Promoting whose prosperity? | The Financial Express

Promoting whose prosperity?

The Indo Pacific Economic Framework for Prosperity is an attempt by the US to craft trade rules to serve its own economic and strategic interests

Indo Pacific Economic Framework for Prosperity, trade talk, trade, global trade, trade rules
Turning to the supply chain pillar, the stated objective is to increase resilience in critical sectors and reduce risks from unexpected events

Abhijit Das

New Delhi is hosting the second negotiating meeting of the Indo Pacific Economic Framework for Prosperity (IPEF) on February 8-11. The IPEF ministerial meeting in Los Angeles in September 2022 resulted in texts on four pillars—trade, supply chains, clean economy, and fair economy. IPEF participants—apart from the US, the grouping features Australia, Brunei, Fiji, India, Indonesia, Japan, Malaysia, New Zealand, Philippines, Singapore, South Korea, Thailand, and Vietnam—can choose which pillars they wish to participate. With the exception of India, the remaining countries are participants in all the pillars. India has chosen to participate in three, but not the trade one.

If we deconstruct the ministerial texts keeping in mind the positions articulated by the US at the WTO, as well as in its free trade agreements, there can be only one conclusion. The IPEF is an attempt by the US to craft trade rules that serve its economic and strategic interests.

Regarding agriculture under the trade pillar, the objective of advancing food security and increasing productivity will provide an opening to the US for securing a more favourable regulatory regime in IPEF countries for enhancing its exports of GM seeds and food. This may undermine the ability of countries to adopt a cautious and calibrated approach on allowing the import and sale of GM products.

Another problematic issue relates to transparency and good regulatory practices (GRP), which could, inter alia, require countries to take into account the views of all interested parties on proposed regulatory changes. GRP is not about good governance. It has more to do with legitimising the ability of big business in the US to have a direct say in how developing countries regulate different economic activities, particularly in the digital and other emerging sectors. This would prevent developing countries from using regulations to pursue desirable domestic policy objectives.

The trade pillar is also likely to include commitments on the environment and labour. Using the pretext of labour welfare, commitments would erode the comparative advantage of most developing countries—lower wage rates as compared to those in the US. Further, obligations on the environment are likely to make developing countries dependent on imports of green products from the US and other developed countries.

Regarding digital issues, the trade pillar is likely to commit IPEF participants to allow for cross-border data flows. This would prevent developing countries from leveraging their data advantage for their domestic digital economy. Further, the US might seek to prohibit countries from imposing digital services tax. This issue might also be negotiated under the fair economy pillar. This would compel India to give up its equalisation levy on e-commerce supply of services.

Turning to the supply chain pillar, the stated objective is to increase resilience in critical sectors and reduce risks from unexpected events. Ironically, for at least four reasons, rules under this pillar could enhance the resilience of the US in new and emerging sectors while deepening the vulnerability of developing countries.

First, IPEF countries could be prohibited from imposing restrictions on exports of minerals such as cobalt, nickel, lithium, etc, that are required for clean energy systems. This would compel developing countries rich in these resources to remain exporters of primary commodities and prevent them from using export restrictions as an effective policy instrument for nurturing value-added downstream processing industry. IPEF rules could become a hindrance to India’s quest to process its domestic mineral reserves for a low-carbon economy.

Second, IPEF countries could be mandated to export critical minerals exclusively to the so-called trusted partners. By using IPEF rules to knock off the competition from China, the US, as the main buyer, would virtually dictate the global prices of these commodities.

Third, IPEF rules could mandate that countries import products only if these are produced sustainably, keeping labour requirements at the forefront. Further, an exporting country might also be required to ensure that all inputs used in the exported product were produced sustainably. This might induce IPEF participants to shift sourcing inputs away from China. As long as the cost of manufacturing in India remains higher than other competing sources, it is unlikely to benefit from the resultant reconfiguration in global supply-chains.

Fourth, in the pharmaceutical sector, a 2021 report from the White House has identified “overdependence on foreign entities who may prioritize national interests above trade in an emergency” as a critical source of US vulnerability. The report recommends using products with ingredients manufactured in “countries other than those with the lowest labor costs and least robust environmental frameworks (such as China and India)” to boost domestic production. IPEF rules could drastically reduce India’s share in this sector—the country supplies approximately 40% of generics used in the US.

Some experts could argue that, as the IPEF would weaken China, it is in India’s strategic interest. But, the effectiveness of the eventual agreement in constraining China’s technology ambitions is questionable, and India’s own economic prospects could get compromised by the IPEF rules.

The actual implications of the IPEF rules will rest on the fine print of the deal. However, many pointers suggest that the IPEF is designed by the US for its own prosperity. India’s negotiators must ensure that nothing in the outcome of the IPEF curtails India’s domestic policy options.

(Former head, Centre for WTO Studies. Views are personal)

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First published on: 07-02-2023 at 04:45 IST