IPEF’S ADVANCE TARIFF NOTICE PROPOSAL

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Context

• The US has proposed that advance notices of tariff changes and export restrictions be considered by the 14 member-nations of the Indo-Pacific Economic Framework for Prosperity (IPEF).
• India is not very comfortable with the idea and has sought industry’s views.

Background 

• The IPEF, which accounts for 40% of world’s economic output and 28% of trade, came together in 2022, following the challenges thrown by the pandemic.
• The forum seeks to go beyond traditional free trade agreements and work on the issues of supply chains, clean energy, decarbonisation, infrastructure, and tax and anti-corruption.
• India has kept itself out of the trade part of the framework so far.
• Under the supply chain tract of the negotiations, the US has proposed that IPEF members should give advance notices before changing their import tariffs or putting restrictions on exports.
• New Delhi has voiced discomfort with the proposal and has sought the view of domestic industry.

The pros of advance notice 

• Advance information eliminates surprises, gives time for adjustment and minimises losses of trading partners.

For entities with goods in transit or that are holding stock

• As it is seen with sudden change in tariffs and restrictions, entities with goods in transit or that are holding stock either make huge losses or profit.

For the companies

• At the company level, it can upset all calculations and business plans.
• At the very least, contracts have to be renegotiated at the operational level.

For the country

• Sometimes export restrictions can go as far as disturbing the macro-economic indicators of a country or even the entire world.
• Few countries have the resilience and economic depth to bear such shocks
• For example, if a big supplier country of, say, food or fuel curbs or bans exports, it leads to shortages and sudden jump in prices globally.
• The extent of the harm these shocks can cause have been on full display during the pandemic and later during the war in Ukraine.

The cons of advance notice 

• Advanced knowledge about tariffs and export controls carries with it the capacity to create problems of a different order. For instance, disruptions and opportunities for extracting undue gains will emerge. 
• It might also expose the country putting tariffs and restrictions to pressure from fellow members of the IPEF.
• This will put limits on the powers of the member-countries to pursue an independent tariff policy to manage local shortage or glut and also their ability to formulate incentives for the different sectors of their economy.

Impact on India

• Given it is not in the trade pillar of the IPEF, advance notices on tariff changes and export curbs shouldn’t have mattered.
• But these will creep into the supply-chain pillar and affect India’s interests. 

Current system of tariff notices

• Taxation and regulation of trade is a sovereign right.
• Every country decides independently how its taxation policy is conducted. 
• Countries may agree to accept some limits on their taxation and trade regulating powers through negotiations with other countries, but for that, they would want to be fairly compensated.
• This could be in the form of reciprocal curbs that the countries they are negotiating with may agree to, or through other support. 
• In bilateral and multilateral trade agreements, when countries change tariffs within the limits set in the pacts, they inform other members of the grouping.
• All  WTO members notify the global trade regulating body of the changes that they have made in their tariffs.
• However, that is done post facto, after the tariff has been changed.
• What the US is trying to do at IPEF is entirely new.

Challenges

• Getting all 14 members to agree to cede even slight control over their respective policy space will be an uphill task, looking at the history of trade negotiations.
• Each country fiercely guards its space for policy formulation while trying to get the maximum while giving out the minimum.

MUST READ ARTICLES:

Indo Pacific Economic Framework: https://www.iasgyan.in/daily-current-affairs/indo-pacific-economic-framework-27

PRACTICE QUESTION Q) IPEF will advance resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness for the economies. Critically Analyse. (250 words)

https://www.financialexpress.com/economy/explainer-ipefs-advance-tariff-notice-proposal/3089070/