By Amitendu Palit,
On the one hand, global trade discussions are failing to move forward at the World Trade Organization (WTO). But on the other hand, within a little more than a couple of years of its launch in May 2022, the 14-member Indo-Pacific Economic Framework for Prosperity (IPEF) has made remarkable progress.
At the first in-person meetings of the Supply Chain Council and Crisis Response Network of the IPEF held at Washington DC on September 12 and 13, specific decisions were taken for moving forward. These include adopting action plans by the Supply Chain Council on semiconductors, chemicals, and critical minerals with a focus on batteries, with a similar action plan on healthcare expected soon. Subcommittees have also been announced on logistics and movement of goods, and data and analytics. The Crisis Response Network meeting focused on addressing immediate supply chains disruptions, including working out on-ground simulations. Along with the progress in supply chains, the work on clean economy has also picked up fast following the first comprehensive high-level meeting and discussion on the theme in Singapore in June.
India is a member of the IPEF, along with the US, Australia, Brunei, Fiji, Japan, Korea, Indonesia, Malaysia, New Zealand, Philippines, Singapore, Thailand, and Vietnam. India currently holds the vice chair in the Supply Chain Council while the US is in chair.
There has been no shortage of IPEF sceptics. Most trade specialists dismiss the IPEF as a non-starter with limited prospects and low potential. The biggest downside, as these sceptics point out, is the possibility of President Trump being re-elected and pulling the US out of the IPEF. The latter, they argue, would then be dealt a body blow similar to what the TPP (Trans-Pacific Partnership) was dealt with in January 2017, when the US backed out of a deal that it had mothered for nearly nine years.
Why are all members, including India, engaged in the IPEF if it is of little value? The obvious answer is it is not as worthless as it is made out to be by many.
The IPEF was proposed as a novel approach for tackling 21st century economic problems that impact global trade and business. It is a product of the post-pandemic realisation that the world economy has risks and vulnerabilities that existing trade and business rules are incapable of solving. For example, if essential supply chains choke and crack, as they did repeatedly in the aftermath of Covid-19, and as they occasionally continue to even now, due to the Ukraine and Palestine conflicts and the problems in shipping through the Red Sea, how good are existing global and regional rules in weathering the disruptions?
The obvious answer, again, is that they are not. None of the WTO’s rules, or for that matter those of the bulk of the existing regional and bilateral trade agreements, were designed for safeguarding supply chains. New rules are necessary for securing supply chains. These rules are not possible to be crafted within the structurally bound “give and take market access” frameworks of standard free trade agreements (FTAs). They need a new beginning and a fresh approach.
This is precisely what the IPEF brought on the table. The fact that 14 countries comprising around 40% of the global GDP and more than a third of the global population stuck to drafting rules and hammering out action plans in record time shows that they have faith in the long-term ability of the IPEF to deliver. If the IPEF can give the rules that firms and businesses are happy to adopt and are applicable across industries and sectors, there’s no reason why the IPEF can’t be a valuable and worthwhile project.
The rules that the IPEF makes in supply chains and clean economy, as well as in fair economy, can well become the templates for new and upgrading FTAs to look at for incorporation. Indeed, several existing trade agreements might actually be grateful to the IPEF for providing them purposeful inputs for modernising and improving. This, for example, applies to FTAs that India has bilaterally with several partners in the IPEF, all of which — such as with the Asean, Singapore, Malaysia, Japan, and Korea — are due for upgrades. The fact that India and these countries worked on making rules for increasing resilience of supply chains in the IPEF bloc will clearly generate mutual confidence and help in bringing in elements of the IPEF rules in the existing preferential trade frameworks.
The IPEF has challenged trade specialists and experts to think differently. It doesn’t deal with market access. As a result, its perceived benefits and costs cannot be estimated by employing usual quantitative techniques. This makes the IPEF an uncomfortable creature and a puzzle beyond solution for many. The larger point, though, is that it is not necessary for any rules-based framework to begin on the back of projected numbers that are tied to static assumptions, most of which don’t remain valid over time. The IPEF’s novelty is in its flexibility, which, however, makes it unfamiliar to many, and uncomfortable to some.
Whether the US will stay engaged in the IPEF or not will be known after a few months. The IPEF is nimble and supple enough to survive jerky disruptions, including that of a US pull-out. The decisions provided and rules adopted by it, till now, are not contingent on countries moving in and out thanks to the porosity of its structure. And that’s precisely the reason why the Biden administration, too, has remained steadfastly committed to the IPEF even in its last days.
Amitendu Palit, Senior research fellow and research lead (trade and economics), Institute of South Asian Studies, National University of Singapore.
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