Indo-Pacific Economic Framework - Is there a blueprint?
Indo-Pacific region has many multilateral economic organisations which are seen as organisations which can provide a hope for regional economic integration. Indo-Pacific Economic Framework is different as it is in evolutionary phase. This article addresses the concerns and advantages in this framework.
In May 2022, the United States launched the Indo-Pacific Economic Framework for Prosperity (IPEF) with Australia, Brunei Darussalam, Fiji, India, Indonesia, Japan, the Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, and Vietnam.[1] The framework aims to strengthen economic engagement among member countries and go beyond traditional trade agreements. Divided into four pillars—Connected Economy, Resilient Economy, Clean Economy, and Fair Economy—IPEF is aimed at structural economic transformation.[2] As member states in the framework have different economic standards and rules, thus they are allowed to be part of the framework without joining all the pillars of the framework which makes this framework flexible and open to developing economies like India, Indonesia, Thailand, and Vietnam. The 14 IPEF partners represent 40 percent of global GDP and 28 percent of global goods and services trade.[3]
The framework is said to be linking like-minded nations under one framework, which will be led by the U.S., as the region is important for U.S. trade and investments, in addition, it will support existing 3 million U.S. jobs and 5.1 million jobs in the Indo-Pacific.[4] Some Members of Congress and stakeholders support IPEF as an opportunity for the United States to reassert a leading role in establishing updated trade and economic rules with key regional partners, and to support broader strategic aims in the region.[5] This framework has come into effect due to two major reasons. Firstly, the U.S. withdrew from Trans-Pacific Partnership (TPP) in 2017 due to which there was a void left to be filled. China, on the other hand, is part of the Regional Comprehensive Economic Partnership (RCEP) grouping with Australia, Brunei Darussalam, Cambodia, China, Japan, Lao PDR, New Zealand, Singapore, Thailand, and Vietnam. It has also expressed its desire to join TPP’s successor arrangement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and the Digital Economic Partnership (DEPA) with Chile, New Zealand, and Singapore.[6] This led to a decrease in U.S. economic influence and an increase in Chinese influence. Secondly, this framework will focus beyond the free trade agreements as it will not reduce tax concessions but addresses issues like supply chain resiliency which will deepen economic linkage. The Framework will not require Congress's approval. The Administration hopes to cultivate higher labor standards and increase transparency throughout the entire supply chain, ensuring that workplace abuse can be identified and ended.[7] This framework will bring the government and private sectors closer and will digitalize economic engagement between member states. Specifically, it will make it easier for Small and Medium Sized businesses (SMEs) to engage in a globalized world.
The framework has a future and blueprint as it has included developing economies that are working upon the trade standards that will be assisted by the U.S. digital or technological advances. Moreover, the framework will secure essential products like semiconductors, mining resources, etc. Lastly, the IPEF seeks to craft high-standard, inclusive, free, fair, and open trade commitments that build upon the rules-based multilateral trading system with World Trade Organisation (WTO) at its core.[8]
How each pillar will function?
Unlike typical FTA talks, IPEF is not to involve a “single undertaking,” and partners may conclude multiple agreements separately rather than waiting to finalize all elements of a comprehensive deal.[9] The four pillars outlined in the framework will function at a different pace depending on their nature and initiatives by the member states.
The first pillar focus on trade which aims to pursue high-standard rules in the digital economy, and cross-border data flows and engage comprehensively on various issues. Small and medium-sized businesses will benefit from the growing digitalization of the economy in a safe and secure environment. According to the White House, the U.S. will also seek strong labor and environment standards and corporate accountability provisions that promote a race to the top for workers through trade.[10] This pillar goal will be achieved over a long period of time due to the non-participation of India which is a huge economy, and due to the fact that the majority of member states in the framework cannot embrace the standards on digital trade, environment, and labor, in short term, hence, the objectives mentioned in this pillar will be achieved over long-period. In Southeast Asia, the digital economy and technology area of focus initially announced in October is uniquely urgent and potentially impactful.[11] It is critical to make progress on the digital economy which this pillar mentions, for the overall success of the IPEF as digitalization also plays a role in the second pillar of the framework, in addition to it. This pillar will encourage developing economies in Southeast Asia to adopt the Western-style digital privacy regime rather than the Beijing style which restricts the flow of data.
