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Strategic-Economic Blocs Simply Tighten The Leash

Context

  • The Regional Comprehensive Economic Partnership (RCEP), a trade agreement with China, Japan, South Korea, Australia, New Zealand, and the ten-member Association of Southeast Asian Nations (ASEAN), was terminated by India in November 2019.
  • Skip ahead to 2023, and India is now joining the United States-led Indo-Pacific Economic Framework for Prosperity (IPEF), along with many of the same nations, with China replaced by the United States.

Relevance:

GS Paper-2: Bilateral, Regional, and Global Groupings and Agreements involving India and/or affecting India’s interests

Mains Question

In light of India’s prior withdrawal from the Regional Comprehensive Economic Partnership (RCEP), critically evaluate the effects of India’s probable participation in the U.S.-driven Indo-Pacific Economic Framework for Prosperity (IPEF) on its economic policies and prospects going forward. (250 Words)


The deep sea and the devil

  • The development of a strategic partnership with the United States is India’s top foreign policy aim, according to The Devil and the Deep Sea.
    • India is now in a challenging situation as a result of the ongoing deterioration in its relations with China.
    • While having a strategic alliance with the United States is important, India must be careful to avoid becoming economically reliant on it.
  • Economic Challenges with China and the U.S.: India is worried about becoming economically dependent on China because of the inexpensive Chinese goods that are flooding the Indian market and may have a detrimental effect on the manufacturing sector.
    • In the meantime, India has substantial difficulties due to the U.S.-related economic problems, particularly in the areas of agriculture, intellectual property, labour, environmental standards, and the digital economy.
  • The IPEF Proposal and Traditional Trade Deals: As trade agreements advance, problems including intellectual property, services, investment, domestic regulation, digital, and labour and environmental norms are beginning to take centre stage. Instead, tariffs are no longer the primary concern.
  • The U.S.’s IPEF proposal, which fully eliminates the tariff component of traditional trade accords and focuses on these other areas, is an illustration of this trend.
  • Traditional trade agreements in the US, however, are likely to encounter legislative obstacles.
  • In response, the United States has promoted tariff-free trade agreements as a novel kind of win-win economic cooperation to counteract opposition to free trade agreements from many nations, including India.
  • The IPEF’s unclear jargon and Economic Impact: o The IPEF plan uses ‘new age’ jargon that results in unclear wording that might be challenging to understand.
    • The plans’ economic consequences may not be obvious to many people, but it is obvious to the American strategists who came up with them.
    • According to early expert evaluations, the IPEF would result in a total control over the economies of the participating nations, giving the U.S. a decisive advantage.
  • Creating an Economic-Strategic Block:The IPEF aims to create an economic and strategic bloc that revolves around the US but excludes China. The plan intends to establish a cohesive economic framework that would provide domestic policies supporting a nation’s own industrialisation very little room. One of the many components of the IPEF concept that contribute to achieving systemic integration is tight supply chain integration.

The Potentially Hazardous Language in the IPEF Trade Agreement:

  • Developing country trade negotiators have honed their skills to spot issues in traditional free trade agreements, but they find it challenging to understand and respond to the sophistry in the IPEF’s language.
  • The IPEF is scheduled to be concluded by November 2023, despite real engagements only beginning late last year.
  • The full consequences of this phrase will only become apparent in the long run as a result of the hurry to adopt the trade agreement using what appears to be innocent language that will ensnare nations in long-term economic commitments with limited room for policy-making.

The IPEF is supported by four pillars:

  • supply chains, commerce, a clean economy, and a fair economy.
  • India has joined the other three pillars out of fear of falling into a trap, but it has not yet joined trade, despite strong pressure to do so.
  • Being a part of the trade pillar is the worst, but the other pillars also help to create tough, innovative, non-tariff economic designs and institutions.

The Implications of IPEF:

  • Giving up the ability to regulate Big Tech could have unintended repercussions;
  • The IPEF could have considerable effects on agriculture, notably with relation to genetically modified seeds and foods.
  • India’s capacity to build a thriving domestic ecosystem in developing fields like the digital economy and green products may be hampered by the IPEF, which might also damage India’s ability to maintain a competitive advantage in manufacturing owing to unfair labour and environmental regulations.

Conclusion:

  • The IPEF presents a strategic conundrum for India. On the one hand, the programme might contribute to improving India’s relations with the US. However, it can also be detrimental to India’s economy.
  • Before making a choice, the Indian government must carefully consider the advantages and disadvantages of the IPEF.

March 2024
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