On May 23, the US president launched Indo-Pacific Economic Framework (IPEF) in Tokyo, Japan. India along with 12 other countries has shown their interest in this forum. IPEF covers 4 major agendas including supply chain resilience, trade, clean energy and taxes and anti-corruption. This grouping has major coverage from the countries of the Asia-Pacific region. Seven out of 10 ASEAN members, all the four Quad countries along with New Zealand and South Korea have shown their willingness to join the IPEF. This membership accounts for 40 percent of global GDP. India became one of the first countries to join IPEC. In his remarks, PM Modi stated the importance of robust supply chain resilience and “collective will” for making the Indo-Pacific region an engine for global growth. Further, he iterated on the 3-pillar foundation of trust, transparency and timeliness in the Indo-Pacific region.
President Joe Biden also discussed the importance of this forum to strengthen economic ties, however, the US made it very clear that this framework is not a Free-trade agreement (FTA). From the perspective of the US, this policy has a clear objective to attract investment away from China.
Some Major Setbacks
The Indo-Pacific region holds significant importance for the US, as this region roughly accounts for 50 percent of the world population and trade. In the past also, the US has supported this region strategically. The institutions such as Asia-Pacific Economic Cooperation, and ASEAN initiatives are a few examples. Apart from these mega treaties, the US has signed bilateral agreements with Australia, Canada, Chile, and Singapore to name a few. President Obama also wanted to deepen the ties with the Asia-Pacific region, through the Trans-Pacific Partnership (TPP). TPP has had 12 countries from Asia-Pacific including the US. This partnership was aimed to strengthen the Asia-Pacific region both economically and also in the context of confronting China.
However, in 2017 under the leadership of Trump, the US withdrew from TPP. The trade agenda in the Indo-Pacific region was disrupted due to the withdrawal of the US as it had a much broader scope in Indo-Pacific like market access, rules on e-commerce and data flows and institutional issues. After Biden became the president, it was much acclaimed that the ‘CPTPP’ would be revised, considering the importance of this partnership. However, the revival of CPTPP under the leadership of Biden is still in jeopardy. Although, the stronger agreements are left apart, the focus of the US now remains on China. This became evident when QUAD emerge as a regional security provider and all the four members committed to maintaining stability in the Indo-Pacific region. Similarly, AUKUS (Australia, the United Kingdom and the United States) a trilateral security pact was announced in September 2021. This agreement was also meant to provide security and stability in the Indo-Pacific region.
The growing attraction of the US towards a few agendas which is often not related to trade or market access reflects its self-centred approach. In order to confront China, the policy formulation should be on the basis of providing market access to the smaller countries through trade agreements like CPTPP. The realignment of the countries towards China is a good example. China, along with other Asia-Pacific countries has signed Regional Comprehensive Economic Partnership (RCEP) which now is the largest trade blocks in the world, covering 30 percent of world’s GDP.
The Indian Perspective: A Caution
As a developing country, India’s need doesn’t align with the need of the US, India has recently signed FTAs with UAE and Australia. It shows the relevance and importance of having market access and incentives for SMEs. The fundamental objective of IPEF, as we understand is to strategize and counter the growing dominance of China in terms of trade in the Asia-Pacific region. This move will entail a great deal of strategic partnerships and associations, and will bring something of interest to all the nations coming together under this arrangement. As we decipher, it is believed that this would help to capture resilience, sustainable growth, better competition scenarios and more collaborative economic growth. The idea behind IPEF is to promote trade coherence from a regulatory lens and other member nations have good degree of readiness, however with India; it is an outlier with less preparedness and most of the agenda is already covered in the CPTPP and the RCEP. Thus, it will be crucial to observe how other nations support and push India to come up and participate in equal measure at the forefront.
As experts have argued that India’s non-alignment for RCEP may backfire its dominance in the region, its sudden withdrawal from the RCEP reflects some pinch of ‘Protectionist’ rhetoric. In some way, it is understood that IPEF would be more inclined towards the US to give them a better cushion to fight China’s dominance in the said region, and not a synergistic alignment of nations to deal with a trade competition. Thus, it may be more of a political agenda than a trade arrangement, but only time will tell. Geopolitics will surely get intense, as countries are coming together under the umbrella of IPEF.
[Photo by 首相官邸, CC BY 4.0, via Wikimedia Commons]
*Pushkar Pushp is a Research Scholar (International Business) at FORE School of Management, New Delhi, India.
*Sonika Jha is a Research Scholar (Strategy Area) at FORE School of Management, New Delhi, India.