India, US, 12 other nations ink supply chain pact to cut reliance on China

India, the United States, and 12 other members of the Indo-Pacific Economic Framework (IPEF) For Prosperity on Wednesday signed a supply chain resilience agreement that would reduce their dependence on China and mitigate risks of economic disruptions from supply chain shocks.

The agreement was signed in San Francisco at the third in-person ministerial meeting of the IPEF. The commerce and industry minister, Piyush Goyal, who is currently on a four-day visit to the US, represented India at the meeting and signed the agreement.

The agreement would help provide benefits such as the potential shifting of production centers in critical sectors and would help member countries, including India, to reduce their dependence on China. 

“The agreement is expected to make IPEF supply chains more resilient, robust, and well-integrated, and contribute towards economic development and progress of the region as a whole,” India’s ministry of commerce and industry said in a statement. 

Launched on 23 May last year in Tokyo, the US-led IPEF has Australia, Brunei Darussalam, Fiji, India, Indonesia, Japan, the Republic of Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam as its members. The 14 IPEF partners constitute 40% of global GDP and 28% of global goods and services trade. 

The agreement provides diversification of supply chains, mobilization of investments, deeper integration of India in global value chains, support to small businesses, and creation of a seamless regional trade ecosystem.

With the agreement, the IPEF partners aim to establish a framework to build their collective understanding of significant supply chain risks; improve crisis coordination and response to supply chain disruptions; facilitate cooperation, mobilize investments, promote regulatory transparency in sectors and goods critical to national security and public health and safety, the Press Trust of India reported. Identification of these critical sectors will be undertaken by partner countries.

To oversee the implementation and monitoring of the agreement, members will set up an IPEF supply chain council that will meet annually, with the members reporting on the progress of implementation of the agreement.

The grouping would also set up an IPEF supply chain crisis response network to deal with emergency issues and help partners to seek support during a supply chain disruption and to facilitate information sharing and collaboration among IPEF partners during a crisis, enabling a faster and more effective response that minimizes negative effects on their economies. 

The members will also form a labor rights advisory board to help members in promoting labor rights in their supply chains.

The talks for the agreement on supply chains, one of the four pillars of the IPEF, were concluded in May this year in Detroit. The other pillars are: trade; clean energy, decarbonization, and infrastructure; and tax and anti-corruption. 

The covid-enforced lockdown had severely disrupted the global supply chain, exposing the world’s dependence on China for various products. India, recognized as one of the biggest pharmaceutical manufacturers, is heavily dependent on China for key active pharmaceutical ingredients, or API, raw materials. 

The Indian pharmaceutical industry is valued at $42 billion and is expected to grow to $130 billion by 2030. In fiscal 2022, India exported APIs, also known as bulk drugs, worth ₹33,320 crore ($4 billion) and imported APIs valued at ₹35,249 crore ($4.2 billion).