[Answered] India has decided to opt out of the trade pillar of the Indo-Pacific Economic Framework (IPEF). What is the rationale behind this decision and also discuss its implications?

Introduction: Contextual introduction.
Body: Explain the rationale behind opting out of the trade pillar of the Indo-Pacific Economic Framework (IPEF). Also write discuss its implications.
Conclusion: Write a way forward.

The Indo-Pacific Economic Framework (IPEF) is an effort by United States to deepen ties with Asian nations through a range of issues including trade, climate change, supply chains and taxation. It’s also among US levers to counter China’s rising influence. India had agreed to three out of four pillars of trade relating to supply chains: tax, anti-corruption and clean energy.

Rationale behind this decision:

  • Data Localization: As per U.S, India’s proposed data localisation requirements will act as market access barrier, especially for smaller firms. However, India strongly supports data localization for protection of personal data and upholding national security.
  • Environment and Labour standards: The IPEF imposes stricter environment and labour standards that are way above the prevailing norms in India. Such strict measures may hamper investment flows into India thereby limiting the benefits. Moreover, incorporation of such standards in Free Trade Agreements is against India’s official stand.
  • IPEF talks about digital governance but the IPEF formulation contains issues that directly conflict with India’s stated position.
  • It is not clear what member countries will gain and whether some of the conditions would discriminate against developing countries.  .

Implications:

  • It will adversely affect longer-term economic prospects.
  • Such preferential deals will give India an advantage over other countries, and help particularly to reduce trade diversion.
  • Due to the global slowdown India seems to be impacted more in future than others as the trade pie shrinks. As of today, in the US market for textiles and garments, India’s growth is the slowest among the top five exporters excluding China.

India is committed to a free, open, and inclusive Indo-Pacific region. It is important to establish connectivity in the Indo-Pacific region based on respect for sovereignty and territorial integrity, consultation, good governance, transparency, viability and sustainability.

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