14-nation agreement on supply chain resilience opens doors for India

The IPEF aims to reduce dependence on China and strengthen manufacturing of essential goods in its member nations.

The Indo-Pacific Economic Framework’s (IPEF) Supply Chain Resilience Agreement (Pillar 2) is probably the fastest-concluded plurilateral economic cooperation agreement, which Commerce Minister Piyush Goyal signed on November 14. India along with 13 other countries (Australia, Brunei Darussalam, Fiji, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, the United States, and Vietnam) are party to the agreement to fortify global supply chains and enhance adaptability, stability, and sustainability.

Supply chain resilience

The agreement aims to reduce dependence on China and enhance the manufacturing of essential goods in member nations. It provides a framework to build collective understanding of supply chain risks, supported by each partner’s identification and monitoring of its own critical sectors and key goods. It is expected to make supply chains robust and well-integrated through crisis response measures, cooperation for mitigation of disruptions, improvements in logistics and connectivity, and by mobilising investment. It protects and benefits labour through adherence to International Labour Organization’s Declaration on Fundamental Principles and Rights at work (1998), as amended in 2022. It ensures the availability of a sufficient number of skilled workers in critical sectors and key goods, including by upskilling and reskilling workers. It also aims to identify opportunities for technical assistance and capacity building in strengthening IPEF partners’ supply chains.

The agreement establishes three IPEF Supply Chain bodies to facilitate cooperation among members. These are:

• The IPEF Supply Chain Council: The Agreement will establish a mechanism for the IPEF members to work collectively to develop sector-specific action plans for critical sectors and key goods to enhance the resilience of IPEF member countries’ supply chains. It will do so through measures like diversification of sources, infrastructure and workforce development, enhanced logistics connectivity, business matching, joint research and development, and trade facilitation.
• Supply Chain Crisis Response Network:It will be an emergency communications channel for the IPEF member countries to seek support during a supply chain disruption and to facilitate information sharing and collaboration among them during a crisis, enabling a faster and more effective response that minimises negative effects on their respective economies.
• Labour Rights Advisory Board:It will consist of government, worker, and employer representatives, as well as a subcommittee composed of government representatives, to support the IPEF member countries in promotion of labour rights in their supply chains, promoting sustainable trade and investment, and facilitate opportunities for investment in businesses that respect labour rights as per the ILO standards.

Opening doors to opportunities

Once implemented, the Supply Chain Agreement is expected to bring in several benefits to India. The IPEF members represent around 40% of the global gross domestic product (GDP) and 28% of international trade. India can gradually replace China as the global sourcing hub for IPEF partner countries. Some of the potential benefits include a shift of production centres in key goods/critical sectors to India; increase in domestic manufacturing capacities aligning with the objective of Aatmanirbhar Bharat; and enhanced investment in production of key goods, logistics services and infrastructure. It will help in deeper integration of MSMEs in value chains and enhance trade facilitation through digital exchange of trade documentation, quicker port clearances, etc. Provision of joint research and development can help to diversify manufacturing and adhering to ILO standards will facilitate the transition of employment from informal to formal.

Speaking at the event for signing the agreement, Goyal emphasised on enhanced collaboration to realise collective aims of the IPEF, particularly on the need for mobilising affordable financing for clean economy transition and for enhancing technology cooperation. He also urged early implementation of the envisaged cooperative work under IPEF, including on bio-fuels alliance as suggested by India. At the sideline of the signing-in ceremony, Goyal held meetings with businesses communities for facilitating investment in India and B2B collaborations.

The agreement is unique as it aims to increase the resilience, efficiency, productivity, sustainability, transparency, diversification, security, fairness, and inclusivity of the supply chains of the signatory countries through both collaborative activities and individual actions taken by each IPEF partner. India already has trade agreements with several IPEF partners and these needs to be reviewed in the line of this new initiative. While many components of this agreement are not binding, if the IPEF partners are committed to operationalise the agreement, this will bring benefits to businesses and workers in the partner countries. India may, therefore, continue with some of the path-breaking initiatives that the country has already taken as part of its reform agenda.

Arpita Mukherjee, a Professor at ICRIER, penned this piece for Business Standard.

Views are personal and do not represent the stand of this publication.