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Why the US’ Indo-Pacific Economic Framework is really all about India

South China Morning Post | 17 June 2022

Why the US’ Indo-Pacific Economic Framework is really all about India

by Akhil Ramesh

Akhil Ramesh is a fellow at the Pacific Forum

With much fanfare, US President Joe Biden launched the Indo-Pacific Economic Framework (IPEF) in Tokyo last month. Unveiled against the backdrop of the third in-person iteration of the Quad summit, and including 13 states of the Indo-Pacific region, the framework nevertheless did not get the reception Biden was hoping for.

It was certainly not his “America is back” moment, and if the details of the IPEF are any indicator, nor was it the unrolling of the red carpet for America’s re-entry into the Asian trade architecture.

For starters, the framework sets the standards for cooperation on supply chain issues, the environment, labour and corruption. It is not a free trade deal or a multilateral agreement like the erstwhile US led-Trans-Pacific Partnership (TPP).

In a region that already houses two major trade blocs – the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership (RCEP) – a lack of enthusiasm for a “framework” is not totally unfounded.

Yet most Indo-Pacific analysts can’t see the wood for the trees. The IPEF was not designed for the free traders in Asia but for the trade protectionist in the Indo-Pacific, namely India. Biden has repeatedly referred to the relationship with India as the most important one for the US. He reiterated that message in Tokyo. Unlike his message on Taiwan, this was clearly not a gaffe. The IPEF’s launch is a case in point.

The framework may not necessarily bring the US into the Asian trade architecture but it will certainly bring it into the “Indo”-Pacific one.

At every turn, the US has tried to coax India into the Western fold but failed to do so. It has tried and failed with the Ukraine-Russia conflict, in which it hoped the economic sanctions on Russia and the global condemnation of India’s silence would persuade it to rethink its policy toward its Cold War ally.

Despite these overt and other covert measures, India’s relationship with Russia has not significantly changed. While the Indian government is seeking to diversify its defence supplies, this predates the Ukraine conflict and has been a mainstay of the Modi administration’s policy.

Moreover, the economic sanctions have only had the unintended consequence of increasing Russia’s share of India’s oil imports to over 18 per cent from a mere 1 per cent in April, making it India’s second-largest supplier of crude.

Given the perennial challenge of Russia-India relations, Washington has diverted its focus to areas where the US-India relationship can be developed without hiccups. The Indo-Pacific theatre is one in which the two have shared interests, goals and enemies.

Both nations are more or less out of the Asian trade architecture. The US, under former president Donald Trump, pulled out of TPP, and the CPTPP marches on without the United States. Similarly, India, after seven years of negotiations, frustrated the other members of the RCEP by pulling out of the deal at the last minute.

These two withdrawals gave their common foe, China, a leg up in the Asian trade arena. One economy’s loss is another’s gain and so China, a signatory to the RCEP, has applied to become part of the CPTPP, expanding its trade partnerships to countries across Southeast Asia and the Pacific.

Over the past decade, it has become abundantly clear that countries run by populists are not too enthusiastic about committing to multilateral free trade agreements. While Biden is no populist like Trump, he can read the room: the American electorate in the rust belt states of Ohio, Pennsylvania and Michigan no longer want their manufacturing jobs to be shipped to China or Southeast Asia.

As The Wall Street Journal noted in its coverage of the US midterm election campaigns, Democrats and Republicans are trying to out-compete each other by spending on ads targeted towards China. There is a bipartisan odious feeling towards free trade agreements that provide unfettered access to American markets and ship jobs overseas, mostly benefiting large corporations. The IPEF is a product of this development.

The peculiar aspects of the framework not only cater to the needs of the American worker in the Midwest but to the trade protectionists in India. The framework offers no access to American markets, and does not impose tariff liberalisation requirements. Instead, it emphasises supply chain resiliency and offers room for negotiation on regulations pertaining to highly contentious policies in India, such as data localisation.

India can offer the resilient and diversified supply chain that the US seeks to build in the region. A case in point is the American manufacturer First Solar’s US$500 million investment in southern India to build photovoltaic panels. China has long dominated the global supply of solar panels and the investment was a well-directed diversification measure.

Furthermore, the sector predicted to benefit most from the IPEF is the digital one. As a service-sector-led economy, India stands to gain from digital trade. In a country where e-commerce and software companies are the fastest-growing and among the largest contributors to the exchequer, the IPEF will be well received.

The IPEF could be the West’s last attempt to bring India into its fold and into the Asian trade architecture. It will be prudent for the Modi administration to be receptive to this opportunity. If instead, however, it repeats the RCEP style of negotiating a trade deal until withdrawal, it may not have any powerful economic partners by its side.

 source: South China Morning Post