India’s decision to stay out of the trade pillar of the 14-member Indo-Pacific Economic Framework for now, is a well thought out one as the country is not yet ready to negotiate on digital commerce or link trade with environment and labour, say experts. 

However, New Delhi needs to exercise extreme caution while negotiating the  three other pillars—supply chains, clean economy and fair economy—of the US-led IPEF, where it continues to stay on board, as it could face several “pain points” in the process, argue some.

Logical decision

“Staying out of the trade pillar of IPEF seems a logical decision as in the first instance itself it looked inconsistent with India’s position on trade policy issues,” said Biswajit Dhar, Professor, Jawaharlal Nehru University.

The decision to opt out of the trade pillar for the time being was taken at the IPEF Ministerial meeting in Los Angeles on Friday where Commerce and Industry Minister Piyush Goyal represented India.

The IPEF, launched by US President Joe Biden on May 23 this year, also includes  Australia, Brunei, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam.

While the trade pillar of the IPEF excludes tariff reduction commitments on goods, it includes areas such as digital trade, environment and labour, where India may have a problem in taking on commitments.

Exercising caution

“In digital trade, India has been exercising caution so far, and has also been reluctant to join on-going discussions on the matter at the WTO. It is also not a big user of labour and environment standards as a tool to protect its industry unlike the other members of the group. The objectives of the trade pillar seem incongruous with India’s trade interests,” Dhar said.

The US’ insistence on strong labour and environmental standards in the IPEF is a reflection of what it tries to do in all its trade pacts to protect the US workers’ rights, pointed out trade expert Ajay Srivastava. “Here is an example of what is in store at the IPEF. In the US-Mexico-Canada Agreement, an auto component must be made by workers earning at least $16 per hour. Notice that the minimum wage in Mexico is $8 per hour. Most Mexican exports would disqualify. Such standards act as NTBs,” Srivastava explained.

Srivastava said India did the right thing in coming out of the trade pillar but cautions that there may be many pain points in the other three pillars of supply chains, clean economy and fair economy. “These must be discussed widely,” he said.

Agreeing with Srivastava, another Delhi-based trade expert pointed out that India had rightly reasoned that it could not participate right now in negotiations on digital trade as domestic policy was still evolving. However, how could it then participate in the area of supply chains with the DESH Bill on Special Economic Zone and infrastructure is also not finalised yet, he reasoned.

“India needs to be very careful about what the member countries push for under supply chains. Also clean economy could be a tricky area,” the expert added.

Trade and supply chain

Trade and supply chain are related pillars as trade is an integral part of establishing global supply chains, pointed out Arpita Mukherjee, Professor, ICRIER. “As we are negotiating trade agreements with  key export markets, trade is going to be an important topic to reach exports of $ 1 trillion each for goods and services by 2030. However, with high autonomous tariffs, we may not be ready for discussing the issue with trade partners like the USA,” she said.

The Commerce Department must now also re-evaluate the desirability of taking commitments on digital trade, environment issues and labour in its FTAs with the UK, the EU and Canada, pointed out a Delhi-based economist. “There are concerns that these provisions could put fetters on the government to nurture a vibrant digital economy. India would also not be able to implement policies for boosting domestic producers of climate-friendly products. Further, provisions on sustainability could provide a legal justification to these FTA partners to erect non-tariff barriers on India’s exports,” he said.

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