- Current political and economic issues succinctly explained.
The Joe Biden administration’s first major trade initiative, the Indo-Pacific Economic Framework (IPEF), is generating its most intensive round of discussions yet this month. With the Asia-Pacific Economic Cooperation summit around the corner, the Biden administration is racing to finish negotiations on the trade pillar to signal to China that it remains deeply engaged in the region despite the United States’ absence from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), from which former President Donald Trump withdrew.
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 is leading talks on three of these (supply chains, climate, and tax and anticorruption), and the trade pillar is led by U.S. Trade Representative (USTR) Katherine Tai. While each pillar is advancing at variable speeds, the Biden administration has made notable progress this year. However, U.S. trading partners and members of Congress remain concerned that the lack of emphasis on tariff reductions and other market access issues could lead to a missed opportunity to deepen economic ties across the Indo-Pacific. Here’s how the talks could unfold and what we know so far.
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 trade policy experts expect the United States to push for their adoption in the IPEF. At the same time, advocacy groups that fear the digital trade rules will limit regulations on large technology firms, such as Google and Facebook, have pressured the Biden administration to change course. In late October 2023, the United States withdrew some of its proposals from digital trade talks at the World Trade Organization (WTO) that are embedded in USMCA; it is likely that IPEF’s digital trade pillar will reflect this new watered down policy stance.
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. Pillar two pulls in aspects of the RRM, but does not have a means to enforce it. Whether these provisions will be copied over into the trade pillar is unclear.
Pillar Two: Resilient Economy
This pillar aims to address supply-chain challenges in part by creating rules that can help governments and companies quickly respond to disruptions. It became the first pillar to wrap up negotiations in May 2023. The Department of Commerce shared the text of the agreement in September of that year and stated: “The proposed Supply Chain Agreement is designed to enable IPEF partners to work together collaboratively to make supply chains more resilient, efficient, transparent, diversified, secure, and inclusive, including through information exchange, sharing of best practices, business matchmaking, collective response to disruptions, and supporting labor rights.”
The twenty-five page agreement is filled with hortatory language, and does not include any mechanisms to compel compliance. Notably, it sets up three institutions: the IPEF Supply Chain Council, which will develop “action plans” to improve competitiveness and resilience on “critical sectors or key goods”; the IPEF Supply Chain Crisis Response Network, which will act as an emergency communications channel to help governments respond to supply chain disruptions; and the IPEF Labor Rights Advisory Board, which will identify labor rights concerns and offer recommendations to address the risks emanating from them. How these institutions will function in practice remains to be seen. While private sector participation will be vital here, it is not clear how businesses will execute the agreement’s vision for cooperation.
Furthermore, while an early-warning system on supply-chain shortages and efforts to map supply chains for critical sectors could be helpful, IPEF is not the best forum to respond to all types of disruptions, such as global pandemics. In 2020, I argued that the WTO should play such a role because it already has a robust institutional infrastructure to promote transparency. Improving transparency and responsiveness between the WTO’s 164 member countries instead of IPEF’s 14 would also create larger opportunities for cooperation and ensure that no country is left behind in these efforts. There is also much the United States can do domestically, such as improving port efficiency to reduce shipping bottlenecks.
On labor, the agreement recognizes “the critical role that labor rights play in increasing the resilience, efficiency, productivity, sustainability, transparency, diversification, security, fairness, and inclusivity of IPEF supply chains.” Each government agreed to promote “the implementation of labor rights in its economy and the domestic enforcement of its labor laws.” Covered labor rights are drawn from the International Labor Organization Declaration and include freedom of association and the right to collective bargaining, the elimination of forced and child labor, the elimination of discrimination of employment and occupation, a safe and healthy work environment, and acceptable conditions of work, such as working hours and a minimum wage. While there is language modeled after the USMCA’s facility-specific rapid response labor mechanism that allows for allegations to be made against specific firms for failing to uphold certain labor rights, the IPEF does not have a means to enforce any of these allegations since there is no market access that can be taken away, such as in the USMCA.
Overall, the supply chain agreement lays out the Biden administration’s vision for resilience, but relies on the goodwill of each IPEF government and their firms to cooperate.
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 United States’ 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. Furthermore, IPEF excludes two of the United States’ closest trading partners—Canada and Mexico—though it is possible they could accede to the agreement later. Their absence is unfortunate, however, given their experience with expediting trade, and doing so with an eye to post-9/11 security concerns.
Additionally, the final format of the IPEF deal 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 substantive 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 and durability. The Biden administration has received bipartisan pushback on this approach, and it is possible that Congress takes action to require consultation on the remaining IPEF pillars, and subject the final text to a vote, as it has done with the U.S.-Taiwan Initiative on 21st Century Trade. How the tug-of-war on trade authority plays out between Congress and the Executive branch could ultimately hinder progress on IPEF’s implementation.
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. The supply chain pillar includes provisions for consultations between the governments, but there is no process to resolve a dispute other than finding “a mutually satisfactory resolution as soon as practicable.”
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.