Beyond Boundaries: Baker’s Dozen

Beyond Boundaries: Baker’s Dozen

BRIGADIER RAJIV MAHNA

“We Said It”
 Intension of joining NATO,expressedby two neutral European Countries, Sweden & Finland are making news.
 Detailed analysis of this issue was covered in the article titled; ‘Unintended Consequences of Ukrainian Disruption’ published in ‘Beyond Boundaries’ column on 07 March 2022.

United States unveiled latest version of Indo-Pacific Strategy in Feb 2022. This document states that US will pursue five objectives in the Indo-Pacific in concert with allies and partners, as well as with regional institutions. These objectives are – Advance a Free and Open Indo-Pacific, Build connections within and beyond the region, Drive Regional Prosperity, Bolster Indo-Pacific Security and Build regional resilience to transnational threats. While pursuing the third objective, i.e., ‘Drive Regional Prosperity’, US President Biden launched Indo-Pacific Economic Framework for Prosperity (IPEF) in Tokyo on May 23.The US led group which has been joined by 12 other countries, including seven out of 10 members of the Association of Southeast Asian Nations (ASEAN) {Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam}, all four Quad countries (US, Japan, India and Australia), Republic of Korea (South Korea), and New Zealand, represents about 40% of global GDP.
IPEF is supported by four “pillars”: supply-chain resilience; clean energy, decarbonisation, and infrastructure; taxation and anti-corruption; and fair and resilient trade. Indo-Pacific region is the home of world’s 60% population. This segment of the globe has been recognised as an important driver for the revival of post pandemic world economy. So, a logical question which comes to mind is that what is the difference between IPEF and Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP) and Regional Comprehensive Economic Partnership (RCEP), the arrangements already existing in the region. Trade block CPTPP includes 11 Pacific Rim nations: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. It represents 510 million people with $10.8 trillion of GDP (13% of World’s GDP). It has the potential of substantial growth if the applications of South Korea and China to join are accepted. Main attractions of this grouping are ‘negotiated in detail’ terms of trade which provide greater access to each other’s markets, and a pledge to eliminate or reduce 95% of import charges or tariffs. Individual countries have also managed to keep sensitive domestic areas, like Japan’s rice farming and Canada’s dairy industry, out of the scope of the pact. In addition, manufacturers that source components from multiple places can claim that their products qualify for preferential treatment, if 70% of those components come from any of the participating countries. Importantly, member countries are not required to have identical regulations and standards. Presently this initiative is being led by Japan. Incidentally, US had withdrawn from this setup in 2017.
The US has also remained outside world’s largest trade pact, which includes all the other members of IPEF. RCEP is an ASEAN-centred regional free trade area, which includes the ten ASEAN member states and those countries which have existing FTAs with ASEAN – Australia, China, Japan, Republic of Korea, and New Zealand. 15 RCEP participating countries account for almost half of the world’s population; contribute about 30 per cent of global GDP and over a quarter of world exports. The main attraction of RCEP, which came in force on 01 January 2022, is that member countries enjoy free trade advantages without any caveats related to labour laws or climate.
Before examining the unique features of IPEF which sets it apart from the other trade deals, a peek at the unstated context is desirable for developing an unbiased comprehension of the issue. A relevant US Congressional Research Service document titled ‘Bidens Administration Plans for Indo-Pacific Economic Framework’ provides a perspective; it mentions, “Since President Trump withdrew the United States’ signature from the proposed 12-nation Trans-Pacific Partnership (TPP) in 2017, many observers have asserted that the United States lacks an economic and trade strategy sufficient to counter China’s increasing economic influence in the Indo-Pacific. These stakeholders argue that the US absence from TPP’s successor agreement and other regional agreements limits the US ability to shape trade rules in the region and keep pace with technological developments. In contrast, China and 14 other Asian countries are participating in the Regional Comprehensive Economic Partnership (RCEP) trade agreement (effective since early 2022)”. It appears that IPEF represents Biden’s efforts of reviving Obama’s 2009, “pivot” to Asia, thought process in which the Ex US President had visualised “writing the rules of the road” through the Trans-Pacific Partnership, the earlier version of CPTTP. Some analysts also feel that this initiative is designed to address domestic pressure. Statement given by US NSA Jake Sullivan – “the Indo-Pacific is what increasingly under girds this (the) expected US economic resilience; it supports more than 3 million American jobs and is the source of nearly $900 billion of foreign direct investment into the United States”, supports the ‘domestic angle’ viewpoint. Launch of IPEF by the US may have multiple reasons but fundamentally this proposal appears to be oriented towards countering China by reviving its (US) economic engagement in the Indo-Pacific.
As of now two unique characteristics which have emerged from various official and unofficial communications regarding IPEF are, ‘flexibility’ and ‘no freebies’. The framework is expected to encourage the participants to negotiate the deal(s) for internationalizing all or any of the pillars of the initiative. It is also apparent that though the member countries are expected to adopt very high business standards in term of labour laws, trade policies and environment protection not much is on offer in terms of tariff incentives.
Responding to the IPEF announcement, Chinese Foreign Ministry spokesman Wang Wenbin accused that the US, in the name of cooperation was excluding certain countries and creating unnecessary rifts in Asia-Pacific region. He also referred to the heavy economic price which countries must pay for de-coupling from China. Chinese government’s mouthpiece, Global Times is full of articles and analysis, highly critical of IPEF. Though majority of the comments can be categorised as negative propaganda, one aspect that has been highlighted, merits attention. One of the articles mention that US has announced the initiative without their Congressional Ratification. This analyst feels that due to this US can walk out of IPEF at its convenience, as was the case in TPP.
It is a fact that IPEF is a rathe loose economic arrangement, very different from free-trade agreements (FTAs) in vogue, which had become functional after decades of negotiations, been through a ratification process, and have sacrosanct membership. May be, Biden’s Administration wanted to avoid the ratification process so that it does not have to face the anti-globalization sentiment of the US population. This could also be the reason of strong narrative, that IPEF is for American Citizen’s benefit, being conveyed by US officials. It shall indeed be interesting to follow the outcome of negotiations amongst the 13 countries which have so far indicated willingness to join IPEF. Besides the requirements of adopting high standards in production and trade, a major hurdle which India may face during negotiations is its insistence on ‘data localisation’. Major western industries are of the opinion that establishing infrastructure to meet Indian requirement is a costly proposition.
Signing off for the week, with a quote of Barnie Sanders, a prominent US politician, “Not only must we fight to end disastrous unfettered free trade agreements with China, Mexico, and other low wage countries, we must fight to fundamentally rewrite our trade agreements so that American products, not jobs, are our number one export”.
(Brigadier Rajiv Mahna YSM, SM, VSM is an Indian Army Veteran who has chosen to remain a student for the lifetime.)