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IPEF’s Pseudo-Multilateralism

May 31, 2022
  • Zhang Yun

    Associate Professor at National Niigata University in Japan, Nonresident Senior Fellow at University of Hong Kong

U.S. President Joe Biden announced the launch of the Indo-Pacific Economic Framework in Japan during his first visit to Asia since taking office, giving the U.S. Indo-Pacific Strategy and its military-security orientation an economic backbone at last. This is also the first time the U.S. has published a strategic economic initiative for Asia after the Trump administration announced its withdrawal from the TPP five years ago.

The IPEF “marks an important turning point in restoring U.S. economic leadership in the region,” said U.S. Commerce Secretary Gina Raimondo.

Thirteen countries joined the initiative, which U.S. National Security Adviser Jake Sullivan said demonstrates a high level of interest from countries in the region. As the world’s largest economy, the U.S. tendency to return to economic multilateralism is welcome. But the problem with the framework as presented is that it’s a sort of pseudo-multilateralism, and whether it will succeed and endure remains to be seen.

First, the pseudo-multilateralism of the IPEF is reflected in its lack of legally binding, hard commitments. Moreover, the framework’s credibility will be greatly affected by domestic political uncertainty in the U.S. The White House news release on the president’s participation in the East Asia Summit in October announced that the U.S. would work with partners to explore the establishment of an IPEF. After more than six months, the official announcement is not long on specifics: It emphasizes four pillars of loose cooperation: digital trade, supply chains, infrastructure/decarbonization and tax/anticorruption. 

Seeing this, one can see how things have changed over the decades. In the 1990s, the United States was dissatisfied with APEC’s approach to loose economic cooperation and demanded that Asia make binding commitments to open its markets to the maximum extent possible. Today, 30 years later, the U.S. attitude toward economic multilateralism has flipped, and the IPEF seems to be looser than APEC, which does not involve market opening at all.

This raises the question of why it is not possible to cooperate within the original framework. In fact, any binding multilateral economic framework would be difficult to pass in the U.S. Congress because of the huge resistance to free trade agreements. The IPEF does not involve tariff negotiations and therefore does not require a congressional vote; however, not only does a multilateral economic framework without hard commitments have limited appeal to other member states, but since it does not require a congressional vote, there is no guarantee that it will not end up as a second TPP if Trump returns to office in the next presidential election.

Second, the pseudo-multilateralism of the IPEF can be seen in the exclusion of China, the world’s second-largest economy, and the tendency to build a grouping of industrial chains of like-minded partner countries, which will result in economic inefficiencies leading to lower productivity in all member countries.

Raimondo, the commerce secretary, said the IPEF presents Indo-Pacific countries with “an alternative to China’s approach.” During a visit to a Samsung Electronics semiconductor plant in the Republic of Korea, President Biden said the war in Ukraine highlights the need to ensure that supply chains are not dependent on countries “that don’t share our values.” The U.S. idea of reshoring or friend-shoring on the issue of supply chain restructuring is hardly consistent with the reality that Asia-Pacific economies are highly interdependent.

The important feature of Asia-Pacific economies is the high degree of integration of their industrial chains, which evolved over decades. A large-scale decoupling transfer would require uninterrupted administrative intervention by the governments over time. That would not only hurt countless businesses but would also distort the laws of the economy. Massive government intervention results in wasted resources and can only make everyone lose more, not win.

Third, the pseudo-multilateralism of the IPEF is reflected in its buffet-style negotiation approach. The framework’s negotiation process allows participating countries to choose to conduct bilateral negotiations related to those pillars in which they can participate, without having to participate in negotiations in all pillars. This buffet-style approach appears to offer great flexibility, but myriad bilateral negotiations could slow the entire framework negotiation process and risk a loss of focus.

The U.S. reportedly expects negotiations in each pillar to be completed within the next 12 to 18 months, roughly coinciding with the start of the presidential campaign for 2024. The lack of sustained political leadership and effective coordination of the negotiation process will weaken the cohesiveness of the economic negotiation process.

It is too early to judge the future of IPEF, which is in its infancy. Thirteen countries willing to participate seems to suggest certain expectations in the region. However, if the framework is to be successful, it must avoid the trap of pseudo-multilateralism. It should not cut off history but should build on the achievements of the economic integration process in the Asia-Pacific in past decades, and coordinate with existing frameworks such as APEC, RCEP, TPP and the ASEAN FTA on the path of open regionalism.

In addition, it is necessary to be ambitious. Achieving greater regional economic integration and an Asia-Pacific FTA has long been a goal for countries in the region and is in the interests of all parties. The IPEF should be a step in this direction, not the other way around.

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