GS Paper III

News Excerpt:

Recently, the supply chain agreement was signed by all 14 Indo-Pacific Economic Framework (IPEF) member countries within 18 months of its launch.

Recent status of supply chain orders across the globe:

• Systemic shocks and geopolitical events have disrupted supply chain operations, affecting the movement of products and services, particularly essential commodities such as food and medicines.
• Preventing disruptions and increasing supply chain resilience is thus a critical goal for most developed and developing countries.

The objective of the agreement:

The agreement aims at establishing three new bodies:

• IPEF Supply Chain Council:
  • The Council will identify "critical sectors" and "key goods" and create sector-specific action plans that will include input source diversification, collaborative research, and trade facilitation.
• Supply Chain Crisis Response Network:
  • In the event of a supply chain crisis in a member country, the network will effectively serve as an emergency communications channel.
  • To avoid future disruptions, possible and latent stress spots and weaknesses will be identified in advance across the supply chain network.
• Labour Advisory Board:
  • The advisory board, which will include government, worker, and employer representatives, will aim to promote employment rights and will offer recommendations on best practices in this regard.

Nature of the agreement:

• The agreement is non-binding, thus providing no guarantees towards the achievement of the stated objectives.
• It ensures a comprehensive coverage of preventive measures against supply chain disruptions.
• The provisions also allow for several flexibilities, especially in situations where a country deems it fit to apply measures or not provide information to protect its essential security interests.

Significance of the agreement:

• Under the agreement, IPEF partners seek to provide a framework to build -
• collective understanding of significant supply chain risks; 
• improve crisis coordination and response to supply chain disruptions; 
• facilitate cooperation, 
• mobilise investments, 
• promote regulatory transparency in sectors and goods critical to national security and public health and safety.
• It would help member countries like India to reduce their dependence on China and provide timely information to the IPEF member countries about potential supply disruptions.
• The critical sectors will be identified by the member countries.

Challenges regarding the agreement:

• The recommendatory nature of the agreement may impede its implementation.
• As the agreements are executive agreements and do not require congressional approval in the US.
• Finding efficient substitutes of critical inputs among the set of friendly IPEF member economies and formidable costs involved in creating resilient supply chains could be major deterrents to creating resilient supply chains.
• Despite efforts to diversify supply chains, it appears that indirect supply chain integration with China has intensified, particularly in strategic areas.

Conclusion:

The supply chain agreement is a welcome step. However, successful implementation would require precise and accurate demand projections of critical inputs, maintenance of sufficient levels of safety stocks, and diversification of sources alongside ensuring smooth logistics in and across member nations.