India-Japan-Australia Supply Chain Initiative

Archives

TOPIC: General Studies 2

• Bilateral, Regional and Global Groupings and agreements involving India

In News: Japan, India and Australia agreed to launch an initiative to achieve supply chain resilience in the Indo-Pacific region, in an apparent bid to reduce trade dependence on China – a major trading partner for all three nations. 

• There is a need for a free, fair and predictable trade environment and an opportunity for like-minded nations in the region to take part. Many nations dependent on China for trade have suffered from supply disruptions, highlighting the need for diversification.
• The creation of the “Supply Chain Resilience Initiative” was mooted by Japan amid the Covid-19 crisis, which has played havoc with supply and manufacturing chains. The launch is mostly going to be later this year. 
• Along with the U.S., Japan, Australia and India make up the Quadrilateral Security Dialogue, or Quad, a loose grouping for national security consultation.

The Initiative

The trio aims to create a free and transparent trade and investment environment.

The Objective: Take a lead in delivering a free, fair, inclusive, non-discriminatory, transparent, predictable and stable trade and investment environment and in keeping their markets open.

• The cumulative GDP of Australia, India and Japan during 2019 was $ 9.3 trillion and their cumulative merchandise goods and services trade were $ 2.7 trillion and $0.9 trillion respectively.
• It is a natural follow on to the security cooperation between the three countries, both bilaterally and through platforms such as the Quadrilateral Dialogue Mechanism or Quad, which includes the US.
• The three countries will now work with regional partners, including members of the Association of South East Asian Nations (Asean), to build stronger supply and manufacturing chains that are protected from external shocks and influences.
• The three nations see countries such as Vietnam, Indonesia and New Zealand among the players who can have a key role in the initiative.
• Japan suggested including the digitalization of trade procedures and support for capital expenditure as part of the initiative. A pre-existing scheme where Japan is supporting capex into ASEAN countries will serve as one reference point for the initiative.

Why is this step necessary?

The diversification of supply chain is critical for managing the risks associated with supply of inputs including disciplining price volatility. These nations can provide the core pathway for linking value chains in the region by creating a network of reliable long-term supplies and appropriate capacities.

• Japan’s procurement of many specific products from India was limited despite Japanese global imports being high. This includes sectors such as steel, marine products, processed agriculture, agro-chemicals, plastics, carpets, clothing and footwear. The proposed initiative would try to bridge this and work towards enhancing mutual trade.
• The Quad with its political, strategic and security elements isn’t enough of a response to the emerging situation in the Indo-Pacific and it needs an economic pillar, including deeper economic cooperation, trade, connectivity, supply chains and global and regional value chains.

Where does Australia stand?

• China has been Australia’s largest trading partner and accounts for 32.6% of Australia’s exports, with iron ore, coal and gas dominating the products shipped.
• But relations including trade ties between Australia & China have been deteriorating for a while now. 
• China banned beef imports from four Australian firms in May 2020, and levied import tariffs on Australian barley. 
• In June 2020, China’s education Ministry warned its students aspiring to study or already studying in Australia, of ‘rising racism’ in that country.
• Australia, Japan and India are already part of another informal grouping, the Quadrilateral Security Dialogue, or the Quad, which includes the U.S.

What does India stand to gain, or lose? 

• It is significant that Japan has taken the initiative to include India despite India having pulled out of the RCEP that Japan helped stitch together
• Following the border tension between India and China, partners such as Japan have sensed that India may be ready for dialogue on alternative supply chains.
• But an internal push to suddenly cut links with China would be impractical
  • China’s share of imports into India in 2018 (considering the top 20 items supplied by China) stood at 14.5%, 
  • Chinese supplies dominate segments of the Indian economy
  • In areas such as Active Pharmaceutical Ingredients for medicines such as paracetamol, India is fully dependent on China. 
  • In electronics, China accounts for 45% of India’s imports

The Way Forward

SCRI initiative is at the strategy stage and has some way to go before participants can realise trade benefits. Over time, if India enhances self-reliance or works with exporting nations other than China, it could build resilience into the economy’s supply networks. Also, India needs to accelerate progress in ease of doing business and in skill building in order to reap its benefits.

Connecting the Dots:

1. Supply Chain Resilience Initiative (SCRI)
2. US-China Trade War