the long term” by “protecting us from costly disruptions that drive up prices for consumers.”

The focus on decarbonization and clean supply chains also aims to achieve ambitious emission reduction targets.

Is this a challenge for China?

One of the main drivers of the Indo-Pacific economic framework is America’s competition with China. The former has lost ground to China as a major economic player in Asia and is seeking to recover its position. The choice of partners is also instructive and represents a mix of US partners and allies as well as markets with which the US would like to deepen its relationship. Competition over rule-making, whether digital standards or corporate governance, will prevent China from writing the economic rules of the game.

The focus on securing supply chains and critical minerals is also partly aimed at reducing exposure to Chinese militarization of any economic dependence on IPEF countries.

What are the challenges?

On the one hand, the absence of market access negotiations is a problem. The United States withdrew earlier from the gigantic Trans-Pacific Partnership, a trade deal that put market access and high-level standards on the table, among other things. With IPEF, America runs the risk of requiring its partners to meet the same exacting standards without any incentive in the form of market access and trade agreements. While the usual suspects like Japan, South Korea and Singapore will be happy to be part of such a high standard agreement, developing countries like Vietnam and Indonesia have little reason to make binding commitments on anti-corruption standards and other issues without commercial incentives.

What does India get out of it?

On the one hand, India can secure a place at the negotiating table as key economic and technological standards for the region are set. IPEF provides a key platform for India after opting out of mega trade deals like the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

In addition, supply chain initiatives allow India to position itself as a key potential recipient of investments and ensure that supplies of strategically vital goods, such as critical minerals, are supported by like-minded partners. ideas.

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