Indo-Pacific Economic Framework (IPEF)

What’s in today’s article?

• Why in news?
• What is Indo-Pacific Economic Framework (IPEF)?
• News Summary: India, US, 12 other IPEF members sign supply chain resilience agreement
• Other benefits of supply chain resilience agreement

Why in news?

• India, the US and 12 other members of the Indo-Pacific Economic Framework (IPEF) entered into a supply chain resilience agreement.
• The agreement aims to cut dependence on China and help shift manufacturing of crucial goods to member nations.

What is Indo-Pacific Economic Framework (IPEF)?

• Background: Origin
  • US President Biden first spoke about the IPEF at the October 2021 East Asia Summit.
  • At this summit, he said that the United States will explore with partners the development of an Indo-Pacific economic framework.
  • This framework will define our shared objectives around:
    • trade facilitation, standards for the digital economy and technology, supply chain resiliency, decarbonization and clean energy, infrastructure, worker standards, and other areas of shared interest.
  • The IPEF will not include market access commitments such as lowering tariff barriers, as the agreement is more of an administrative arrangement.
• About
  • Launched in Tokyo, in May 2023, IPEF aims to strengthen economic engagement among the member countries to advance growth, peace and prosperity in the region.
  • According to an insight paper on IPEF put out by the US Congressional Research Service, the IPEF is not a traditional trade agreement.
  • Rather, it would include different modules (four pillars) covering various aspects.
• Four Pillars of IPEF
  • Pillar I - fair and resilient trade,
  • Pillar II - supply chain resilience,
  • Pillar III –Clean economy (infrastructure and decarbonization), and
  • Pillar IV –Fair Economy (tax and anticorruption).
    • Countries would have to sign up to all of the components within a module (pillar), but do not have to participate in all modules.
• Members
  • The IPEF has 14 partner countries including Australia, Brunei, Fiji, India, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, Vietnam and US.
• Significance
  • The 14-nation IPEF bloc is seen as crucial as it accounts for about 40 per cent of the world’s GDP and 28 per cent of the world’s trade in goods and services.
  • It is seen as an economic and trade strategy backed by the US to counter China’s economic influence in the region.
• India and IPEF
  • In September 2022, India joined three pillars of the IPEF.
  • These are the supply chain, clean economy, and fair economy pillars of the IPEF.
  • However, it had decided to remain out of the trade pillar. India has an observer status on the trade pillar negotiations.

News Summary: India, US, 12 other IPEF members sign supply chain resilience agreement

• This will reduce its dependence on China and mitigate risks of economic disruptions from supply chain shocks.

Other benefits of supply chain resilience agreement

• This is a first-of-its-kind international agreement that will fortify and strengthen global supply chains, foster adaptability, stability and sustainability.
• The agreement will provide benefits such as a potential shifting of production centres in critical sectors, and mitigating the risk of economic disruptions from supply-chain shocks.
• The other potential benefits of the pact include:
  • supply-chain diversification,
  • mobilisation of investments,
  • deeper integration of India in global value chains,
  • support to MSMEs, and
  • creation of a seamless regional trade ecosystem that would facilitate the flow of Indian products.

Q1) What is the supply chain?

A supply chain refers to the network of organizations, resources, activities, and processes involved in the creation and distribution of goods or services from the point of origin to the point of consumption. It encompasses all the steps required to bring a product or service to the end customer, including sourcing raw materials, manufacturing, transportation, storage, and delivery.

Q2) What is decarbonization?

Decarbonization refers to the process of reducing or eliminating carbon dioxide (CO2) emissions and other greenhouse gas (GHG) emissions from various sectors of the economy. The primary objective of decarbonization is to mitigate climate change by reducing the concentration of GHGs in the atmosphere, which are responsible for trapping heat and contributing to global warming.

Source: India, US, 12 other IPEF members sign supply chain resilience agreement | The Hindu | Live Mint