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India-Japan-Australia Supply Chain Initiative (7 September 2020)

India-Japan-Australia Supply Chain Initiative (7 September 2020)

Why in News:

Japan, India and Australia agreed last week 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.

Context:

In an online meeting, India's commerce and industry minister Piyush Goyal and Japanese and Australian counterparts Hiroshi Kajiyama and Simon Birmingham raised the need for a free, fair and predictable trade environment and called on like-minded nations in the region to take part. The ministers said in a joint statement they instructed officials to work out the details for a launch later this year. Many nations dependent on China for trade have suffered from supply disruptions, highlighting the need for diversification.

Background:

The initiative comes at a time when there is a likelihood of rechurning of supply chains in the Indo-Pacific region

The cumulative GDP ofJapan-India- Australia was $9.3 trillion, and their merchandise goods and services trade was $2.7 trillion and $0.9 trillion, respectively.

Summary of the Debate

Supply Chain Resilience Initiative (SCRI):

  • The initiative, first proposed by Japan with India and Australia as partners, potentially see other Asian and Pacific Rim nations later.
  • In the context of international trade, supply chain resilience is an approach that helps a country to ensure that it has diversified its supply risk across a clutch of supplying nations instead of being dependent on just one or a few.
  • The three nations are seeking to build stronger supply chains to counter China’s dominance as trade and geopolitical tensions escalate across the region.
  • The economic strategies that are building here is not anti-China, it’sonly reducing their dependence on China and therefore de-risking such disruptions which have happened recently because of USA-China trade war and more recently because of the lockdowns because of the covid-19.

Reasons:

  • Chinese assertiveness in the region and this reason goes beyond the purely economic, there are political, strategic and psychological factors involved.
  • The USA President Donald Trump ratcheting up this trade war with China which led to tariff rising, sanctions which itself created disruptions not just between the USA and China but also several other recipients of products and services that they deliver by cooperating between themselves.
  • Covid-19 which led to panic reaction of sealing of borders and complete disruptions of those supply chains which had been serving much of the world coming out of China, for example; India has great dependence on China in pharmaceuticals.
  • In case of Australia, though they have signed a free trade agreement with China, the Chinese have hit them badly in terms of putting restriction on their exports of meat, on wine and on other products which Australians exported large quantities to China.
  • So, everybody is feeling their vulnerability in the face of Chinese aggressive attitude that they have been exhibiting in the past few months and due to pandemic supply lines has disrupted. So, alternative supply lines need to be developed.