Indo-Pacific Economic Framework for Prosperity

Why in News?

Recently India signed the US-led 14-member Indo-Pacific Economic Framework for Prosperity (IPEF) bloc’s agreements on a clean and fair economy.

What is IPEF?

• IPEF - Indo-Pacific Economic Framework for Prosperity was launched jointly by the USA and other partner countries of the Indo-Pacific region on May 23, 2022 at Tokyo.
• Goal - It seeks to strengthen economic engagement and cooperation among partner countries for  advancing growth, economic stability and prosperity in the region.
• 14 Member Countries – USA, Australia, Brunei, Fiji, India, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, Vietnam.

IPEF with its 14 partner countries represents 40% of global GDP and 28% of global goods and services trade.

• India had joined Pillars II , III & IV of IPEF while it has an observer status in Pillar-I.
• Ministerial-level council and a commission - Agreement on the Indo-Pacific Economic Framework for Prosperity established a ministerial-level council and a commission.

• Overarching Agreement – It  is an administrative agreement establishing an oversight Ministerial-level mechanism over the various individual IPEF agreements.
  • Objective - To facilitate the effective implementation of subject agreements (Pillars II-IV).
• Funds under IPEF - IPEF also provides platforms for technical assistance, concessional funding, and viability gap funding.
  • IPEF Catalytic Capital Fund -  To pool resources and expand the pipeline of bankable climate projects.
    • With an initial grant of $33 million from Australia, Japan, Korea, and the United States, it aims to catalyse private investments totalling $3.3 billion.
  • PGI Investment Accelerator -   To increase private investment in the Indo-Pacific.
    • It has received initial funding of $300 million from the United States International Development Finance Corporation
• Significance of the IPEF - Inclusive growth, Environmental sustainability, Fair economic competitiveness.
• Reshape Economic Relations - The pillars of supply chains, a clean economy, and a fair economy will reshape economic relations in the region.

India’s merchandise exports to the U.S. have risen by over 50% (54.4%) from $54.3 billion in 2018 to $83.8 billion, as reported in 2023.

• Counter BRI - At a time when China’s Belt and Road Initiative (BRI) is leading to debt traps, the IPEF seeks transparency and open dialogue.

What is the  Pillar II - Supply Chain?

• Aim of Supply Chain Pillar
  • Deepening cooperation to build more competitive and resilient supply chains.
  • Better prepare for, prevent, and respond to supply chain disruptions when they happen.
  • Ensure that regional supply chains raise up workers and respect labour rights.
• Supply Chain Agreement's three bodies
  • Supply Chain Council
  • Crisis Response Network
  • Labor Rights Advisory Board(LRAB)

India was elected as Vice Chair of the Supply Chain Council with US as Chair.

• Benefits – This pillar helps in supply chain diversification among the member countries.
• Boost Domestic Manufacturing - It supports India's self-reliance initiatives (Aatmanirbhar Bharat) and Production Linked Incentive (PLI) schemes by mobilizing investments in production, logistics services, and infrastructure.
• Shift of Production Centers - The agreement is expected to attract production centers in key goods and critical sectors to India, boosting domestic manufacturing.
• Global Supply Chain Integration - The agreement facilitates deeper integration of Indian MSMEs (Micro, Small, and Medium Enterprises) into global supply and value chains.
• Economic Resilience - It helps mitigate risks of economic disruptions from supply chain shocks and adverse events, creating a more resilient economic environment.
• India’s Tech Advancement - Initiative on Critical and Emerging Technologies (iCET)-related sectors such as cyber security and artificial intelligence, will ensure that India remains at the forefront of technological advances.
• Workforce Development -  It includes provisions for upskilling and reskilling the workforce, ensuring that Indian workers are well-prepared for the demands of modern supply chains.

What is the Pillar III – Clean Economy ?

• Aim - To advance cooperation on research, development, commercialization, availability, accessibility, and deployment of clean energy and climate friendly technologies.
• Objectives of Agreement on Clean Economy - Accelerate efforts of IPEF partners towards energy security and transition, climate resilience and adaptation, GHG emissions mitigation.
• Benefits  -  U.S.-India clean energy partnership is vital in helping India achieving net zero carbon emissions by the year 2070.
• Technical Cooperation - Collaborate to facilitate development, access, and deployment of clean energy and climate-friendly technologies
• Capacity Building - Promote technical cooperation, workforce development, capacity building, and research collaborations.
• Energy Security - Find/develop innovative ways of reducing dependence on fossil fuel energy.
• Financial Opportunities -  Facilitate investments through climate financing and green bonds towards climate-related projects in the region.
• Domestic Industrial Development - Investments in renewable energy projects and technology transfers will allow India’s industries to integrate more deeply into global value chains.

What is the Pillar IV – Fair Economy ?

• Aim - To create a more transparent and predictable trade and investment environment across the Indo-Pacific.
  • Strengthening anti-corruption efforts
  • Enhancing the.
• Benefits - Expand trade, investment ties and ensure the benefits of trade are broadly shared throughout their economies.
• Mitigate Trade Hurdles – Reducing  trade complexities & barriers, opaque regulatory requirements and tax policies that encourage corrupt behaviour in certain emerging markets.
• International Financial Cooperation -  It enhances information sharing among partners, facilitating asset recovery and strengthening cross-border investigations and prosecutions.
• National Security and Economic Integrity  - It helps in addressing issues such as cross-border money laundering and terror financing.
• Generate Investor Confidence – Implementation of the agreement creates a reliable trade environment and attracts investments.
• Strengthening Anti-Corruption Measures - The agreement focuses on preventing and combating corruption, including bribery and money laundering.
• Efficient Tax Administration - The agreement supports initiatives to improve tax transparency and enhance cooperation in tax administration among member countries.

What lies ahead?

• IPEF represents more than a series of trade and investment agreements and  is a strategic effort to cement partnerships in the region.
• Revival of Generalized System of Preferences (GSP) of US will boost trade with US.

Generalized System of Preferences (GSP)  facilitated duty-free access to more mature markets and it was withdrawn in 2019.

• Building consensus along the lines of QUAD to address geopolitical turbulence, and global economic uncertainty.
• Enhancing information sharing among partners, facilitating asset recovery and strengthening cross-border investigations and prosecutions.
• Utilize member’ strengths like technological advancements,  investment capacity, market potential, requisite resources including skilled workforce.
• Develop domestic standards quickly to avoid being at a disadvantage in international negotiations on standards.

References

1. The Hindu |  Strengthening the India link in the IPEF
2. PIB | IPEF Ministerial Meeting
3. PIB | IPEF Agreements