Exclusive | US-led Indo-Pacific Economic Framework won't be a trade pact

Representatives from the other countries appeared by video for the launch of Indo-Pacific Economic Framework. Modi was in Tokyo for Quad meeting on May 24, a four-country security group that also includes the U.S., Japan and Australia. (Image: AP)

The US-led Indo-Pacific Economic Framework for Prosperity (IPEF) is not a trade bloc in the making, according to officials.

Instead, the economic partnership of 12 Indo-Pacific nations, including India, is based on a broad list of shared goals and not specific targeted outcomes, they told Moneycontrol.

IPEF was launched at the second Quadrilateral Security Dialogue, also known as the QUAD summit, in Japan. It has added for the first time an economic angle to the dialogue, which has till now focused on strategic cooperation.

Officials stressed that the move represents a regional partnership and not trade discussions with tariff and market access issues.

A statement from the White House suggests the move is aimed at removing the Chinese grip on the regional economy through an alternative trade framework. However, it is also slated to focus on the framing of trade rules for data localization and e-commerce, as well as labour and environmental standards -- all areas in which India has clashed with the US on policy.

Apart from the four QUAD partners -- the US, India, Australia, and Japan -- the IPEF includes eight-other nations. These are Brunei, Indonesia, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand and Vietnam. Together, the 12-nations represent 40 percent of global GDP. India has a different position on many trade issues with all of them.

After seven years of negotiations, India had left a trade pact back in 2019 which included all of these nations. The Regional Comprehensive Economic Partnership (RCEP) was billed as the largest regional pact including both India and China, and the 10-nation Association of Southeast Asian Nations​ (Asean), along with developed economies such as Japan, Australia, South Korea and New Zealand.

Apart from tariff reduction, market access and services trade, India had clashed with many of these nations on the rules of trade itself, and left the RCEP deal at the last moment, citing national interest.

Wait and watch

The Ministry of External Affairs (MEA) has officially until now said the IPEF seeks to strengthen economic partnership amongst participating countries with the objective of enhancing resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness in the Indo-Pacific region.

At the launch, Prime Minister Narendra Modi said the IPEF was a declaration of a collective desire to make the Indo-Pacific region an engine of global economic growth.

Officials from the MEA told Moneycontrol that the government was still assessing how to take the IPEF forward.

"It is not a secret that the IPEF is an initiative of the Joe Biden administration. As a partner of the US on Indo-Pacific matters, India will support the talks on IPEF but we will wait for Washington DC to formulate the next plan of action on it," an official said.

People familiar with the situation said that discussions on the IPEF are expected to begin soon and will revolve mainly around safeguarding and boosting trade flows among the member nations.

Lofty plans

A statement issued by the White House on Monday has been the most comprehensive announcement of the IPEF so far. It points out that the IPEF will enable the United States and its allies to decide on rules that “ensure American workers, small businesses and ranchers can compete in the Indo-Pacific.”

It also stressed that the framework will help lower costs by making supply chains more resilient in the long term, protecting the partner nations against costly disruptions that lead to higher prices for consumers.

To prevent supply chain disruptions, the IPEF plans to guard against price spikes that raise inflation. "We intend to do this by establishing an early warning system, mapping critical mineral supply chains, improving traceability in key sectors, and coordinating on diversification efforts," the White House said.

On trade, the partnership will aim for high-standard rules in the digital economy, including standards on cross-border data flows and data localization. Case in point, India has clashed with the US on these issues over the past few years over its decision to mandate local data centres and its decision to tax e-commerce transactions.

In order to ensure small businesses can benefit from the region’s rapidly growing e-commerce sector, the Partnership aims to address issues such as online privacy as well as a discriminatory and unethical use of Artificial Intelligence.

Also on the cards are strong labour and environmental standards and corporate accountability provisions that “promote a race to the top for workers through trade.” It will also accelerate efforts to tackle the climate crisis, including in the areas of renewable energy, carbon removal, energy efficiency standards, and new measures to combat methane emissions.

Finally, the Partnership is slated to seek commitments to enact and enforce the effective tax, anti-money laundering, and anti-bribery regimes that are in line with existing multilateral obligations to promote a fair economy.

"These will include provisions on the exchange of tax information, criminalization of bribery in accordance with UN standards, and effective implementation of beneficial ownership recommendations to strengthen our efforts to crack down on corruption," the White House said.