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The IPEF is a Bust

Jun 15, 2022
  • Wu Zhenglong

    Senior Research Fellow, China Foundation for International Studies

U.S. President Joe Biden officially announced the launch of the Indo-Pacific Economic Framework in Tokyo on May 23. Since taking office, the Biden administration has been working intensively to strengthen America’s Indo-Pacific Strategy to contain China. First, it institutionalized the U.S.-Japan-Australia-India Quadrilateral Security Dialogue (Quad), followed by the establishment of the U.S.-UK-Australia trilateral security pact (AUKUS), basically completing the U.S. security mechanism in the region. As the economic and trade key for drawing Indo-Pacific countries into an effort to counter China, the IPEF marks the completion of the U.S. Indo-Pacific strategy. The question now: Will the U.S. will be able to turn it into reality?

Other than the IPEF Joint Statement and a brief statement issued by the White House, little is known about the IPEF, which is not transparent. According to these documents, the IPEF consists of four pillars, as described below.

• Trade: The IPEF will “seek to build high-standard, inclusive, free, and fair trade commitments and develop new and creative approaches in trade and technology policy that advance a broad set of objectives that fuel economic activity and investment, promote sustainable and inclusive economic growth, and benefit workers and consumers.”

• Supply Chains: The IPEF seeks “first-of-their-kind supply chain commitments that better anticipate and prevent disruptions in supply chains to create a more resilient economy.” It also intends to establish an early-warning system and coordinate on crisis responses.

• Clean Energy, Decarbonization, and Infrastructure: The IPEF seeks “first-of-their-kind commitments on clean energy, decarbonization, and infrastructure that promote good-paying jobs.” According to the joint statement, “We plan to accelerate the development and deployment of clean energy technologies to decarbonize our economies and build resilience to climate impacts.”

• Tax and Anti-Corruption: The IPEF seeks new commitments by enacting and enforcing “effective and robust tax, anti-money-laundering, and anti-bribery regimes in line with existing multilateral obligations, standards, and agreements to curb tax evasion and corruption in the Indo-Pacific region.”

The above information indicates that the IPEF is not a traditional free trade agreement. Unlike other FTAs such as the Regional Comprehensive Economic Partnership (RCEP) or the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), the IPEF does not have preferential arrangements to increase market access, particularly to the U.S. market, through reduced tariffs and non-tariff preferences.

So, what is the IPEF? In my opinion, it is simply an intergovernmental arrangement tailored to introduce specific provisions in the favor of the United States on certain issues in specific areas of interest to the U.S.

The IPEF is, perhaps, the first-ever of its kind and has distinctive features. First, it involves an exclusive group that can be used for confrontation. Second, it seeks high-standard rules. It aims to set high-standard rules in areas of common concern. The standards of the rules set may be too high a threshold for some developing economies. Third, it has a flexible negotiation path. The negotiations are based on a “menu” approach in which the four pillars become four separate negotiating groups, each with a negotiating schedule, or menu. A country would need to participate in at least one pillar group, agree to all matters of consensus reached in that group and assume the associated commitments. Participation in all pillars would be optional. This suggests that the different pillar groups will move the negotiations forward at different speeds. The result will be that the depth and breadth of commitments made by the different pillar groups will be different, as will the information shared and the binding commitments undertaken.

It is easy to see from the content and features of the IPEF that it is pursuing the goal of restoring the U.S. role as a standard-setting country and blocking or curbing China’s rising economic influence in the region. While the U.S. is playing its cards, it doesn’t match the reality of most developing economies. The IPEF is full of “America first” logic.

The following six factors suggest that the IPEF will not succeed.

First, there is little real benefit for developing economies. The IPEF focuses on creating high-standard rules in areas of common concern, rather than trade and investment liberalization and market opening. For most developing economies, the IPEF is too loose for them to reap any real economic benefits, so it lacks attractiveness and appeal — all of which portends increased difficulty in IPEF negotiations.

Second, the high-standard rules proposed by the U.S. have gained little recognition. The United States intends to seek “first-of-their-kind commitments” in new areas, such as the digital economy, clean energy and decarbonization. It also seeks commitments to labor and environmental standards that are unpopular in the region.

Except for developed traditional U.S. allies, few developing countries in the region — because of their different stages of development — including traditional U.S. allies Thailand and the Philippines, are willing to make strong commitments in these areas. Their policies and positions are far different than those of the United States. India, for example, has its own unique policy approach for cross-border data flows, data localization and data privacy. It is unlikely to abandon its existing practices in favor of U.S. digital trade standards. It is also unlikely to embrace decarbonization targets that go beyond the ambitious goals of the Paris agreement. Similarly, India has consistently opposed the inclusion of labor and environmental standards in trade agreements.

Third, the U.S. benefits from the “one-way street” of the IPEF, which simply requires other countries to commit to standards and regulations that the U.S. is already implementing or will soon implement. This is a typical hegemonic act in which the U.S. benefits and its partners suffer. The IPEF has become a tool for the United States to serve its own interests at the expense of regional economies.

Fourth, there is a deeper meaning behind the “collective discussions” replacing framework negotiations. Following the IPEF launch, no immediate IPEF negotiations were announced. But “collective discussions” are to be held instead, which is intriguing. It is conceivable that if negotiations start hastily without appropriate up-front benefits, such as infrastructure investment, capacity building assistance and clean energy solutions from the U.S., the outcome could be embarrassing. Only a few economically advanced traditional allies will participate in negotiations on all four pillars, while most developing economies will symbolically choose one pillar in response to the U.S. “invitation” to join the group. This will cause the IPEF’s credibility to be diminished. Therefore, how to start the IPEF negotiations and ensure the relative balance of countries participating in negotiations on the four pillars will be a headache for the Biden administration.

Fifth, administrative arrangements weaken people’s confidence in the IPEF. The Biden administration insists that the IPEF is more of an administrative arrangement that does not require U.S. congressional approval. Therefore, the future of the IPEF will become highly uncertain for participants. It is also uncertain whether the IPEF will survive after the end of the Biden administration because of the polarization in American society — a society that has been torn apart. If the Republicans win the 2024 U.S. presidential election, the IPEF will most likely be abandoned. Therefore, participants may not hold out much hope.

Sixth, allies and important partners of the United States do not see the IPEF in a favorable light. After the framework was announced, the leaders of Japan, New Zealand, Singapore and other countries used different occasions to call on the United States to return to the CPTPP’s predecessor, the Trans-Pacific Partnership (TPP). Among them, the statement of Singaporean Prime Minister Lee Hsien Loong is quite representative. He said the IPEF cannot completely replace the TPP, and expressed hope that one day the political situation in the U.S. would allow discussion about the development of some form of FTA again and explore the issue of market access. 

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