The Indo-Pacific Framework: A move away from conventional Free Trade Agreements?

The Indo-Pacific Framework for Prosperity joins other Pacific mega deals like RCEP and CTPPP, with stronger diplomacy but lighter binding commitments

The Indo-Pacific Economic Framework for Prosperity (IPEF) was launched on the 23rd of May 2022. Since President Donald Trump backed out of the Trans-Pacific Partnership (TPP) at the start of his presidency in 2017, the IPEF is another attempt by the US Government to further consolidate its influence and restore its leadership among countries in the Indo-Pacific region. For years, the United States has been attempting to further improve its standing and counterbalance China’s rising power in the area. Despite welcoming the initiative, countries in Asia-Pacific still have some reservations about the IPEF.

The partners currently involved in the IPEF constitute numerous of the members of the renamed Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) namely Australia, Brunei Darussalam, Japan, Malaysia, New Zealand, Singapore, and Viet Nam. Other countries have also joined the talks for the IPEF notably India, Indonesia, the Republic of Korea, the Philippines, Thailand and the United States.

Together, it is estimated that the IPEF countries account for approximately 40% of the world’s GDP (White House, 2022). A few days following the launch of the framework, Fiji was also welcomed into the IPEF as a founding member. Like some of the major plurilateral trade agreements signed in the region, China was excluded from the talks.  Despite support for its inclusion, Taiwan was also excluded from the Framework given the unwillingness of South and Southeast Asian countries to provoke China (Arasasingham, Benson, & Goodman, 2022). However, there have been talks about a potential bilateral agreement between the United States and Taiwan (Leonard, 2022).

Figure 1: GDP of Countries involved in the IPEF negotiations as of 26 May 2022

Source: World Bank 

The Indo-Pacific Economic Framework for Prosperity strives to build a connected, transparent, fair and sustainable region resilient to shocks

Following the path carved by the CPTPP, the IPEF also aims at establishing itself as a ‘21st-century agreement’. It is structured around four main pillars all aimed at ensuring high-standard commitments regarding regional integration and economic cooperation. Preliminary IPEF discussions have focused on:

  • Pillar 1 (Connected Economy) will address standards surrounding the digital economy and certain trade and sustainable development (TSD) issues namely labour and environmental standards, and corporate accountability.
  • Pillar 2 (Resilient Economy), will focus on cooperation to improve resilience across supply chains. Mechanisms might be established to mitigate potential exogenous shocks as well.
  • Pillar 3 (Clean Energy) aims to address concerns related to climate change by further renewing commitments and efforts in regard to decarbonisation, transitioning to renewable energy and addressing methane emissions.
  • Pillar 4 (Fair Economy) targets good governance by aiming to develop rules and commitments surrounding tax regimes, anti-money laundering and anti-bribery (White House, 2022).

Source: White House, 2022

A result of Biden’s Foreign Policy for the Middle Class

In light of the nationalist sentiments that have gripped the United States during Trump’s administration and the rising concerns among the population over the loss of jobs to foreign countries, the Biden Administration has been heavily accentuating the numerous benefits of the IPEF to American workers and local businesses. The IPEF has been integrated into Biden’s “foreign policy for the middle class” (Harris & Sutton, 2022). In the briefing published by the White House upon the launch of the Agreement, it was emphasised that the Indo-Pacific region supports around 3 million jobs in the United States and that the region contributes close to $900 billion in foreign direct investment to the United States. Moreover, it has also been stated that the United States features as the “primary exporter of services to the region” (White House, 2022). Through the Agreement, it is expected that the United States will be able to benefit from lower costs and more resilient supply chains especially as the country grapples with economic recovery following the COVID-19 pandemic.

Moving from diplomacy to implementation will be a challenge

Nonetheless, the United States still faces certain challenges when it comes to the IPEF. For instance, the United States Trade Representative, Katherine Tai, has stated that the United States is not prepared to offer preferential market access to the parties under the IPEF, eliciting criticism from many Senators claiming that the framework is not ambitious enough (Reinsch, 2022). Tai, however, has been resolute in this regard, claiming that the IPEF is focused on a novel and innovative approach to regional economic integration. Given that reduced tariffs and preferential market access conditions are not on the cards at present, this significantly reduces the United States’ bargaining position in the IPEF. Recently signed agreements involving Asia-Pacific states such as the CPTPP and the Regional Comprehensive Economic Partnership (RCEP) are all rooted primarily in preferential market access. Concerns have also been raised over the longevity and durability of the framework, especially upon the election of a new US president who can very easily withdraw from the framework especially given that the framework will not be structured as a traditional trade agreement (The Economist, 2022).

Furthermore, the United States’ ambitions for the development of high standards and rules have not been met with the same ardour from all prospective parties, especially given that the United States wishes to turn the IPEF into a standard-setting and rule-making body for the organisation. Recently, Taro Kono, Japan’s former Minister of Foreign Affairs, reiterated that the CPTPP already functions as the rule setting body for the region in these matters (Harris & Sutton, 2022). Nonetheless, it should be noted that some of the areas of cooperation planned under the IPEF are expected to go beyond the scope of the CPTPP.

