Unpacking the IPEF: Biden’s First Big Trade Play
The Joe Biden administration has unveiled its Indo-Pacific Economic Framework, but it doesn’t look like a traditional trade deal and could end up falling short of its ambitions.
Last updated June 8, 2022 3:39 pm (EST)
- Current political and economic issues succinctly explained.
In late May, the Joe Biden administration launched its first major trade initiative: the Indo-Pacific Economic Framework (IPEF). The IPEF is billed as an effort to expand U.S. economic leadership in the Indo-Pacific region. This was also the objective of the Trans-Pacific Partnership (TPP), a trade deal that was negotiated during the Barack Obama administration. But President Donald Trump withdrew from the TPP in 2017, and the Biden administration has made clear that it does not intend to reenter that trade pact, which is now renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP.
Thirteen countries have joined the IPEF talks with the United States: Australia, Brunei, Fiji, India, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Thailand, and Vietnam. (Taiwan had hoped to join but was left out.) Collectively, the IPEF participants account for about 40 percent of the global economy.
The IPEF negotiations are organized into four pillars. U.S. Commerce Secretary Gina Raimondo will lead talks on three of these (supply chains, climate, and tax and anticorruption), while the trade pillar will be led by U.S. Trade Representative (USTR) Katherine Tai. The Biden administration has not yet conveyed the full details, but the lack of emphasis on tariff reductions and other market access issues so far suggests that the IPEF could be a missed opportunity on trade. Here’s how the talks could unfold:
Pillar One: Connected Economy
The trade pillar will cover three general issues: digital trade, labor, and the environment. U.S. proposals will likely follow the U.S.-Mexico-Canada Agreement (USMCA), which Tai has referred to as “a new model for trade agreements.” The digital trade chapter of the USMCA enshrines several U.S. policy objectives, including a prohibition on customs duties on digital products, restrictions on data localization (or forcing companies to store user data within a country), and a ban on rules that restrict cross-border data transfers. The commitments in the USMCA digital trade chapter are more stringent than those in the CPTPP, so the United States is likely to push for their adoption in the IPEF. At the same time, the Biden administration is being pressured by advocacy groups that fear the digital trade rules will limit regulations on large technology firms, such as Google and Facebook, so there might be some changes from what the Trump administration negotiated in the USMCA.
The environmental and labor chapters [PDF] in the USMCA are also more stringent than those in the CPTPP. Tai has expressed support for the labor chapter’s Rapid Response Mechanism (RRM), which allows the United States to threaten trade penalties if factories in Mexico are allegedly denying collective bargaining rights. Although the RRM has raised several procedural and substantive concerns, it is likely to become a feature of any future U.S. commitments on labor. However, the IPEF countries might not feel the same pressure to accept these obligations as Mexico did, so it is not a foregone conclusion that these rules will appear in a final IPEF agreement.
Pillar Two: Resilient Economy
This pillar will address supply-chain challenges in part by creating rules that can help companies quickly respond to disruptions. While an early-warning system on supply-chain shortages and efforts to map supply chains for critical minerals could be helpful, decisions to diversify supply chains are perhaps best left to the companies involved in sourcing and producing products. The current supply-chain crisis has largely been the result of the COVID-19 pandemic. However, there is much the United States can do domestically, such as improving port efficiency to reduce shipping bottlenecks and lifting tariffs on chassis that transport cargo containers. The inclusion of provisions on supply chains in the IPEF could therefore have a limited impact on the U.S. economy.
Pillar Three: Clean Economy
This pillar tackles many climate-related issues, such as renewable energy, decarbonization, energy efficiency standards, carbon removal, and methane emissions reduction. There is potential for overlap between these discussions and environmental talks in the trade pillar. Two IPEF partners, Fiji and New Zealand, are already engaged in talks on the Agreement on Climate Change, Trade, and Sustainability (ACCTS), which is far more ambitious than what has been presented so far for the IPEF. The ACCTS establishes a link between trade and sustainability and aims to reduce barriers to trade in environmental goods and services, curb harmful subsidies on fossil fuels, and offer voluntary guidelines on ecolabeling. Instead of reinventing the wheel, the IPEF partners should consider existing approaches.
Pillar Four: Fair Economy
This pillar will focus on tax and anticorruption policies and is likely to enshrine existing multilateral commitments on these issues, to which not all of the IPEF members subscribe. Biden has identified fighting corruption at home and abroad as a core national security interest, and this pillar will support those broader efforts [PDF]. Examples include the Asia-Pacific Economic Cooperation initiative to improve business ethics in two important export sectors: medical devices and biopharmaceuticals.
The Missing Links
The IPEF could serve as the Biden administration’s answer to the U.S. absence from the CPTPP, but there is one major element missing: market access (i.e., tariff elimination). In congressional testimony, Tai emphasized that market access would be off the table because, in her view, traditional trade agreements have led to “considerable backlash” in the United States. However, without market access, it’s unlikely that the United States will be making many new commitments in the trade pillar, and therefore the final agreement would provide little overall benefit to U.S. consumers and companies.
Additionally, the format of the IPEF talks remains unclear. Typically, negotiations of this scale are pursued with input from Congress, which grants the president Trade Promotion Authority (TPA) [PDF], subjecting the final deal to an up-or-down vote. However, there is no indication of congressional involvement in the IPEF, and Biden has not sought TPA. It is possible that the IPEF could take the form of a trade executive agreement, which could raise concerns about transparency.
It is also unclear whether the IPEF pillars will be negotiated separately or as a package. During a trade negotiation, countries typically make concessions in one area in exchange for gains in another, which allows for broad compromises. If the issues are siloed, that might not be possible.
Whether the content of the IPEF will be legally binding and subject to dispute settlement remains an open question. It is possible that the administration will copy the unilateral enforcement mechanism from the Trump administration’s Phase One trade deal with China, though such a tool would make enforcement difficult, if not impossible.
What’s clear so far is that, in its current form, the IPEF does not resemble a trade agreement, which is likely why the USTR is playing such a minor role. Without a more substantial trade component, the IPEF will likely be a missed opportunity to deepen economic ties across the Pacific.