By Pralok Gupta

The US-led Indo-Pacific Economic Framework for Prosperity (IPEF) is strategically important for India for four reasons. First, it will enhance India’s economic engagement in the region, which was dented after India’s withdrawal from the Regional Comprehensive Economic Partnership (RCEP) agreement. India’s last-minute withdrawal from RCEP was not seen in the right spirit by ASEAN and other RCEP members. The IPEF will help control the damage caused by the RCEP withdrawal as all the IPEF members save India and the US—Australia, Brunei, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam—are signatories to the RCEP.

Second, building resilient supply chains is one of the motives of the IPEF. India can consider members as alternative sources for its raw materials requirements. Malaysia could increase the supply of chips, whereas Australia can be a source of minerals for Indian industry. This could reduce India’s overdependence on China for these inputs. Covid-19 has already shown how detrimental it is for industry to rely on a single source for inputs. Therefore, increasing inputs trade with the IPEF members can provide a cushion against future supply shocks.

Third, it will also help India strengthen its ties with Australia. Though India has just signed an interim Economic Cooperation and Trade Agreement with Australia in April 2022, there has been a change of government in Australia since. The bonhomie between the two countries that was there earlier needs nurturing by India. Engagements through the IPEF could provide a boost to India-Australia renewed ties.

Four, the IPEF can also support India’s renewed love for free trade agreements. IPEF membership is a testimony to India’s aggressive stance on bilateral and regional trade engagements. However, India needs to be cautious of what is achieved through this framework. There may be some slips that may affect India’s economic interests.

The IPEF is primarily a US-led initiative and, hence, mainly driven by its interests. Though the language of the joint statement of the framework was diluted to accommodate divergent views of other members, the fact-sheet of the framework and the on-the-record press call of the US give a glimpse of what it wants to achieve through this initiative (“The United States is an Indo-Pacific economic power, and expanding US economic leadership in the region is good for American workers and businesses—as well as for the people of the region,” a White House release reads). Therefore, there will always be a danger of IPEF becoming a medium for advancing US interests.

Amongst US interests, e-commerce and digital trade are the most prominent. The US intends to pursue, through this framework, exacting rules for the digital economy, including on cross-border data flows and data localisation. The chances are high that it will become another forum to raise and harbour US tech firms’ commercial interests. This is not in sync with India’s position on digital economy issues. India is in favour of retaining policy space on cross-border data flow. The regulatory framework pertaining to e-commerce is still evolving in India. The draft e-commerce policy published in 2018 is still not finalised. The Personal Data Protection Bill is also in Parliament. Thus, India cannot support binding rules on data flow and localisation.

The US could also use this framework to pressurise India on supporting a permanent moratorium on customs duties on electronic transmissions at the WTO. The WTO Ministerial Conference is scheduled for the second week of June, and the moratorium will surely be one of the issues that will come up for discussion. As of now, there is a temporary moratorium, and it gets extended every two years through Ministerial Conference decisions.

The IPEF is not proposed as an FTA by the US, though it talks about economic negotiations. It is a Catch 22 situation for India. In the absence of an FTA, WTO rules will not permit granting of preferential treatment amongst IPEF members. Without preferential market access, trade gains and resilient supply chains envisaged through this framework will not materialise. On the other hand, if it turns into an FTA, it will be majorly driven by US interests and eventually may become an FTA with US. Not to forget, despite growing synergy and trade, an FTA between US and India could not materialise because of divergences on key issues, such as IP, data flow, etc.

The 3Ts—Trust, Transparency, and Timeliness—mentioned by PM Modi during the launch ceremony are very important for the success of this initiative. Trust and transparency will be built only if members, particularly the US, accommodate each other’s interests. If achieved, both of these will lead to timely delivery of the intended outcome. If the US is not accommodative and driven by its own interests, the IPEF may not be a success.

The author is Policy Leader fellow, European University Institute, Florence, and associate professor, Centre for WTO Studies, IIFT, New Delhi