India Joins US-Led New Indo-Pacific Economic Bloc, Aimed at Countering China

Termed the Indo-Pacific Economic Framework for Prosperity, the initiative is part of the US plan to bring a more economic heft to its regional policy. The US had been missing in action on this front since 2017.

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New Delhi: India joined the United States and 11 other countries in launching a new loosely-linked economic grouping in Asia, primarily aimed to counter China’s economic dominance, but without drawing up a formal free trade agreement.

Termed the Indo-Pacific Economic Framework for Prosperity (IPEF), the initiative is part of the United States’ plan to bring a more economic heft to its regional policy. The US had been missing in action on this front ever since it withdrew from the Trans-Pacific Partnership in 2017. In contrast, China and 14 other countries are part of the Regional Comprehensive Economic Partnership (RCEP) trade agreement that came into force in January this year.

Besides the US, the other countries that have signed up as “initial partners” of IPEF are Australia, Brunei Darussalam, India, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, and Vietnam. Except for the US and India, all others are also members of RCEP.

China was not invited to be part of the bloc, but the other nations that have remained out of the bloc are the Beijing aligned-ASEAN (Association of Southeast Asian Nations) members, Cambodia, Laos and Junta-led Myanmar.

A day earlier, Chinese foreign minister, Wang Yi, had said that the countries should see through the “hidden plot” behind the creation of IPEF, which was to force the region to choose camps.

“Is the United States using economic means to coerce regional countries to choose sides between China and the United States?” he asked on Friday.

“Is the US trying to accelerate the recovery of the world economy, or is it creating economic decoupling, technological blockade, industrial chain disruption, and aggravating the supply chain crisis?” said the Chinese leader.

Also read: How India and its South Asian Neighbours Fared During the US-China Trade War

On Monday, the Chinese foreign ministry spokesperson repeated the critical rhetoric about IPEF. “Is the United States politicising, weaponising, and ideologising economic issues and using economic means to coerce regional countries to take sides between China and the United States?” asked Wang Wenbin.

Meanwhile, US president Joe Biden, with Japanese Prime Minister Fumio Kishida and Indian Prime Minister Narendra Modi on his side and other leaders in virtual format, launched the new economic alliance in Tokyo.

“We’re writing the new rules for the 21st century economy that are going to help all of our countries’ economies grow faster and fairer,” said Biden.

The Indian Prime minister assured that New Delhi would work to build an “inclusive and flexible” Indo-Pacific Economic Framework.

“I believe that there should be three main pillars of resilient supply chains: Trust, Transparency and Timeliness. I am confident that this framework will help strengthen these three pillars, and pave the way for development, peace and prosperity in the Indo-Pacific region,” said Modi.

In all the statements made by the leaders, there was no mention of China, but the initiative’s intent was clear from the start.

It was left to ASEAN’s largest nation, Indonesia, to articulate some misgivings, albeit couched diplomatically.

Listing out four principles for IPEF, Indonesian trade minister Muhammad Lutfi noted that it had to deliver “concrete, mutually beneficial cooperation”.

Indonesian trade minister Muhammad Lutfi. Photo: Twitter.

“Second, IPEF must be inclusive and open to all countries in the region. The Indo-pacific region is too large for the benefit of certain countries only,” said the Indonesian minister at the IPEF launch – an implicit reference to the absence of China in the grouping.

Indonesia also hoped that the new economic bloc would “not create new development challenges for the countries in the region”.

The joint statement issued by the 13 countries announced that they were launching the “process” to set up IPEF “in order to prepare our economies for the future”.

It added that they had agreed to start “collective discussions toward future negotiations” on the four pillars of trade, supply chain, clean energy and sustainable infrastructure, and tax and anti-corruption.

On May 20, Financial Times had reported that the United States had agreed to “water down” the IPEF to attract more south-east countries, who may be more skittish about joining a bloc with a pronounced anti-China outlook.

The newspaper reported that an earlier draft of the joint statement had said that countries would “launch negotiations”, but it was diluted that discussions towards later negotiations have begun.

While the joint statement said that countries would seek to “build high-standard, inclusive, free, and fair trade commitments”, the document was short on actual details on what the new bloc hopes to achieve.

Unlike other regional trade deals like RCEP, there is no written free trade deal that is being negotiated or signed. But, it is still not clear what the IPEF means by reference to “commitments” in the joint statement – and whether they would be binding.

Earlier, US secretary of commerce Gina Raimondo was asked precisely about the nature of these “commitments”. She replied that there would be “signed agreements” that may be “enforceable” but did not give any other scope of the ‘commitments’.

Unlike President Biden at the official IPEF launch, Raimondo explicitly laid out Washington’s motivation in “presenting Indo-Pacific countries an alternative to China’s approach”.

US national security advisor Jake Sullivan made it clear that joining the IPEF will give countries a leg-up in attracting US capital.

“By the way, just today, you know, you see reporting that Apple is looking to boost production outside of China.  And many companies — many US companies are looking to diversify away from China. Well, countries – Vietnam, Malaysia, Indonesia – that are actually signed up and in the Indo-Pacific Framework will obviously have an advantage to get that business from American companies, because they will have signed up to be the high-standard agreement that we plan to sign pursuant to the IPEF,” he told reporters ahead of Biden’s arrival in Tokyo.

The political calculation of the United States government would certainly include the fact that it would be easier to sell the IPEF to members of the US Congress due to bipartisan concern over strategic competition from China. The Biden administration had already faced criticism from lawmakers and business chambers for not being sufficiently ambitious in carving out new trade agreements.

Interestingly, despite the overt anti-China posture by the US, Taiwan was not invited to join the IPEF. Taiwanese foreign ministry said it was regretful, as Taiwan was “definitely qualified for inclusion in IPEF”.