U.S. President Joe Biden, right, reviews an honor guard with Japanese Prime Minister Fumio Kishida in Tokyo, where he released the economic framework during a visit to Japan last week. The IPEF is the lifeblood of India, which in 2020 withdrew from the China-centric agreement made up of Southeast Asian nations.
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Two years after withdrawing from the China-centric Southeast Asia Free Trade Agreement, India is seizing the opportunity to become a founding member of another bloc – this one led by the US
New Delhi’s move to cement its alliance with Washington comes amid news that the United States will overtake China as India’s top trading partner in the fiscal year ending March 2022.
Except for India and the United States, all other countries participating in the IPEF launch are part of a rival group, Regional Comprehensive Economic Partnership Agreement. RCEP includes China, which is Largest trading partner for most Convention members.
Indian Foreign Minister Subrahmanyam Jaishankar later affirmed India’s commitment to IPEF. At a meeting between India and Southeast Asian countries last week, he said India was building infrastructure to forge closer ties to Southeast Asia through Myanmar and Bangladesh, which would align with the new framework.
“[Connectivity] Not only will it build on our partnership with ASEAN and Japan, but it will actually have an impact on the Indo-Pacific economic framework that is being developed,” Jashankar said.
“The country is [Indo-Pacific] If policies and economies are right, the region can overcome geography and rewrite history,” he noted.
Bangladesh and Myanmar are both part of the Belt and Road Initiative, under which China has poured billions of dollars into infrastructure projects on every continent. India has been sidelined from President Xi Jinping’s signature initiative due to the ongoing border dispute. In addition, a key component of the Belt and Road Initiative passes through Pakistan-administered Kashmir. India claims all Kashmir as its own.
India’s early enthusiasm for IPEF was a turning point for the South Asian giant, which opted to move away from the China-centric RCEP it launched earlier this year. RCEP includes Japan, South Korea, Australia, New Zealand and 10 countries in Southeast Asia and is the largest free trade agreement in the world.
“One of the major flaws of RCEP is the inclusion of China,” Arvind Virmani, a former chief economic adviser to the Indian government, told CNBC. “China agrees to everything on paper, but doesn’t feel guilty about circumventing the rules in practice. The IPEF is very attractive to India because it includes East and Southeast Asian countries, but not China,” he said.
China, which last week criticized the IPEF’s efforts as “doomed to failure”, dismissed it again on Monday.
“How can it be called inclusive if China’s largest market in this region and even the world is deliberately excluded?” asked Wang Yi, China’s foreign minister. Wang made the comments during a visit to Fiji, which became the latest member to join IPEF last week.
Although IPEF is not known as a trade agreement, trade is one of its four pillars. The other pillars are supply chain resilience; clean energy, decarbonisation and infrastructure, and finally taxation and anti-corruption.
“India will benefit from signing up to the multilateral framework, which means some standardization across sectors,” Rajan Katoch, a former industry minister in the Indian government, told CNBC in the central Indian city of Bhopal.
“I hope it will bring something (trade) because it will put more pressure on the Indian system to open up. In my opinion, India is too protectionist considering the capabilities of the Indian people,” Katoch said. It added that IPEF could enable India to push for the transfer of supply lines for certain products to India.
But strategic considerations may outweigh economic considerations. “It’s becoming a very divided world, and you have a place in that camp … you want to see that as well,” Katocci said.
India’s aversion to a deal that includes China has its roots in geopolitical considerations. Two years ago, tensions on the border between India’s Himalayas and China erupted into a bloody clash. Tens of thousands of soldiers from both sides remain deployed on the border.
While barriers to the U.S. market have not been lowered at this stage, Katoch said that could eventually change through negotiations.
“Maybe [negotiations could result in] Some barriers are reduced or some are encouraged to move supply chains to India. I guess that’s where it’s going,” he said.
But India’s importance to the US is more strategic than economic. As the only Asian country with a disputed land border with China, Strong enough to stand up to emerging superpowers, India is a key component of America’s Indo-Pacific strategy to contain China. This strategic convergence could lead to concessions on both sides.
“Without India’s participation, the notion of the Indo-Pacific is itself empty,” Joshua P. Meltzer, a senior fellow at the Brookings Institution’s Global Economics and Development Program, said in a recent analysis. He added That said, India may be more accepting of IPEF than RCEP because it has not asked for tariff reductions.
“The IPEF also comes at a time when India is clarifying its strategic concerns with China. A stronger Sino-Russian alliance could also lead India to seek closer ties with the US,” Meltzer said.