Indo-Pacific Economic Framework (IPEF): a Test for US Trade
One year after the Joe Biden administration introduced its Indo-Pacific Economic Blueprint, the pact still doesn’t resemble a conventional trade agreement and may ultimately fail to meet its lofty goals.
Indo-Pacific Economic Framework (IPEF)
The Joe Biden administration’s inaugural trade initiative, the Indo-Pacific Economic Blueprint (IPEB), is currently in the midst of its most extensive series of deliberations this month. In anticipation of the upcoming Asia-Pacific Economic Cooperation summit, the Biden administration is striving to conclude negotiations on the trade component, signaling its continued strong commitment to the region, even in the absence of the United States from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a pact from which former President Donald Trump withdrew.
Thirteen nations have entered into discussions under the IPEF with the United States: Australia, Brunei, Fiji, India, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Thailand, and Vietnam. (Taiwan had aspired to join but was excluded.) Collectively, the IPEF participants represent approximately 40 percent of the global economy.
The IPEF negotiations are structured into four key areas. U.S. Commerce Secretary Gina Raimondo leads discussions on three of these (supply chains, climate, and tax, and anticorruption), while the trade pillar is overseen by U.S. Trade Representative (USTR) Katherine Tai.
While progress varies across the pillars, the Biden administration has achieved notable advancements this year. Nevertheless, U.S. trading partners and members of Congress continue to express concerns that the limited focus on tariff reductions and market access issues might result in a missed opportunity to deepen economic connections throughout the Indo-Pacific. Here’s a glimpse of how the discussions might evolve and what we currently understand.
Pillar One: Connected Economy
The trade pillar of the IPEF will encompass three main areas: digital trade, labor, and the environment. U.S. proposals are expected to draw inspiration from the U.S.-Mexico-Canada Agreement (USMCA), which USTR Katherine Tai has lauded as a “new model for trade agreements.” The digital trade chapter of the USMCA incorporates several U.S. policy goals, such as a ban on customs duties for digital products, restrictions on data localization, and rules against hindering cross-border data transfers.
The USMCA’s digital trade provisions are more robust than those in the CPTPP, so it’s likely that the United States will push for their adoption within the IPEF. However, advocacy groups concerned about these rules limiting regulations on major technology firms like Google and Facebook have pressured the Biden administration to reconsider. In late October 2023, the United States withdrew some of its digital trade proposals at the World Trade Organization, likely leading to a more lenient stance in the IPEF’s digital trade pillar.
The environmental and labor chapters [PDF] of the USMCA are also more stringent than those in the CPTPP. USTR Katherine Tai supports the USMCA’s labor chapter’s Rapid Response Mechanism (RRM), which allows the United States to threaten trade penalties in response to alleged labor rights violations in Mexico.
While the RRM has raised procedural and substantive concerns, it’s likely to be a component of future U.S. labor commitments. However, IPEF countries may not face the same pressure as Mexico to accept these obligations. The second pillar of the IPEF incorporates elements of the RRM but lacks an enforcement mechanism. Whether these provisions will be transferred to the trade pillar remains uncertain.
Pillar Two: Resilient Economy
Pillar Two, known as the Resilient Economy, aims to address supply-chain challenges by establishing rules to enable governments and companies to respond swiftly to disruptions. Negotiations for this pillar concluded in May 2023, with a focus on making supply chains more resilient, efficient, transparent, diversified, secure, and inclusive.
The agreement establishes three institutions, including the IPEF Supply Chain Council, IPEF Supply Chain Crisis Response Network, and IPEF Labor Rights Advisory Board. Their practical functioning remains to be seen, and private sector involvement will be crucial. While an early-warning system for supply-chain shortages and efforts to map supply chains are valuable, IPEF might not be the best forum for responding to all types of disruptions, such as global pandemics. Improving transparency and responsiveness within the WTO could create more significant opportunities for cooperation.
Pillar Three: Clean Economy
The third pillar, the Clean Economy, addresses climate-related issues like renewable energy, decarbonization, energy efficiency standards, carbon removal, and methane emissions reduction. Some IPEF partners, Fiji and New Zealand, are engaged in talks on the Agreement on Climate Change, Trade, and Sustainability (ACCTS), which is more ambitious than what the IPEF has presented. The ACCTS establishes a link between trade and sustainability, aiming to reduce trade barriers in environmental goods and services, curb harmful fossil fuel subsidies, and offer guidelines on ecolabeling. Existing approaches in the ACCTS should be considered to avoid reinventing the wheel.
Pillar Four: Fair Economy
Pillar Four, the Fair Economy, focuses on tax and anticorruption policies and is likely to incorporate existing multilateral commitments, which not all IPEF members subscribe to. The Biden administration sees fighting corruption as a core national security interest, and this pillar supports broader efforts, including initiatives to improve business ethics in important export sectors like medical devices and biopharmaceuticals.
IPEF Could Be U.S. Response to CPTPP
The Missing Link
The IPEF may serve as the Biden administration’s alternative to the United States’ absence from the CPTPP, but it lacks a crucial element: market access, including tariff elimination. U.S. Trade Representative Katherine Tai has emphasized that market access is off the table due to concerns about the backlash that traditional trade agreements have generated in the United States.
However, without market access, the United States is unlikely to make substantial commitments in the trade pillar, which means the final agreement might provide limited benefits to U.S. consumers and businesses. Additionally, the exclusion of two of the United States’ closest trading partners, Canada and Mexico, is unfortunate, given their expertise in expediting trade and addressing post-9/11 security concerns.
The format of the IPEF deal remains uncertain. Typically, negotiations of this scale involve congressional input and Trade Promotion Authority (TPA) to subject the final deal to an up-or-down vote. However, there is no clear indication of substantial congressional involvement in the IPEF, and President Biden has not sought TPA. The IPEF could potentially take the form of a trade executive agreement, raising concerns about transparency and durability.
“Without a more substantial trade component, the IPEF will likely be a missed opportunity to deepen economic ties across the Pacific.”
_Inu Manak
Bipartisan pushback on this approach may lead Congress to require consultation on the remaining IPEF pillars and subject the final text to a vote, as it has done with the U.S.-Taiwan Initiative on 21st Century Trade. The interplay between Congress and the Executive branch over trade authority could affect the progress of IPEF’s implementation.
Whether the content of the IPEF will be legally binding and subject to dispute settlement remains uncertain. The administration might adopt a unilateral enforcement mechanism similar to the one in the Trump administration’s Phase One trade deal with China, but such a tool could make enforcement challenging, if not impossible. The supply chain pillar includes provisions for government consultations, but there is no clear process for dispute resolution beyond finding a mutually satisfactory resolution as soon as possible.
In its current form, the IPEF does not resemble a traditional trade agreement, which may explain the minor role of the USTR in these negotiations. Without a more substantial trade component, the IPEF could represent a missed opportunity to deepen economic ties across the Pacific.