The second pillar focuses on the supply chain, this pillar has received a lot of attention first agreement signed in the framework is based on this pillar. According to the Whitehouse, “the U.S. will seek first-of-their-kind supply chain commitments that better anticipate and prevent disruptions in supply chains to create a more resilient economy and guard against price spikes that increase costs for American families. We intend to do this by establishing an early warning system, mapping critical mineral supply chains, improving traceability in key sectors, and coordinating on diversification efforts.[12] In addition, it would establish a labor rights advisory board to support the promotion of labor rights in supply chains.[13]
The supply chain disruption was faced during the COVID-19 pandemic and due to the ongoing Ukraine War. Due to this, businesses are already making adjustments in their supply chains by using dual sourcing, increasing inventory, nearshoring, and regionalizing their supply chains.[14] As a result, countries have come to an understanding that individually they will face consequences of supply chain disruption and they cannot rely on market forces, therefore they require international cooperation and a framework like this. The region has continued to expand its participation in global value chains, especially in critical manufacturing sectors such as semiconductors, electronics, automobiles, batteries, and electric vehicles, increasing its exposure to possible supply chain disruptions.[15] This framework is up to date and more relevant in comparison to RCEP and CPTPP as these organizations ??were not designed to address the emerging supply chain issues which will help small and medium-sized enterprises, and protect consumers.
The third pillar focuses on clean energy and decarbonization, addressing the infrastructure gap in the Indo-Pacific region. The framework will pursue concrete, high-ambition targets that will accelerate efforts to tackle the climate crisis, including in the areas of renewable energy, carbon removal, energy efficiency standards, and new measures to combat methane emissions.[16] This pillar has also received required consideration as, the IPEF partners are concurrently identifying and developing initiatives and proposals to advance cooperation in key areas that are critical to realizing their unique pathways towards net zero emission economies, whilst recognizing the unique national circumstances of each IPEF partner, including their development needs.[17] More importantly, interested IPEF partners are introducing a regional hydrogen initiative to encourage the widespread deployment of renewable and low-carbon hydrogen and its derivatives in the region.[18] The member states like India would like the Pillar focus to be centered on action-oriented elements, such as mobilization of low-cost long-tenure climate finance.[19]
The fourth pillar focuses on anti-corruption initiatives and tackling money laundering, enhancing transparency. This involves sharing expertise and seeking ways to support the capacity building necessary to advance accountable and transparent systems.[20] This pillar has not received the same level of attention given to other pillars, as a majority of nations in the framework have corruption issues and to solve this the state legislature will play a role in passing bills, thus solely the framework is not enough. For example, on control of corruption, India scored 46.63. New Zealand leads the chart with a score of 99.04, and the Philippines is at the bottom with 34.13.[21] Still, the framework will seek to include provisions on the exchange of tax information, criminalization of bribery in accordance with UN standards, and effective implementation of beneficial ownership recommendations to strengthen our efforts to crack down on corruption.[22]
How The Framework Will Play A Role In The Region:
The framework can be seen as a part of an Indo-Pacific strategy, in which it plays a role in the economic sphere that is led by the U.S., like QUAD and AUKUS in the security sphere. The framework is seen as an attempt to contain China, as it targets the nations which have China as their major trading partner, secondly, it targets the pillar which is weaker in China, like the labor standards and clean energy. The IPEF not only adds a much-needed economic dimension to the Biden administration’s broader Indo-Pacific Strategy but also serves as a critical tool to advance these standards and maintain openness in the digital space.[23]
Largely, the framework has been welcomed by the region as it shows, China is not the major player influencing the region, and the U.S. which is technologically advanced will transfer its technology to the developing nations who are in need of it. However, there has been skepticism based on concerns about tariff cuts being off the table, and no market access given.[24] China has reacted negatively to this framework as this framework will try to take away its major export markets. China is likely to bolster its own partnerships. Chinese Foreign Minister Wang Yi stated, “China will firmly promote development in the Asia-Pacific. While expanding high-level opening-up, China is striving to advance high-quality Belt and Road cooperation, facilitate connectivity in the Asia-Pacific, and ensure safe and stable functioning of industrial and supply chains in the region.”[25]
The framework agreements are not enforceable, however, if the framework becomes enforceable then the framework will be crucial in the future as the states will require to comply, in addition, it addressed the issues which are not in a traditional agreement, moreover, it will secure the supply chain of important products like semiconductors and minerals. Due to this, there can also be a possibility of bringing Taiwan into the framework, which can heighten tensions with China.
