The Indo-Pacific Economic Framework for Prosperity: A new approach to trade and economic engagement
Initially conceived in October 2021, the Indo-Pacific Economic Framework for Prosperity (IPEF) was officially launched by the United States in Tokyo in May 2022. The U.S. economic counterpart to its security efforts in the region, this initiative offers the United States an opportunity to reclaim influence in a region of growing geostrategic importance. Despite the strong launch in May that saw greater participation than expected, there are already concerning signs that enthusiasm for the initiative may be waning among partners, calling into question both the ability of the framework to obtain concessions from partners as well as the durability of the initiative overall.
The IPEF has 13 other founding members: Australia, Brunei Darussalam, Fiji, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam announced their interest in the IPEF and signed on to the framework. Together, these countries represent more than 40% of global GDP. The IPEF is divided into four pillars:
- Connected economy: digital, environment, and labour issues
- Resilient economy: supply chain cooperation and coordination
- Clean economy: decarbonization and infrastructure development
- Fair economy: taxation and anti-corruption efforts
The U.S. Trade Representative (USTR) will oversee the first pillar, while the U.S. Department of Commerce will oversee the others. The Biden administration has designed the IPEF as a flexible and open arrangement, allowing partner countries to join any of the four pillars without having to commit to all four.
The Biden administration has designed the IPEF as a flexible and open arrangement, allowing partner countries to join any of the four pillars without having to commit to all four.
The Biden administration, and in particular USTR Katherine Tai, has been vocal about its new approach to trade policy. Describing the IPEF, Tai said, “[W]e have to rethink what trade policy can be in the 21st century, and that it must benefit more people. For decades, trade policy was often reduced to a zero-sum game that left many of our workers behind.”
This new approach to global trade has so far eschewed tariff liberalization, largely for fear of potential backlash from labour and environmental interest groups, which have vocally opposed previous trade deals such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. The IPEF thus does not aim to ease tariffs or enhance market access, meaning the framework does not constitute a traditional free trade agreement.
It remains unclear which countries will sign on to which pillars of the arrangement. It is unknown if India will join the trade pillar, for example.
Following the inaugural ministerial in May 2022, the parties reconvened virtually in late July for a second ministerial, which produced tepid results. As of early August, it remains unclear which countries will sign on to which pillars of the arrangement. It is unknown if India will join the trade pillar, for example, and although India joined the initial launch, a former Indian commerce secretary claims the country participated solely as an observer at the IPEF ministerial, potentially indicating that India may not proceed with negotiations.
July Ministerial Takeaways
The second IPEF ministerial was held virtually on July 26–27, with all 14 members participating. The first day focused on the trade pillar and was led by the USTR, while discussions on the second day centred around the other three pillars of the framework and were led by the Department of Commerce. Following the ministerial, however, the parties failed to produce a joint statement. Instead, the USTR and the Department of Commerce published a readout on the meeting, offering little detail. Rather, they stated that “ministers had positive and constructive discussions and reaffirmed their collective goal to pursue a high-standard and inclusive economic framework,” without identifying what, specifically, those goals were or how they would be met.
A recurring theme in the 2-day ministerial was reportedly the need for transition periods for any binding commitments. This is a potentially worrying sign that countries are already reluctant to sign on to higher standards and that they have reservations about meeting these standards, whether political or practical. Malaysia, for example, was a major proponent of the need for transition and grace periods but was not alone among Asian nations in making this request. Japan has also supported the idea, emphasizing that it is important to make participation in the framework easy and achievable for the diverse set of countries.
This is a potentially worrying sign that countries are already reluctant to sign on to higher standards and that they have reservations about meeting these standards, whether political or practical.
The importance of including the private sector was also stressed in the days around the ministerial. The South Korean government held a public–private strategic meeting to coordinate interests on the IPEF and has said that a goal for the country is continued industry involvement in IPEF discussions. On the first day of the ministerial, U.S. Under Secretary of Commerce for International Trade Marisa Lago also identified U.S. private sector involvement and willingness to invest in other IPEF countries as important incentivization for IPEF participation.
IPEF members are expected to convene again this month. At that point, stakeholders and onlookers hope to have additional details—including a potential ministerial statement, as well as further clarity on which countries will take part in which specific pillars of the framework.
IPEF Perception and Politics
Many IPEF members have commended the United States for accelerating its ambition in the Indo-Pacific region. However, some participants and private sector stakeholders have criticized the Biden administration for failing to negotiate tariff liberalization, which effectively reduces the credibility of the framework because it signals that the United States is unwilling to make significant concessions.
Tai has pointed out that average tariff rates on imports from the region are typically low, although tariff peaks of nearly 40% exist on goods that are important to the region, including textiles and footwear from Vietnam. These tariff peaks underscore that the administration does maintain leverage in negotiations and could seek concessions from partners—for example, on digital initiatives—in exchange for a reduction of U.S. applied tariffs. Nevertheless, the administration seems uninterested in using this leverage.
Another element that has reduced the credibility of the IPEF as a durable trade architecture is the administration’s decision to conduct negotiations and conclude an arrangement without congressional consent. This decision further signals that the United States does not intend to make significant concessions itself and overall weakens the perception of the agreement among foreign partners.
CSIS research, as well as public statements from regional leaders, has repeatedly demonstrated a desire among both private and public stakeholders to see the administration produce “tangible outcomes” from IPEF negotiations. What these outcomes could entail, however, remains to be seen if the United States is not prepared to offer concessions in exchange for domestic policy changes in foreign countries, especially on digital standards and costly decarbonization efforts.
There is an ongoing debate about whether the United States should pursue a breakaway digital agreement as an “early harvest” in negotiations, as several IPEF countries have signalled an interest in joining an effort that would more formally codify U.S. digital standards throughout the region. Without the inclusion of market access, digital trade is likely one of the most attractive features of the trade pillar.
Thus, if the Biden administration wants to encourage participation in the trade pillar outside of like-minded developed countries, then it is likely in the interest of the United States to keep digital trade components integrated as part of the broader trade pillar. In other words, because digital trade remains one of the key areas of leverage for U.S. negotiators, it remains highly unlikely that the United States would pursue such a breakaway initiative.
IPEF leaders have an opportunity to advance consequential and long-lasting policy changes throughout a region of increasing strategic importance.
Overall, the IPEF is an ambitious framework, the launch of which exceeded expectations, both given the large number and diversity of founding partners. As parties iron out the details of the arrangement, IPEF leaders have an opportunity to advance consequential and long-lasting policy changes throughout a region of increasing strategic importance.
While not explicitly aimed at countering Chinese influence in the region, the IPEF affords the United States the opportunity to reassert its influence in a region of pivotal economic and security importance. The IPEF offers the United States the chance to provide expertise and technical assistance in areas such as deep industrial decarbonization, supply chain resiliency, and digital standards. Although non-traditional, this broad and flexible economic arrangement could help countries align objectives and help create new opportunities for growth at home and abroad.
As the IPEF partners seek to build an affirmative and durable agenda, the burden falls on participating countries to ensure that the effort maintains momentum in a diplomatically crowded arena. As the old diplomatic adage goes, an onlooker can learn a lot about the state of negotiations by seeing which ministers sign up for the third ministerial.
In the case of the IPEF, the initial two ministerials, as well as a side meeting in Paris ahead of the World Trade Organization’s 12th ministerial conference in Geneva, saw an enthusiastic turnout. It remains to be seen whether all countries—and their high-ranking ministers—will attend future summits.
Emily Benson is a fellow with the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington. Grant Reynolds is an intern with the Scholl Chair in International Business at CSIS.
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