US proposes pick-and-choose Indo-Pacific economic framework

The United States sees India’s participation in the Indo-Pacific Economic Framework (IPEF) as “very important”, it views India as a “vital partner” in its economic engagement in the region, and has been “engaging very actively” with the Indian government to address questions about the framework, the State Department has said. Washington is also designing the framework to prioritise “flexibility and inclusion”, and participating countries can join IPEF without necessarily joining all the four pillars of the framework -- a pick-and-choose arrangement that could make India more open to coming on board.

IPEF’s four pillars include fair and resilient trade (including digital, labour, environmental and other standards); supply chain resilience; infrastructure, decarbonisation and clean energy; and tax and anti-corruption. “We are still discussing the mechanics of the framework with our partners, but are designing it to prioritise flexibility and inclusion. Partners would not necessarily participate in every module,” a State Department spokesperson said in response to a set of questions from HT.

For its part, India sees the framework in a “positive light”, and notes particular convergence when it comes to the supply chain resilience pillar, but it has sought flexibility in the framework to create incentives for countries to join it, said a person familiar with conversations on the issue. During her visit to Washington in April, finance minister Nirmala Sitharaman called IPEF a “fantastic thought”, and said that the US had shared the framework with India, and Prime Minister Narendra Modi had indicated that due consideration would be given to it.

India is understood to have concerns about some of the other pillars, particularly trade, and its implications, and it is closely engaging with different arms of the US government (Treasury, Commerce and State departments and National Security Council) to get a sense of the details of the framework and what it would entail. The government is also learnt to be open to India joining the framework, subject to Cabinet approval, in a manner which would entail collaboration on some pillars even as discussions on other pillars continue.

The US appears open to such a mechanism. The State Department spokesperson quoted above said that the US anticipated that discussions with regional partners over the next few months will focus on establishing “common goals and concrete outcomes”. “We then anticipate that conversations on different modules of this framework will move at different speeds. Through this process, we will pursue longer-term goals while also seeking to cement areas of cooperation that can be finalised in the near term.”

Washington’s openness to what experts call a “pick-and-choose” model in terms of opting in for some rather than all pillars is understood to have been shaped by bilateral conversations with India as well as consultations with other prospective members of the framework, and is being seen an effort to get New Delhi to join IPEF as a founding member, possibly later this month.

While the State Department said that the US was “actively working toward a public framework launch soon” without giving a timeline, Japan’s ambassador to the US, Koji Tomita, said this week that the framework is expected to be formally launched during President Joe Biden’s visit to South Korea and Japan in the third week of May. Biden will also meet other Quad leaders, including Modi, in Tokyo on May 24. IPEF will also figure in discussions in the US-ASEAN special summit in Washington on Thursday and Friday.

While the US hasn’t spoken of the countries which may participate in the framework, Australia and Japan — the other two Quad countries and the US’s treaty allies — are expected to join, as are Singapore, and potentially South Korea and New Zealand. Discussions are underway with a set of other Southeast Asian countries as well.

Rationale and focus

Amid criticism that the US has been outmanoeuvred by China’s aggressive economic and trading arrangements in the Indo-Pacific, and in a political climate where US participation in trade deals is a hard-sell domestically given the opposition from both the Left and the Right, the Biden administration has been working on IPEF to step up its economic footprint, particularly in the arena of norm-setting, as a part of its Indo-Pacific strategy.

Asserting that the framework puts forth a “positive and inclusive economic agenda” that will deepen the US’s engagement and coordination with its Indo-Pacific partners, the State Department spokesperson said, “We envision the framework will address the economic areas where we most need to work together to prepare our economies for the future.”

Acknowledging that the substance of the framework was still being discussed with partners, the spokesperson said that US was hoping to use IPEF to “set standards that promote fair and open competition and inclusive growth for all our citizens, especially our workers and respective middle classes”. The spokesperson said that the US had received “positive responses” after its initial discussions from partners who appreciated IPEF as an initiative to strengthen their economies and competitiveness.

India’s centrality

On India’s role, the spokesperson said that the US’s partnership with India was “critical” to  progress on “clean energy and climate priorities, pandemic response, supply chain diversity and resilience, emerging technologies, investment screening, and other areas that are central” to IPEF. “India is a vital partner in our positive economic engagement in the region.  We see India playing an integral role in global efforts to develop more diverse and resilient global supply chains.”

In an indication that the US is keen to see India join the infrastructure, decarbonisation and clean energy pillar, the spokesperson said, “In addition, India’s clean energy transition is in the interests of the entire world, and we need to support India in achieving  the ambitious clean energy targets  that Prime Minister Modi announced at COP-26. We are already working with India and other partners to mobilise the necessary financing and technology to achieve these goals. India has shown leadership on clean energy, including through their own ambitious targets and their establishment of the International Solar Alliance.”

For all of these reasons, the State Department said, the US believes that India’s participation in IPEF would be “very important”. “We have been engaging actively with the government of India to address their questions about the framework.”

No Indo-Pacific nation held more promise as an economic partner to the US than India, said Richard M Rossow, the Wadhwani chair in US-India Policy Studies at the Centre for Strategic and International Studies and among the foremost experts on India-US economic ties in Washington. “So I am certain the administration will make a big push for India to consider joining all the pillars. Whether Delhi will be receptive naturally depends on the content.”

Terming the “pick-and-choose” approach as novel, Rossow said he was eager to see how it played out. “I think getting India involved in a few pillars is more likely than getting India involved in a larger, more comprehensive trade deal.”

But Indian experts also sounded a cautionary note. Biswajit Dhar, professor of economics at the Jawaharlal Nehru University and a top expert on India’s trade policy, said, “In the East Asia Summit where President Biden had mooted the idea of IPEF, there were broad hints that this framework will aim at achieving regulatory coherence, among others, on the issues of decarbonisation, workers rights and digital economy and technology. India must weigh the implications of this aspect of IPEF. The standards could be ratcheted up, which India may find difficult to comply.”

Diversification and durability

Asked about how much of the framework was guided by the need to counter China’s economic centrality and what many consider predatory practices in the region, and whether IPEF served as an alternative, the State Department spokesperson said that America’s vision for the framework was positive and inclusive, and was intended to ensure the US and its like-minded partners in the Indo-Pacific were collaborating on key economic issues and emerging global economic challenges. “Our objective is to promote long-term inclusive growth and stability across the Indo-Pacific to support efforts to diversify economic growth.”

On whether IPEF would be an effective instrument in helping US fill the missing economic leg in its Indo-Pacific strategy, Rossow said that with “half-announcements” of its content and “only broad parameters”, it was hard to know “how deep or concrete” IPEF would be. “At the moment it feels like the Biden administration is building the plane as they fly it — trying to generate interest in IPEF while finalising its content. But it is hard to imagine a package that is more robust than a true free trade agreement.”

Rossow added that he would prefer that the US push to rejoin the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and expand its scope if needed. “Most of our key partners in the region are already digesting this massive trade deal, which is meant to lash their economies together. However, India is not a member of the CPTPP. Nor are Korea, Indonesia, and other key commercial partners in the region. So it would need to be expanded to truly meet the promise of Indo-Pacific economic cooperation.”

Responding to the criticism that IPEF will be a weak alternative to a trade pact, the State Department spokesperson said that the US recognised the “imperative” to “engage in the region”, but also highlighted the importance of durability, in what appeared to be a nod to political concerns both within the US and in the region. “We believe that this framework will only succeed if it is enduring. We know that to ensure its durability, it must reflect the long-term interests of the United States and of like-minded Indo-Pacific partners.”