How The Framework Can Develop In The Future:
The framework has strong potential and with the U.S., it can develop further by attracting more ASEAN countries into the framework through trade facilitation as it has been ASEAN's priority goal, making it broader economic partnership in the region. Trade facilitation has significant effects similar to tariff reductions. For example, the implementation of the WTO’s TFA is forecasted to slash members’ trade costs by an average of 14.3%.[26] Hence, the USA can support the Indo-Pacific region through its two policies, which are Trusted Trader programs/Authorized Economic Operator (AEO) and National Single Window (NSW).
By applying an Authorized Economic Operator policy with a particular, the cost of trade becomes cheaper and quicker as the state becomes trustworthy. They do this by verifying that the authorized participant maintains an adequate level of supply chain security so that the customs screenings for exports and imports can be expedited. In the United States, the program is known as the Customs-Trade Partnership Against Terrorism (CTPAT).[27] The U.S. has such an agreement multilaterally with Pacific Alliance, therefore, this could be seen as a model to follow for the IPEF nations. The MRA would help medium-sized enterprises (MSE), as an MRA would allow them access to some of the same benefits as larger multinationals.[28]
A National Single Window (NSW) is a trade facilitation platform that allows international traders to submit all information needed in a standardized format to one government agency to obtain the required papers, permits, and clearances to complete their import or export processes.[29] The NSW overcomes a time-consuming bureaucratic process as the traders will have to deal with a single agency across the government, more importantly, it will reduce corruption as several bureaucratic agencies will no longer interfere. The United States, for example, estimated that its own NSW, the Automated Commercial Environment, generated nearly $1.8 billion in processing efficiencies in FY2020.[30] As the NSWs are at different stages in each member state in the framework, the U.S. can engage with each nation according to their requirement, for example with nations who have advanced NSW, the U.S. can progress with the intent to integrate nation's NSWs to further unify, streamline, and automate cross-border trade administrative processes. Even in cases in which Single Window connectivity may not be possible in the short run, the United States should still pursue government-to-government data-sharing arrangements to ensure efficient and secure trade flows between the United States, its regional partners, and both nation’s customs officials.[31]
Trade facilitation in the future will be beneficial to South-East countries, with the transfer of technology making trade paperless, and enabling electronic payments, adding translators to the customs procedures. For example, as in Vietnam, imported goods are subject to more than 300 legal documents which are issued and maintained by separate government agencies. Any support the United States can provide in enhancing transparency, simplifying and harmonizing procedures, and modernizing customs would be especially beneficial to Vietnam’s NSW implementation and would be in line with policy mandates consistently pursued by the Vietnamese government.[32]
These policies' inclusion will help in Pillar 1 (connected and fair trade) and Pillar 4 (Fair economy). ??Nonetheless, the US must provide other, substantial benefits such as partnerships to develop more resilient supply chains, infrastructure funding, and support for a renewable energy transition.[33]
Conclusion:
The Indo-Pacific Economic Framework for Prosperity (IPEF) holds significant potential for promoting economic engagement and cooperation among its member countries. While the achievement of the framework's objectives may take time, it remains an important step in enhancing economic integration and fostering sustainable development in the Indo-Pacific region. The digital economy pillar, in particular, presents an urgent opportunity for Southeast Asian countries to embrace Western-style digital privacy regimes and benefit from the growing digitalization of the economy. The IPEF provides a more comprehensive and up-to-date approach to addressing supply chain issues compared to existing regional frameworks.
