India treads carefully on IPEF trade parleys
At the end of their meeting mid-November in San Francisco, the trade ministers of the countries that are a part of the US-led Indo-Pacific Economic Framework (IPEF), including India, took a major step towards making this regional arrangement a reality. Ministers from the 14 participating countries announced their agreement on two of the IPEF’s four pillars: clean economy and tax and anti-corruption measures. With the agreement on the third pillar of supply chains made six months earlier, this arrangement in the economically most vibrant region of the world seems to be almost in place. However, uncertainties remain about the outcomes regarding the last pillar, trade, given the disagreements among participants.
IPEF negotiations were formally initiated after May 2022, with the participating countries expressing their shared commitment to develop a “free, open, fair, inclusive, interconnected, resilient, secure, and prosperous Indo-Pacific region… to achieve sustainable and inclusive economic growth”. The negotiations did not begin with the desired momentum as India opted out of the trade pillar in the initial phases of engagement.
At least four facets of the IPEF were evident as the negotiations were initiated. First, the US, which crafted the IPEF, did not propose the arrangement as a typical free trade deal focused on lowering tariffs. Nonetheless, the IPEF was expected to develop rules on trade, especially for the conduct of digital trade. Secondly, the IPEF proposed regulatory coherence as it focuses on multiplicity of standards, including on environment and labour, and promoting a “fair economy” by combating corruption and improving tax administration. Thirdly, the IPEF is conceived of an arrangement that would challenge the economic dominance of China in the Indo-Pacific, in particular its supply chains that criss-cross the region, through the development of “resilient supply chains”. And finally, the arrangement espouses “open-regionalism”, implying that membership is open to other countries in the Indo-Pacific region. This dimension has been included possibly because by drawing in other like-minded countries from the region, the IPEF can counter China more effectively.
It is perhaps necessary to dwell on some of the specificities of each IPEF pillar to also understand the likely implications for India. This is important as in the past, India was unable to benefit from joining free trade agreements. Though the IPEF has not been proposed as a free trade deal, the objective of the arrangement is to exploit market access opportunities in the participating countries. This implies that while the Indian market will be an attraction for IPEF members, especially the US, the question is whether India can increase its footprint in the economic space that this arrangement is expected to create.
It must be pointed out that India joined the IPEF with a degree of scepticism. It withdrew from the trade pillar in the early phases of negotiations, though the term “market access” was not included in the mandate, implying that it would not have to lower its relatively higher tariffs. India’s withdrawal could well have risen from the fact that the trade pillar could introduce binding commitments on labour and environmental standards, which have not been a part of India’s free trade deals. Digital trade could be the other red herring, as the government is yet undecided about allowing cross-border data flows and thus meet the demands of global giants in the digital business. There could be other sensitive areas as well. Agriculture should be on top of this list as securing larger markets for its agri-businesses has always been a priority for the US in its bilateral and regional agreements.
As mentioned earlier, IPEF members have already sealed the agreement relating to supply-chain resilience. The objectives of this agreement are apparently quite attractive as they seek to strengthen the supply chains that have been at the heart of trade dynamics for over two decades. However, the agreement rings a discordant note for India as it seeks to “promote supply chains in which labour rights … are respected”. Labour rights, as defined in this agreement, include several fundamental conventions of the International Labour Organization (ILO), including the “freedom of association and the effective recognition of the right to collective bargaining” and “a safe and healthy working environment”. Besides, “acceptable conditions of work with respect to minimum wages and hours of work” is also included.
Adherence to labour rights in the supply chains can prove to be a challenge for India as the central government and several state governments have taken steps towards introducing flexible labour markets, signalling a move away from strict labour rights. Moreover, India has not ratified the ILO conventions on freedom of association and collective bargaining as well as those on occupational health and safety. But more importantly, captains of Indian industry have been favouring an increase in the hours of work: Narayana Murthy’s recent proposal to introduce a 70-hour work week and the support he received from other corporate leaders is a case in point.
India would have to carefully consider the IPEF agreement on “clean economy”, which intends to “accelerate … efforts in pursuit of greenhouse gas emissions mitigation and elimination”. Coming as it did just before COP28, the question is whether the IPEF could push India towards bringing forward its Net Zero target set for 2070. Finally, the IPEF Fair Economy Agreement introduces commitments to combat corruption and improve tax administration But the devil could be in the details, that is, in the legal text of this agreement.
Biswajit Dhar
Former professor, Jawaharlal Nehru University and Vice President, Council for Social Development