IPEF's clean, fair economy agreements should not restrict India's policy space: GTRI cautions Govt

With the Indo-Pacific Economic Framework for Prosperity (IPEF) members concluding the negotiations for fair and clean economy agreements, India should follow a cautious approach while finalising the text of these pacts as new commitments need not restrict its policy space or tax revenue generation abilities, a report said.

Think tank Global Trade Research Initiative (GTRI) said in its report that after the conclusion of the negotiations, the IPEF member countries, including India will now do domestic consultations and legal reviews and prepare final texts of the proposed agreements.

While doing that, the government needs to "focus on ensuring that new commitments do not overly restrict its policy space or tax revenue generation abilities," it said.

This includes careful considerations in areas such as clean economy commitments, labour standards, and agricultural policies, it added.

India, the US, and 12 other members of the IPEF have this week concluded the negotiations on the clean and fair economy agreements with a view to strengthen the implementation of effective anti-corruption and tax measures and promote sustainable trade.

It was announced after the third IPEF ministerial meeting held in San Francisco, California, this week. The countries have also signed an agreement on supply chain resilience.

The GTRI said that these texts encompass diverse areas such as labour, environment, agriculture, and other relevant sectors, necessitating expert involvement from respective ministries.

"There is not enough scope for altering the substantially concluded texts through the domestic consultation of legal scrutiny processes, yet India may keep few critical issues in mind while finalising the agreements," GTRI Co-Founder Ajay Srivastava said.

On the IPEF Clean Economy agreement, it said that the partners are expected to decarbonise and reduce the climate impact of the transportation sector, follow advanced sustainable agricultural practices, and address drivers of deforestation and degradation, including by working with companies that source products from the Indo-Pacific region.

"While doing legal review, India may not agree to a non-derogation clause. This would prevent a government from relaxing an existing domestic rule for a project of national importance," the report said.

It added that India also should not agree to minimum standards on clean energy products/technologies for domestic markets as this would prevent producers from selling in their domestic markets and relying on imports.

"India should not agree to stop preferential treatment to domestic suppliers in government procurement of goods," it said, adding that while India is committed to sustainability, it cannot afford to have the same stringent labour and environmental standards as the advanced countries.

It also said that India should not allow the import of GM seeds and foods in the pretence of food security as doing this may result in a surge in subsidised agriculture commodity imports.

"We must settle this issue at the domestic level first before taking international obligations. Large seed monopolies want farmers to buy seeds from them every time if once bought. Do not agree to restrict farmers' rights to reproduce or exchange seeds. Do not surrender the right to limit trade or provide subsidies to farmers for fertilisers, electricity, and irrigation," Srivastava said.

He said that India should learn from the US, which uses heavy subsidies on agriculture and is now doing the same for critical industrial sectors.

With regard to the agreement on the fair economy, the report suggested that India is already implementing many of the obligations related to anti-corruption and taking new obligations would make domestic actions legally enforceable and open to international scrutiny.

It said that commitments related to the effective administration of tax policy might curtail the ability to raise tax revenue.

"India should ensure that the provisions do not restrict its policy space. For example, should India seek inputs before increasing tariffs or imposing trade restrictions or affect domestic policy changes? No, as this would legitimise big businesses to have a direct say in how we should make our domestic laws," Srivastava said.

Further, it said that demanding labour standards might provide legal justification to the US to impose restrictions on India's labour-intensive exports on the ground that India did not follow the standards.

"While doing legal review, we should not agree to reiterate the ILO (International Labour Organisation) conventions agreed. Commitments at ILO are the best endeavour, but reiterating those under an IPEF becomes binding and actionable," it added.

It added that India's decision to stay out of the trade pillar of the framework, which focuses on digital trade, labour, and other sectors, aligns with its broader strategy of retaining regulatory autonomy.

IPEF was launched jointly by the US and other partner countries of the Indo-Pacific region on May 23 last year in Tokyo. Together, they account for 40% of the world's economic output and 28% of trade.

The framework is structured around four pillars relating to trade, supply chains, clean economy and fair economy. India has joined all the pillars except the trade.

Australia, Brunei Darussalam, Fiji, India, Indonesia, Japan, the Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, the US and Vietnam are members of the bloc.