Explained: What walking out of IPEF's trade pillar means for India

Experts said that opting out is a step in the right direction as India may not be prepared enough to handle negotiations dealing with issues such as labour, environment standards and digital trade

India on Friday had pulled out of the trade-related negotiations pertaining to the United States-led Indo-Pacific Economic Framework (IPEF). It cited that it is unclear what benefits member countries, including India, would derive through the negotiations at this stage.
 

Experts said that opting out of the trade pillar under IPEF for now is a step in the right direction. This is because India may not be prepared enough to handle negotiations dealing with issues such as labour, environment standards and digital trade.
 

In all of these areas, the domestic regulations are yet to reach a level of maturity, which has resulted in India taking this step.
 

They also pointed out that the move should not be compared with India’s decision to walk away from the China-backed Regional Comprehensive Economic Partnership (RCEP). 
 

In fact, India is only taking advantage of the flexibility given under IPEF to join any of the four pillars, based on their own interest, they said.
 

Biswajit Dhar, professor of economics at the Jawaharlal Nehru University, said staying away from trade-related issues would augur well for India. This is because the trade pillar under IPEF deals with too many sensitive issues as far as India is concerned, including agriculture.
 

“If one of the pillars gets knocked out and the US is looking to speed up its recovery, then one has to see what the American administration thinks of what remains of the overall balance of IPEF. If the overall balance is disturbed if India walks out, then maybe India can join it at a later stage. That is the scenario that we are staring at,” Dhar said.
 

Amitendu Palit, senior research fellow, Institute of South Asian Studies, National University of Singapore, said as far as bilateral talks with other nations are concerned, India does not have enough experience to deal with issues such as labour and environment standards, sustainability and digital trade.
 

“In all of these areas, domestic regulations are yet to reach a level of maturity, which would have resulted in India taking this step. Rather than rushing into it, it is better for India to obtain the experience from UK and EU trade pacts and come back with greater preparedness,” Palit said.
 

India is currently negotiating trade deals with developed nations such as the UK, Canada and EU. It has agreed to have chapters pertaining to new-generation trade issues. However, all three trade pacts are a work in progress.
 

Palit further said India is clearly not backing out, but taking advantage of the flexibility (given under IPEF) for its own interest.

IPEF has four pillars — trade, supply chain, tax and anti corruption and clean energy. 
 

Thirteen of the 14 member nations of IPEF have decided to join the three pillars, barring India, which chose to remain out of the trade. It will wait for the final contours. 
 

Apart from India and the US, 12 other members of the IPEF are Australia, Brunei, Fiji, Indonesia, Japan, South Korea, Malaysia, New Zealand, The Philippines, Singapore, Thailand and Vietnam.
 

“...we intend to pursue provisions and initiatives related to labour, environment, digital economy, agriculture, competition policy, transparency and good regulatory practices, trade facilitation, inclusivity, technical assistance and economic cooperation,” said an official statement after the completion of the first in-person IPEF ministerial on September 8-9 in Los Angeles.
 

Arpita Mukerjee, professor at Indian Council for Research on International Economic Relations (ICRIER), however, said that all the pillars under IPEF are interlinked, especially if we consider the trade and supply chain pillar.
 

“Trade is an integral part of the supply chain. It is almost impossible to be a part of the global value chain without being a part of the global trade. However, in this case, supply chain may refer to getting more investment. Similarly, the environment may be covered under both trade and climate change pillars of IPEF,” Mukerjee said.
 

In a media briefing, Goyal has said India is yet to see what benefits member countries will derive from the trade track.
 

“...whether any conditionalities, for example, on the environment, may discriminate against developing countries, who have been imperative to provide low cost and affordable energy to meet the needs of a growing economy,” he had said after the conclusion of the IPEF ministerial meeting.