The Indo-Pacific Economic Framework for Prosperity holds promise in strengthening economic engagement, promoting sustainable development, and addressing key challenges in the Indo-Pacific region. While it faces certain hurdles and skepticism, the framework provides a platform for cooperation and integration among member countries, signaling the United States' commitment to maintaining a leading role in the region's economic landscape.
In spite of the framework potential and agreements, the IPEF has faced criticism as according to them, the IPEF remains a non-transparent and undemocratic trade agreement that is almost unilaterally designed and promoted by the most powerful economy in the world. The IPEF is nothing but a backdoor channel for the US to set global standards and regulations and secure the market interests of US-based Multinational Corporations (MNCs).[34]
Notes
[1] United States Trade Representative. “Indo-Pacific Economic Framework for Prosperity (IPEF),” n.d. http://ustr.gov/trade-agreements/agreements-under-negotiation/indo-pacific-economic-framework-prosperity-ipef.
[2] Krishna, Jayant, Mukesh H. Butani, Kartikeya Singh, and Alok Gupta. “Experts React: Can IPEF Be a Watershed Moment for U.S.-India?” Experts React: Can IPEF Be a Watershed Moment for U.S.-India?, n.d. https://www.csis.org/analysis/experts-react-can-ipef-be-watershed-moment-us-india.
[3] United States Trade Representative. “Indo-Pacific Economic Framework for Prosperity (IPEF),” n.d. http://ustr.gov/trade-agreements/agreements-under-negotiation/indo-pacific-economic-framework-prosperity-ipef.
[4] U.S. Department of State. “A FREE AND OPEN INDO-PACIFIC: ADVANCING A SHARED VISION,” November 4, 2019. https://www.state.gov/wp-content/uploads/2019/11/Free-and-Open-Indo-Pacific-4Nov2019.pdf.
[5] Congressional Research Service . “Indo-Pacific Economic Framework for Prosperity (IPEF),” June 16, 2023. https://crsreports.congress.gov/.
[6] Explained | What is the Indo-Pacific Economic Framework for Prosperity? - The Hindu. “Explained | What Is the Indo-Pacific Economic Framework for Prosperity?,” May 28, 2022. https://www.thehindu.com/news/international/explained-what-is-the-indo-pacific-economic-framework-for-prosperity/article65460071. ece.
[7] Five Things to Know About the Indo-Pacific Economic Framework – Third Way. “Five Things to Know About the Indo-Pacific Economic Framework – Third Way,” November 14, 2022. https://www.thirdway.org/memo/five-things-to-know-about-the-indo-pacific-economic-framework.
[8] Ministry of Commerce and Industry. “Ministerial Statement for Pillar II of The Indo-Pacific Economic Framework for Prosperity – Lndo-Pacific Economic Framework for Prosperity (IPEF) Pillar II – Supply Chains.” commerce.gov , n.d. https://www.commerce.gov/sites/default/files/2022-09/Pillar-II-Ministerial-Statement.pdf.
[9] Congressional Research Service. “Indo-Pacific Economic Framework for Prosperity (IPEF),” June 16, 2023. https://crsreports.congress.gov/.
[10] House, The White. “Statement on Indo-Pacific Economic Framework for Prosperity | The White House.” The White House, May 23, 2022. https://www.whitehouse.gov/briefing-room/statements-releases/2022/05/23/statement-on-indo-pacific-economic-framework-for-prosperity/.
[11] Natalegawa, Andreyka, and Gregory B. Poling. “The Indo-Pacific Economic Framework and Digital Trade in Southeast Asia.” The Indo-Pacific Economic Framework and Digital Trade in Southeast Asia, n.d. https://www.csis.org/analysis/indo-pacific-economic-framework-and-digital-trade-southeast-asia.
[12] House, The White. “FACT SHEET: In Asia, President Biden and a Dozen Indo-Pacific Partners Launch the Indo-Pacific Economic Framework for Prosperity | The White House.” The White House, May 23, 2022. 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/.
[13] Congressional Research Service . “Indo-Pacific Economic Framework for Prosperity (IPEF),” June 16, 2023. https://crsreports.congress.gov/.
[14] Asia Society. “Strengthening Regional Supply Chain Resiliency Through the Indo-Pacific Economic Framework (IPEF),” n.d. https://asiasociety.org/policy-institute/strengthening-regional-supply-chain-resiliency-through-indo-pacific-economic-framework-ipef.
