IPEF supply chain agreement: a bid to safeguard supply chains
Indo-Pacific Economic Framework for Prosperity (IPEF) was established to foster resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness of the fourteen partner economies.
- US-led economic initiative IPEF seeks to strengthen economic engagement among partner countries and promote growth, peace and prosperity in the Indo-Pacific region.
- In an attempt to encounter any supply chain crises in future, IPEF partner economies have proposed Supply Chain Agreement, a first-of-its-kind deal bringing together 14 partners across the Indo-Pacific region.
- Under the supply chain agreement, IPEF partner countries are seeking to make supply chains more resilient, robust and well-integrated.
- The proposed pact, once finalised, will be subject to IPEF partners’ domestic processes for signature, and would then be followed by its ratification, acceptance or approval.
Image credit: PIB; File Photo
Indo-Pacific Economic Framework for Prosperity (IPEF) was founded in 2022, jointly by the US and other partner countries in the Indo-Pacific region. It aims to contribute towards cooperation, stability, prosperity, development, and peace within the Indo-Pacific region. It specifically intends to reduce dependence on any particular country.
The framework of the IPEF has been structured around four pillars–
Trade (Pillar I); Supply Chains (Pillar II); Clean Economy (Pillar III); and Fair Economy (Taxation & Anticorruption) – (Pillar IV).
India has joined all the pillars except Trade (pillar I), wherein it has observer status. Of the 14 partners, India is the only country that is not part of the Trade pillar.
The IPEF group
IPEF group consists of 14 countries of the Indo-Pacific region including Japan, Australia and seven ASEAN members. The 14 IPEF partners represent 40% of the global GDP and 28% of the global goods and services trade. China is not part of the group.
The 14 member countries of IPEF are Australia, Brunei Darussalam, Fiji India, Indonesia, Japan, the Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, the United States and Vietnam.
Fiji became the 14th partner country and the first Pacific island nation to join US President Joe Biden’s signature economic framework (a U.S. effort ‘to push back on China’s growing regional influence’).
The US-led economic initiative IPEF is also regarded as a symbol of the world’s biggest economy’s re-engagement in the fast-growing Indo-Pacific region. (United States had earlier, formally withdrawn from the Trans-Pacific Partnership free trade deal in 2017).
IPEF Partners Agree to Strengthen Supply Chains
Ever since the launch of IPEF in Tokyo, Japan on 23rd May 2022, the IPEF partners have been working constructively. In a move to meet future supply chain crises, and for reducing their reliance on China, the participant countries of the IPEF group, including the United States (US) and India, have recently struck a deal.
Here it would be worth mentioning that, the ‘supply chain’ is the interconnected journey that raw materials, components, and finished goods undertake before their assembly and sale to the end consumers.
At the IPEF Ministerial meeting held in Detroit (Michigan), on 27th May 2023, India and 13 IPEF partners “substantially” concluded the negotiations on the supply chains agreement. The negotiations under the Supply Chains (Pillar-II), focussed on improving logistics and connectivity, promoting investments in critical sectors and cooperation for mitigation of disruptions to ensure business continuity especially when a crisis strikes. The agreement would enable deeper integration of economies and supply or value chains within IPEF.
Under the proposed IPEF Supply Chain Agreement, the IPEF partners seek-
- To provide a framework to build their collective understanding of significant supply chain risks, supported by each partner’s identification and monitoring of its own critical sectors and key goods.
- To improve crisis coordination and response to supply-chain disruptions and work together to support the timely delivery of affected goods during a crisis (as was the case during covid-19 pandemic which revealed supply-chain vulnerabilities).
- To ensure that workers and businesses, especially micro-, small-, and medium-sized enterprises in the IPEF partner countries, benefit from resilient, robust, and efficient supply chains by identifying disruptions or potential disruptions and responding promptly, effectively, and, where possible, collectively.
- To better prepare businesses in the IPEF partner economies to identify, manage, and resolve supply chain bottlenecks, including by strengthening supply chain logistics and infrastructure.
- To facilitate cooperation, mobilize investments, and promote regulatory transparency in sectors and goods critical to national security, public health and safety, for the prevention of significant or widespread economic disruptions.
- To respect, promote, and realize, in good faith, labour rights in IPEF partners’ supply chains, in recognition of the essential role of workers in achieving greater supply chain resilience.
- To ensure the availability of a sufficient number of skilled workers in critical sectors and key goods, including upskilling and reskilling workers, promoting inclusivity and equal access, and increasing comparability of skills credentials frameworks.
- To identify opportunities for technical assistance and capacity building in strengthening IPEF partners’ supply chains.
- To respect market principles, minimize market distortions, including unnecessary restrictions and impediments to trade, and protect business confidential information.
The group, under the agreement, aims to facilitate cooperation among the partners while recognizing the different economic and geographic characteristics of the partners. The proposed Supply Chain Agreement assimilates the establishment of three new IPEF supply chain bodies.
These three bodies are- the supply chain council, the supply chain crisis response network and the IPEF labour rights advisory board.
IPEF Supply Chain Council: The proposed Agreement would establish a mechanism for the IPEF partners, to collaborate in developing sector-specific action plans for critical sectors and key goods. This is to enhance the resilience of IPEF partner’s supply chains through measures like diversification of sources, infrastructure and workforce development, meliorated logistics connectivity, business matching, joint research & development, and facilitation of trade.
IPEF Supply Chain Crisis Response Network: The proposed Agreement would set up an emergency communications channel for the IPEF partners for seeking support during a supply chain disruption. Additionally, it would facilitate information sharing and collaboration among the IPEF partners during a crisis, enabling a faster and more effective response to reduce negative effects on their economies.
IPEF Labour Rights Advisory Board: As per the proposed agreement, a new Advisory Board would be established. It will be a multi-stakeholder body consisting of government, worker, and employer representatives and a subcommittee comprising government representatives. It would be supporting the IPEF partners’- promotion of labour rights in their supply chains, promotion of sustainable trade and investment, and facilitation of opportunities for investment in labour-friendly businesses that respect ‘labour rights’. Here it needs to be noted that the labour-related body is merely advisory in nature and does not involve hard and specific commitments from the members.
Supply Chain Agreement: A Big Deal!
The deal gains importance as it comes at a time when almost the entire world is facing disruption in supply chain management (caused by the Covid-19 pandemic and the Russia-Ukraine war). It is an effort to meet and fight future supply chain crises. It aims to strengthen the supply chain for chips, medicine and other critical goods in the event of an emergency and reduce their dependence on a particular country.
It is indeed a big deal as the IPEF members have agreed to respect market principles, agreed to minimise the market ‘distortions’ including unnecessary restrictions and impediments to trade, and have agreed to the protection of confidential information of businesses.
Gina Raimondo, the US commerce secretary, stated that it is the first time that there is an international agreement on supply chains, that brings together 14 economies across the Indo-Pacific region.
However, the critical issue will be that of labour rights. The issue of labour rights in the supply chain may cause some tension in the coming years.
From an Indian trade perspective, the labour advisory board and labour standards could be a cause of concern. As per the agreement, the proposed labour advisory board would be ‘intrusive’ and labour standards would be used to prevent partners from importing components and then re-exporting them. This could affect pharmaceutical exports from India.
Having said that, the deal remains to be translated into a final text and then will be subject to the domestic approval processes in each partner economy.