This strategic-economic bloc will only tighten the leash – on the U.S.-driven Indo-Pacific Economic Framework for Prosperity (IPEF) | 15th May 2023 | UPSC Daily Editorial Analysis

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What's the article about?

  • It talks about the impacts of the U.S.-driven Indo-Pacific Economic Framework for Prosperity (IPEF) trade block on India.

Relevance:

  • GS3: Effects of Liberalization on the Economy, Changes in Industrial Policy and their Effects on Industrial Growth;
  • Essay;
  • Prelims

Context:

  • Earlier the Regional Comprehensive Economic Partnership (RCEP) trade block was considered to be a global trade block.
  • But in 2019 India walked out from it due to its possible negative impacts on the Indian Economy especially on the development of the domestic sector.
  • Now a new trade development is happening, led by the USA. It is analogous to the RCEP but without involving China.
  • Now India needs to consider the impacts of this news policy before engaging with it.

What is U.S.-driven Indo-Pacific Economic Framework for Prosperity (IPEF) trade block?

  • The IPEF seeks to strengthen economic partnership among participating countries in the Indo-Pacific region to enhance resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness.
  • The IPEF’ framework is touted as a US bid to balance its security provider role in the region by reclaiming a larger role in the economic sphere.
  • The IPEF has four pillars: trade, supply chains, clean economy, and fair economy.

Analysis:

  • Traditionally, trade deals used to be mostly about tariffs. Increasingly though, issues related to intellectual property, services, investment, domestic regulation, digital, and labour and environmental standards, are becoming more important.
  • The U.S. 's IPEF proposal completely removes the tariff element of typical trade deals, and is entirely about all these other areas.
  • The IPEF’s ‘new age’ language itself is the biggest trap. Early assessment by many experts shows that the IPEF would result in a complete stranglehold over the economic systems of the participating countries, in a manner that is to the complete advantage of the U.S.
  • The IPEF is really about developing a strategic-economic bloc — an integrated economic system centred on the U.S., and, as importantly, excluding China.
  • The systemic integration caused by the IPEF’s actual long-term impact will leave little leeway for domestic policies to help a country’s own industrialisation (for example through tight supply chain integration that many elements of the IPEF contribute to).

India’s stand:

  • The IPEF has four pillars: trade, supply chains, clean economy, and fair economy.
  • Fearful of a possible trap, India has joined the other three pillars but not trade.
  • But there is great pressure on it to join trade too, and India could relent. Joining the trade pillar is the worst, but the other pillars too contribute to developing hard new economic architectures and structures that are not tariff-based.
  • In the long run, that could have an even stronger effect on economic and trade flows than tariffs. In the digital arena it is said that ‘code is law, and architecture is policy’.
  • In an increasingly digitalising world, hard-wiring supply chains and giving up policy spaces in key areas such as digital, labour and environment, and export constraints, would take the form of a gilded techno-legal cage of irreversible economic dependency.

Way Forward:

  • The IPEF can already be seen to have deep implications in agriculture, in terms of genetically modified seeds and food, surrendering policy space for regulating Big Tech, and compromising a comparative advantage in manufacturing because of unfair labour and environment standards.
  • It will also seriously affect India’s ability to create a vibrant domestic ecosystem in emerging areas such as a digital economy and green products.



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