[15] Asia Society. “Strengthening Regional Supply Chain Resiliency Through the Indo-Pacific Economic Framework (IPEF),” n.d. https://asiasociety.org/policy-institute/strengthening-regional-supply-chain-resiliency-through-indo-pacific-economic-framework-ipef.
[16] House, The White. “FACT SHEET: In Asia, President Biden and a Dozen Indo-Pacific Partners Launch the Indo-Pacific Economic Framework for Prosperity | The White House.” The White House, May 23, 2022. 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/.
[17] Ministry of Trade and Industry Singapore. “MINISTER GAN KIM YONG ATTENDS THE INDO PACIFIC-ECONOMIC FRAMEWORK FOR PROSPERITY (IPEF) MINISTERIAL MEETING IN DETROIT, MICHIGAN, 26 – 27 MAY 2023,” n.d. https://www.mti.gov.sg/.
[18] “Successful and Substantial Conclusion of Text-Based Negotiations of IPEF Pillar-II (Supply Chains); Good Progress under Other Pillars,” n.d. pib.gov.in/Pressreleaseshare.aspx?PRID=1927826.
[19] “Successful and Substantial Conclusion of Text-Based Negotiations of IPEF Pillar-II (Supply Chains); Good Progress under Other Pillars,” n.d. pib.gov.in/Pressreleaseshare.aspx?PRID=1927826
[20] House, The White. “Statement on Indo-Pacific Economic Framework for Prosperity | The White House.” The White House, May 23, 2022. https://www.whitehouse.gov/briefing-room/statements-releases/2022/05/23/statement-on-indo-pacific-economic-framework-for-prosperity/.
[21] Krishna, Jayant, Mukesh H. Butani, Kartikeya Singh, and Alok Gupta. “Experts React: Can IPEF Be a Watershed Moment for U.S.-India?” Experts React: Can IPEF Be a Watershed Moment for U.S.-India?, n.d. https://www.csis.org/analysis/experts-react-can-ipef-be-watershed-moment-us-india.
[22] House, The White. “FACT SHEET: In Asia, President Biden and a Dozen Indo-Pacific Partners Launch the Indo-Pacific Economic Framework for Prosperity | The White House.” The White House, May 23, 2022. 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/.
[23] Natalegawa, Andreyka, and Gregory B. Poling. “The Indo-Pacific Economic Framework and Digital Trade in Southeast Asia.” The Indo-Pacific Economic Framework and Digital Trade in Southeast Asia, n.d. https://www.csis.org/analysis/indo-pacific-economic-framework-and-digital-trade-southeast-asia.
[24] Asia Society. “ASPI Note: Biden’s Blueprint for Economic Engagement in the Indo-Pacific,” n.d. https://asiasociety.org/policy-institute/aspi-note-bidens-blueprint-economic-engagement-indo-pacific.
[25] Asia Society. “ASPI Note: Biden’s Blueprint for Economic Engagement in the Indo-Pacific,” n.d. https://asiasociety.org/policy-institute/aspi-note-bidens-blueprint-economic-engagement-indo-pacific.
[26] ngraham. “Trade Facilitation and the Indo-Pacific Economic Framework.” Atlantic Council, May 16, 2022. https://www.atlanticcouncil.org/blogs/econographics/trade-facilitation-in-the-indo-pacific-economic-framework/.
[27] ngraham. “Trade Facilitation and the Indo-Pacific Economic Framework.” Atlantic Council, May 16, 2022. https://www.atlanticcouncil.org/blogs/econographics/trade-facilitation-in-the-indo-pacific-economic-framework/.
[28] Ibid
[29] Ibid
[30] Ibid
[31] Ibid
[32] Ibid
[33] Ibid
[34] NewsClick. “Civil Society Organisations Concerned Over India’s Decision to Join US-Led Trade Agreement | NewsClick,” n.d. https://www.newsclick.in/civil-society-organisations-concerned-over-indias-decision-join-us-led-trade-agreement.
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(The views expressed are those of the author and do not represent views of CESCUBE.)