The parties of the IPEF will have the opportunity to select and participate in the pillars of their interest as opposed to being subjected to all four pillars. While countries have not yet indicated under which pillar(s) they would participate, some commentators have suggested that only the wealthiest economies in the region comprising Australia, Japan, New Zealand, Singapore and South Korea will participate under Pillar 1 given that the other countries may not wish to undertake reforms related to the areas of the digital economy and labour and environmental standards Harris and Sutton (2022). Additionally, there is a persisting lack of clarity as to the form and function of the framework as well as the processes for negotiations (Goodman & Arasasingham, 2022).

Way forward for the IPEF

Current negotiating parties may also change over time as the framework is negotiated. For instance, India pulled out of the negotiations of the RCEP in 2019 despite having been a member since the RCEP’s inception in 2011 owing to concerns regarding the impacts of liberalisation on its domestic industry (Gupta & Ganguly, 2020).

It is too early to speculate on the scope, coverage, and enforceability of the IPEF and its implications for the region.  As consultations continue and areas of cooperation are further fleshed out, a better understanding of the commitments under the IPEF will emerge. Nevertheless, certain parties will have to compromise on some of their expectations, especially in regard to whether the framework will also incorporate preferential market access and whether the framework can emerge as the rule setting body advocated by the US. Although there has been no estimated timeline for the conclusion of the framework, certain scholars from the Centre for Strategic and International Studies (CSIS) have suggested that the various parties might wish to conclude it ahead of the Asia-Pacific Economic Cooperation (APEC) Summit to be held in November 2023 (Arasasingham, Benson, & Goodman, 2022).

Paul Baker is the founder and CEO of IEC. He is a consultant for various governments in developed and developing countries, an adviser on global corporate strategies to multinationals, and a Visiting Professor at the College of Europe. Paul is an expert in the Working Group of the World Economic Forum’s (WEF) Digital Flows Initiatives, an Expert in the WEF/WTO’s TradeTech Working Group on trade technologies for trade, and is on the Board of the United Nations Economic and Social Commission for Asia Pacific’s Trade Intelligence tools. He is also a member of the UK’s All Party Parliamentary Group on Trade and Investment, and a regular contributor to the UK Parliament’s Trade Select Committee, and UNESCAP and UNCTAD panels and events regarding trade impact analysis.

 

References

Arasasingham, A., Benson, E., & Goodman, M. P. (2022, May 23). Unpacking the Indo-Pacific Economic Framework Launch. Centre for Strategic and International Studies. Retrieved from https://www.csis.org/analysis/unpacking-indo-pacific-economic-framework-launch

Goodman, M., & Arasasingham, A. (2022, April 11). Regional Perspectives on the Indo-Pacific Economic Framework. Centre for Strategic and International Studies. Retrieved from https://www.csis.org/analysis/regional-perspectives-indo-pacific-economic-framework

Gupta, S., & Ganguly. (2020, November 23). Why India Refused to Join the World’s Biggest Trading Bloc. Foreign Policy. Retrieved from https://foreignpolicy.com/2020/11/23/why-india-refused-to-join-rcep-worlds-biggest-trading-bloc/

Harris, T., & Sutton, T. (2022, May 27). Biden’s Economic Plan Leaves Asian Leaders Wanting More. Foreign Policy. Retrieved from https://foreignpolicy.com/2022/05/27/indo-pacific-economic-framework-ipef-biden-asia-trade/

Leonard, J. (2022, May 27). US Plans Economic Talks With Taiwan in Latest Challenge to China. Bloomberg. Retrieved from https://www.bloomberg.com/news/articles/2022-05-27/us-plans-economic-talks-with-taiwan-in-latest-test-with-china

Reinsch, W. A. (2022, April 4). A Trade Policy Begins to Take Shape, but Not the One the Country Needs. Centre for Strategic and International Studies. Retrieved from https://www.csis.org/analysis/trade-policy-begins-take-shape-not-one-country-needs

The Economist. (2022, May-June). A new pact for Asia. The Economist, pp. 65-66.

U.S. Embassy and Consulates in India. (2022, May 23). Statement on Indo-Pacific Economic Framework for Prosperity. Retrieved from U.S. Embassy and Consulates in India: https://in.usembassy.gov/statement-on-indo-pacific-economic-framework-for-prosperity/

White House. (2022, May 23). FACT SHEET: In Asia, President Biden and a Dozen Indo-Pacific Partners Launch the Indo-Pacific Economic Framework for Prosperity. Retrieved from The White House: https://www.whitehouse.gov/briefing-room/statements-releases/2022/05/23/fact-sheet-in-asia-president-biden-and-a-dozen-indo-pacific-partners-launch-the-indo-pacific-economic-framework-for-prosperity/

White House. (2022, May 26). Statement by National Security Advisor Jake Sullivan on Fiji Joining the Indo-Pacific Economic Framework for Prosperity. Retrieved from The White House: https://www.whitehouse.gov/briefing-room/statements-releases/2022/05/26/statement-by-national-security-advisor-jake-sullivan-on-fiji-joining-the-indo-pacific-economic-framework-for-prosperity/

 

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