Prospect of IPEF dim after India skipped trade pillar

The Biden administration’s signature Indo-Pacific Economic Framework for Prosperity (IPEF) started off officially with the first ministerial meeting of the 14-nation grouping held in Los Angeles on September 8 and 9. It was beyond US expectation that India opted out of its trade pillar. According to an Indian official, the decision was made because broader consensus had not emerged on certain issues such as environment, labour, public procurement, and digital trade, and member states were yet to see benefits. India’s position shows the prospect of IPEF is in doubt as a result of concerns about unequal distribution of benefits.

The US launched the IPEF in May with 13 countries, including Japan, Australia, New Zealand, Singapore, India, Brunei, Fiji, Indonesia, Vietnam, Thailand, Philippines, Malaysia and the Republic of Korea. The IPEF member states represent over 40 percent of global GDP. It is said that the framework was launched to advance resilience, sustainability, inclusiveness, economic growth, fairness and competitiveness among participating countries. However, it is widely accepted that the main target of this framework is to counter China’s growing economic influence both regionally and globally.

The Biden administration has positioned the IPEF as a platform for the Indo-Pacific’s most dynamic economies to engage with one another on emerging issues, including reconfiguring supply chains. The new framework has four main pillars - trade and digital economy, supply chains, clean energy and decarbonization, and tax and anti-corruption.

But the IPEF lacks substantive contents and template. It is merely a bunch of ideas from the American perspective, as the Biden administration has been at pains to avoid the “traditional” free trade agreements and the focus on market access. The reality is Washington presented developing countries a long list of demands and ignored the give-and-take rules in equal negotiations. India’s choice reflects apparent differences in the regime’s benefits-sharing aspect. The Modi administration has been promoting “Make in India” since 2014, which aims to develop self-innovation into an engine for Indian economic growth. India is not and will not be content with being just one sector in a US-led supply chain.

Moreover, one of the IPEF goals is to achieve economic connectivity, including the pursuit of high standards of connectivity in the digital economy and the setting of rules for cross-border data flows and data localization. In reality, these claims are inconsistent with domestic laws, regulations and market characteristics of many IPEF participants. For example, the Indian government took many measures to promote data localization and enhance data collection regulation in recent years. These progressive measures even led to interest conflicts between Indian and American tech giants like Twitter and Meta. And in South Korea, the government does not take a negative attitude towards cross-border data flow. But it amended the Personal Information Protection Act three times in a row between 2020 and 2021 to strengthen the protection of personal information. Its concerns are obviously different from those of the US.

In the clean energy and decarbonization aspect, IPEF countries have various appeals. Just as India declared after the ministerial meeting, it “will be watching whether any conditions on aspects like environment may discriminate against developing countries”. This point reflects the common concern of developing countries over environmental issues and green economies. Many participants may see decarbonizing supply chains and combating climate change as other examples of developed countries asking for everything while offering nothing. Although member countries have signed the statements for now, the balance between development and environmental protection in the developing world is a pendulum. If one looks back at COP 26 in 2021, India made limited promise for the sake of development and national interest. In the foreseeable future, IPEF member states may show more differences in such pillars.

The future of the IPEF will be determined by at least two important factors. The first factor is how much benefits the US will spare to bind member countries. This is decisive for future negotiations. Currently, the four joint statements that emerged from the meeting were relatively general and principled. The developing countries are expecting more free access to the bigger market, but how much they can achieve is a question mark. According to the US, the following negotiations on the IPEF will start "very soon" and the schedule is tight. The US is expecting the participants to complete negotiations and domestic ratification by November 2023, before the US hosts the Asia-Pacific Economic Cooperation (APEC) summit next year. Or, it might be another good option to get things done before the end of the first term of the Biden administration. However, multilateral trade and economic negotiations are time-consuming. For instance, the negotiations for the RCEP took around 10 years and the domestic ratification process of each country took more than a year.

The finalization of IPEF negotiations very likely will be a marathon for all partner countries. Besides, the seven-month delay in releasing the new framework reflected the political differences within the Democratic Party itself and the American political arena. Now the midterm elections are ongoing in the US. According to the present situation, it may take much imagination to predict which way the electoral winds will blow in the coming November. If the Democratic Party loses its tenuous hold over Congress, it will influence Washington’s upcoming ability to deliver on IPEF’s ambitions.

So, the prospects of the IPEF has dimmed, not only because it is a framework without careful consideration of developing countries’ common prosperity, but also because it is constrained by American domestic politics. At the same time, India’s absence in the trade pillar is proof that America is unable to walk and chew gum in Asia, as Asian countries have their own plans and ambitions when it comes to development.

(Contributed by Zhang Xiaoyu, Research Fellow at Center for BRICS Studies, Communication University of China and Distinguished Fellow at South Asian Studies Center, Xiangtan University)