India at IPEF–Trade pillar exit pragmatic, but… | The Financial Express
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India at IPEF–Trade pillar exit pragmatic, but…

The country must not let its negotiating discomfort across regulatory areas become a permanent feature.

India at IPEF–Trade pillar exit pragmatic, but…
A considerable part of the unclear understanding of India’s decision arises from the tendency to continue to view the IPEF as a traditional FTA. (IE)

The first in-person ministerial of the Indo-Pacific Economic Framework for Prosperity (IPEF) was held in California during September . The meeting finalised negotiating objectives for the four work pillars of the IPEF. But the attention on outcomes was much more on India’s decision to stay out of the trade pillar.

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India’s decision has led to much of the subsequent commentary to reflect on whether its traditional protective tendencies are back to influence its role in IPEF. While India’s contribution to the framework will be revealed over time, it is important for responses on the decision to note the context and circumstances.

For the under-informed, it is easy to conclude that India has left the IPEF. It hasn’t and stays committed to the process. Indeed, India, along with 13 other members of the IPEF, is committed to negotiating agendas adopted in the three other pillars: supply chain, clean economy, and fair economy. The retrospective analysis, though, has made India’s staying out of one of the four pillars a bigger deal than its being a part of the other three.

A considerable part of the unclear understanding of India’s decision arises from the tendency to continue to view the IPEF as a traditional FTA. Right from the beginning, the announcements on the IPEF have made it clear that it is not going to proceed as a traditional FTA. The point was driven home at a press briefing organised during the launch of the IPEF by US national secretary Jake Sullivan, commerce secretary Gina Raimondo and United States trade representative (USTR) Katherine Tai. The briefing underlined the IPEF to be intentionally designed to deviate from the framework of the ‘same old’ traditional trade agreement and be innovative and flexible.

What are the IPEF’s differences from traditional FTAs, including those that India has signed or is negotiating? Unlike traditional FTAs, it is not proceeding on exchange of preferential access offers among negotiating partners. Traditional FTAs involve partners indicating respective domestic sectors where they offer to cut tariffs, which are then followed by further negotiations on deeper and wider cuts. Similar offers are exchanged for domestic services as well.

The IPEF is not exchanging preferential accesses. The ostensible reason is its dealing with issues where such ‘trading’ is not required. In all work pillars, the focus is on setting standards and arriving at common rules.

The second important difference between the IPEF and standard FTAs is the non-binding nature of the former. Trade rules in FTAs, once fixed, becoming binding among partners, with consequences for non-compliance, unless specifically permitted. FTAs also need to be negotiated and accepted in their entirety. IPEF is allowing members the option of choosing the negotiations and outcomes they wish to be a part of.

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The third and final difference is that the IPEF is visualised as an open platform. Countries can join without a formal accession process as is required in standard FTAs, where existing members are required to assess and approve applications from new members.

India’s decision to stay out of the trade pillar for the time being must be looked at in the light of these characteristics of the IPEF. Unlike other FTAs, the IPEF offers a built-in flexibility, making it an easier process to get engaged with. The engagement can be fractional and gradual. India has opted for this flexibility by engaging in three pillars and disengaging with another, as of now.

Why has India disengaged from the trade pillar? The negotiating issues of the pillar include labour, environment, trade facilitation, competition policy, digital economy, agriculture, transparency and good regulatory practices, inclusivity, technical and economic cooperation. Among these, India has negotiating discomfort with some issues, such as labour, environment, competition policy, digital economy (specifically cross-border data transfer rules, privacy, and data localisation) and agriculture.

India’s negotiating discomfort in these areas arises from several factors. These include lack of appropriate domestic regulation (e.g., cross border data and privacy rules), concerns over accepting standards that could affect its global comparative advantages (e.g., labour and environment) and squeezing the room over sectoral safeguards (e.g., avoiding measures for restricting food and agricultural imports).

India’s call to stay out of the trade pillar and adopt a ‘wait and watch’ policy is pragmatic in the light of the above contexts. However, there are a couple of issues that need to be noted. First, some of the areas that are sources of negotiating discomfort for India would feature contextually in negotiations in the other pillars as well. Labour and environment standards, digital economy and competition policy would cut across other pillars. The disadvantage that India will have in this respect is to participate in talks on these issues in other pillars without the knowledge of the progress in the trade pillar. The second handicap for India would be to be away from the discussions on trade facilitation, inclusivity, good regulatory practices and technical and economic cooperation. These are areas where India can contribute wholesomely from a large developing country emerging market perspective and can benefit significantly from the regional rule-making process, in turn.

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As of now, India’s decision to stay away from the trade pillar conversation is justified on pragmatic grounds. But in the meantime, it should make every effort to ensure that domestic regulations are up to speed in areas of its regulatory discomfort, such as digital trade and competition policy. It should also carry forward the lessons of its negotiating these issues in ongoing FTA talks with the UK and the EU for a subsequent confident engagement in the IPEF. These are necessary to ensure that the decision to temporarily stay out of the trade pillar doesn’t become permanent.

The writer is senior research fellow and research lead (trade and economics), Institute of South Asian Studies, National University of Singapore

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