Momentum and uncertainty follow IPEF ministerial meeting

Authors: Emily Benson and Aidan Arasasingham, CSIS

Fourteen countries, hosted by the United States, gathered in Los Angeles in September 2022 for an Indo-Pacific Economic Framework for Prosperity (IPEF) ministerial meeting. Washington originally designed the economic arrangement – which complements its security strategy in the Indo-Pacific region – in October 2021 and officially launched the initiative in May 2022.

The main achievement coinciding with the launch event in May was the number and diversity of participants that the United States was able to onboard. At this stage, the participants are Australia, Brunei, Fiji, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand and the Vietnam.

Washington’s reluctance to negotiate market access calls into question its ability to offer serious concessions and highlights the domestic political constraints it faces in negotiating free trade agreements. The decision not to pursue market access led negotiators to take a non-traditional approach to economic engagement. This approach leverages private sector expertise and investment in areas such as critical minerals and the clean economy rather than through tariff liberalization.

A bipartisan chorus of skeptics has emerged in Congress seeking further transparency on the negotiation process and IPEF goals. US Representative Adrian Smith said in October 2022 that initiatives such as IPEF cannot replace formal free trade agreements.

After defining negotiating objectives and building support for specific policy pillars, the parties presented a series of ministerial declarations that confirmed the IPEF’s four negotiating pillars. Like other non-traditional economic agreements, the IPEF is a flexible framework that allows countries to join specific pillars without having to join them all. But the arrangement obliges countries to adhere to the single pillars in their entirety.

Another notable feature of the IPEF is that the parties have sought to avoid any mention of China in the build-up to the negotiations, seeking instead to create what they see as an affirmative agenda in the region. The four pillars of IPEF are trade, supply chains, clean economy and fair economy.

The trade pillar is divided into nine additional subsets. Short of defining concrete negotiating objectives or elucidating how enforcement and dispute resolution would unfold, the September 2022 ministerial meeting largely functioned as a signaling exercise.

While some stakeholders had hoped for an ‘early harvest’ – where smaller deals on more targeted areas are reached before others – US Trade Ambassador Katherine Tai called talks of a harvest ‘premature’ early. Other government officials point to negotiators’ belief that the scale and complexity of the trade pillar means it will remain one of the most difficult and time-consuming pillars.

The second pillar of IPEF focuses on supply chains – a topic that generated the most excitement among participating countries in the lead-up to the ministerial meeting. This pillar aims to improve supply chain transparency, create a mechanism for information sharing and crisis response, and establish criteria to govern critical sectors and goods. All participating countries have suffered supply chain setbacks due to the COVID-19 pandemic and systemic shocks such as growing calls to diversify away from China.

As Washington explores policies to accelerate decoupling from China, IPEF’s supply chain pillar could help identify countries – and their respective private sector entities – that can play a greater role in building more secure supply chains. The results of the supply chain pillars could eventually produce friction-reducing results similar to the benefits offered by a free trade agreement, although these results depend on a substantial increase in technical assistance.

Other non-traditional frameworks such as the Quad and the US-EU Business and Technology Council have also sought to build more secure and resilient supply chains. But they also demonstrate the challenges countries face in delivering concrete supply chain results, particularly due to the reluctance of the private sector to share proprietary data.

The Clean Economy Pillar seeks to catalyze investments that reduce emissions, improve sustainability and expand markets for cleaner economies, such as carbon removal technologies. Stakeholders in the United States have turned to the United States Development Finance Corporation (DFC) for financial assistance for IPEF’s Clean Economy Pillar. But the DFC’s relatively limited statutory authority and small budget prevent it from playing an outsized role in development and climate finance.

The fair economy pillar aims for greater policy convergence among participants on capacity building, cooperation and transparency. It says it will do so by “preventing and combating corruption, curbing tax evasion and improving transparency, recognizing the importance of fairness, inclusion, rule of law, accountability and transparency”. But it is unclear what tangible results the partners will be able to achieve on this pillar and whether it will spur domestic policy change.

The tentative plan is for the parties to meet every two months to hold what will look like formal “rounds” of trade talks. Washington aims to conclude the IPEF negotiations before the Asia-Pacific Economic Cooperation summit hosted by the United States in November 2023.

Details remain elusive, casting doubt on the countries’ ability to reach an agreement within that time frame. Yet the ambition to meet often and formally signals that the parties do not want IPEF to turn into a series of meetings for the sake of meetings.

Emily Benson is a member of the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, DC.

Aidan Arasasingham is a program coordinator and research assistant at CSIS.

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