India’s decision to opt out of the trade pillar of the Indo-Pacific Economic Framework (IPEF), a new economic initiative driven by the US, is not surprising. Most issues that the IPEF seeks to embrace promote the interests of American industry while being quite out of sync with Indian trade policies.

While cross-border flow of data and data localisation are matters that India is still discussing at the domestic level before firming up regulations in the area, labour and environment standards are issues that the country has always insisted should be dealt with on their own merits at dedicated forums, such as the ILO, and not at platforms deliberating trade issues.

It was indeed a surprise for many policy watchers when Prime Minister Narendra Modi agreed to formally join the 14-member IPEF launched by US President Joe Biden on May 22 in Tokyo on the sidelines of the Quad meeting. The 12 other participants included Australia, Brunei, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam.

India’s move was not widely anticipated, as enough deliberations had not taken place in the country on the matter. There were not enough indications on India’s seriousness about joining the forum. Most stakeholders, including the industry, too, were unfamiliar with what the IPEF held in store for them.

Four pillars

At the launch, the IPEF members decided to negotiate on the four pillars of trade, supply chain, clean economy and fair economy. What came out as a joint statement from the 14 signatories of the IPEF in Tokyo seemed sketchy and gave the impression that the specificities of the agenda would be firmed up by members in the future. But a fact sheet on the IPEF shared by the White House simultaneously showed that Washington had absolute clarity on what it wanted.

“We will pursue high-standard rules of the road in the digital economy, including standards on cross-border data flows and data localisation… We will also seek strong labor and environment standards and corporate accountability provisions that promote a race to the top for workers through trade,” it said.

The fact sheet made it abundantly clear that the US was focussed on pushing for free flow of data to benefit its large technology firms and ensure their dominant position globally. By trying to make its strong labour and environmental standards mandatory, it is working towards a system where these would act as non-tariff barriers for developing countries like India and restrict their market access.

The additional fact that the IPEF does not provide for tariff cuts, something that could have helped Indian industry deepen their access into the markets of the member countries, makes the deal more unsatisfactory for the country.

Given the situation, Commerce & Industry Minister Piyush Goyal’s announcement earlier this month to opt out of the trade pillar for now seemed logical.

For strategic reasons, joining the IPEF makes sense for India as it is an attempt made by the US to keep the growing influence of China in the Asia Pacific region in check, which also suits New Delhi. But for diplomatic reasons economic interests cannot be put at stake.So, Goyal’s announcement at the IPEF Ministerial meeting in Los Angeles earlier this month, of staying out of the trade pillar for the time being seemed the most appropriate. While it demonstrated India’s keenness on remaining part of the grouping and challenging China, as it agreed to negotiate on the other three pillars, it also sent out a message that the country’s economic interests would not take a back-seat.