India Joins IPEF Pact: How it Can Support the Country's Supply Chain, Clean Energy Goals

India on Sunday signed two new agreements – clean and fair economy – under the Indo-Pacific Economic Framework for Prosperity (IPEF) with an aim to enhance global economic cooperation. Among the four agreements in the framework, the country had already signed the supply chain resilience pillar in February this year. The two other key agreements were signed during Prime Minister Narendra Modi's recent visit to the United States for the Quad Summit. 

Outlook Business decodes the significance of this international framework for India and its businesses: 

What is IPEF? 

According to the United States Department of Commerce, the IPEF was launched by the US in May 2022, and it seeks to advance resilience, sustainability, inclusiveness, economic growth, fairness and competitiveness for the 14 member economies. Australia, Brunei Darussalam, Fiji, India, United States of America, Vietnam, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, Philippines, Singapore and Thailand are the partners of this economic framework which covers namely four pillars – Supply Chains, Trade, Clean Economy and Fair Economy. 

What is the Aim and Purpose of IPEF? 

The Framework aims to provide tangible benefits to fuel economic activity and investment, promote sustainable and inclusive economic growth, and benefit workers and consumers across the Indo-Pacific region.  

While talking about the framework’s purpose and significance, Ajay Srivastava, co-founder of Global Trade Research Initiative (GTRI) says, “Covid-19 taught us that we can’t be completely dependent on China. The whole purpose is to find an alternative to China supply chain.”  

How is IPEF Different from Other Trade Agreements? 

The IPEF, unlike other trade agreements, does not seek to negotiate tariffs or market access, and the framework just focuses on integrating member countries in the four specified modules. The framework does not have any binding commitments in terms of market access and instead looks at increasing regulatory coherence between the member nations. 

What are the Three Pillars Signed Under IPEF Agreement? 

India has signed three pillars under the agreement - Clean Economy, Fair Economy and Supply Chains. 

While addressing the IPEF ministerial meeting held in Singapore in June this year, Sunil Barthwal, secretary at the Department of Commerce spoke about the progress made on the establishment of the three cooperative bodies under the Supply Chain agreement, the Cooperative Work Programmes under the Clean Economy Agreement, and the cooperative activities under the Fair Economy Agreement.  

Clean Economy Agreement 

The newly signed clean economy agreement of the framework aims to enhance efforts of member countries towards energy security and transition, climate resilience and adaptation along with mitigation of GHG emissions. It also looks at finding or developing innovative ways to reduce dependence on fossil fuel energy, promoting technical cooperation, workforce development and research collaborations. The agreement also aims to facilitate development, access and deployment of clean energy and climate-friendly technologies. Apart from these, the agreement will also facilitate investments, concessional financing as well as workforce development for industries, especially MSMEs, to further integrate the Indian companies in the value chains of the Indo-Pacific region.  

Fair Economy Agreement 

The agreement on Fair Economy intends to create a more transparent and predictable business environment that can help with greater trade and investment in the markets of member countries. It also aims to promote a level playing field for businesses and workers in the economies of the IPEF partners as well as enhance efforts to prevent and combat corruption.  

Another intention of this agreement is to establish confidential systems and promote participation of groups outside the public sector and provide technical assistance to the IPEF partners, through sharing of expertise and best practices.  

Supply Chains Agreement 

The supply chain agreement establishes three bodies - the Supply Chain Council, the Supply Chain Crisis Response Network and the Labor Rights Advisory Board. The agreement, which was signed by India earlier this year, helps to address allegations of “labor rights inconsistencies” at facilities in an IPEF country.  

During the IPEF meeting at Washington DC last week (September 12 and 13), the IPEF identified semiconductors, critical minerals, batteries and chemicals as critical sectors under its supply chain resilience agreement. “The formation of Action Plan teams in these areas are highly relevant today in majority of critical supply chains given their supply concentration and the experience learnt from significant disruptions faced during the Covid-19 pandemic,” an official statement by the Indian Ministry of Commerce and Industries stated. 

What are the implications of IPEF Agreement on India? 

The pillar on clean economy creates another platform for deeper cooperation between the US and India on some platforms like green hydrogen or critical mineral alternatives. 

According to Hisham Mundol, chief advisor at a global nonprofit organisation – Environmental Defense Fund, the agreement has a lot of potential on the side of technology transfer. “There is a lot of foundational research work which happens mostly in the US or in the more research-intensive countries,” he adds. 

Even though immediate benefits cannot be linked directly to the IPEF membership, it can be expected that India’s complicated relationship with China will drive its foreign and trade policy engagement, a report by the online publication, India Briefing said. 

What Could be the Challenges Surrounding IPEF Implementation? 

The pillar of the agreement looks ‘good on paper’, however the road to its implementation seems to be far behind, GTRI’s Srivastava said. It is very difficult for Asean countries to distance themselves from China given their close dependence on China’s supply chain. 

According to Mundol in many cases agreements like this tend to take a long time in getting executed on the ground. “An agreement like this should represent additionality, meaning something that gets added to the already existing facets of the sector,” he says. 

Experts point out that the IPEF agreement negotiations were reportedly conducted in secrecy with very limited details being shared in public.   

A major issue raised in regard to the Supply Chain Pillar is whether the agreement will restrict members from trading critical materials, particularly with China. This could pose challenges for Asean countries, whose largest trading partner is China.  

Experts point out that flexibility is required for India to pursue key infrastructure projects without being stopped by rigid international commitments. 

India has already implemented anti-corruption measures in respect to the Fair Economy Pillar. However new obligations could lead to stricter international scrutiny and make domestic actions legally enforceable.