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IPEF: Empty promise or the future of trade?

Ng Qi Siang
Ng Qi Siang • 5 min read
IPEF: Empty promise or the future of trade?
Having been on the backfoot in Asia-Pacific trade in recent years, the US seeks to return to the region and compete economically with China again. Photo: Bloomberg
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Having been on the backfoot in Asia-Pacific trade in recent years, the US seeks to return to the region and compete economically with China again. It has launched a series of trade agreements with regional players, with the Indo-Pacific Economic Framework for Prosperity (IPEF) being the most pivotal. While not a traditional trade agreement in the sense of providing market access to US trading partners, it calls for participants to cooperate on four main “pillars”. (See Chart 1)

Unlike most trade agreements, participants need not sign on to every single IPEF pillar. States can choose which pillars they wish to participate in based on their national interests. In that sense, IPEF is distinct from previous US trade initiatives such as the Trans-Pacific Partnership (TPP) in that instead of emphasising the quality of the deal, IPEF appears to be aiming to include as many regional states as possible regardless of their position on trade.

“Much of our success in the coming decades will depend on how well governments harness innovation ... while fortifying our economies against a range of threats, from fragile supply chains to corruption to tax havens. The past models of economic engagement did not address these challenges, leaving our workers, businesses and consumers vulnerable. The framework will focus on four key pillars to establish high-standard commitments that will deepen our economic engagement in the region,” says a White House statement.

“Done correctly, the IPEF presents a significant opportunity to forge more resilient global supply chains, high-standard digital rules of the road and energy transition outcomes that will drive prosperity on both sides of the Pacific,” says the Joint US Industry Statement in Support of the Indo-Pacific Economic Framework (IPEF). Signatories include the US-ASEAN Business Council and American Chamber of Commerce in Singapore. Small and medium enterprises (SMEs), they say, will benefit from trade facilitation commitments that will make doing cross-border business — especially in the digital space — easier.

See also: US-China relationship in a fog of war

There has been some scepticism about the viability of IPEF given the lack of market access commitments. Stephen Olson, senior research fellow at the Hinrich Foundation, says that many countries will feel let down by the deal, as it fails to signal a return to “business as usual” when it comes to Washington’s traditional support for free trade. The four pillars of the deal are also relatively vague, with the substantive details yet to be discussed.

“Should America fail to put together a convincing package of incentives, many nations may prefer to make looser and less consequential commitments rather than undertake difficult and costly processes like supply chain decarbonisation,” write Harsh V. Pant and Shashank Mattoo of the Observer Research Foundation. The US, they say, may end up being left dealing with advanced economies without making headway in the developing world.

This comes amid China’s recent application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Admittedly, China is unlikely to meet the accession requirements for CPTPP unless it receives exemptions from current members. Yet, given that China is already a member of the Regional Comprehensive Economic Partnership (RCEP), countries may be led to conclude that China is committed to serious economic engagement with the region but the US is not.

See also: Will China try to invade Taiwan?

“I think what’s fundamental with IPEF is how this ties into this dilemma of ‘choosing sides’ between the US and China,” says Nick Marro, lead analyst, global trade, Economist Intelligence Unit (EIU). US export controls and sanctions are making it difficult for third-country governments and firms to remain equidistant between the great powers. While the IPEF could potentially compensate for economic losses arising from building closer ties with the US vis-a-vis China, the present lightness of IPEF commitments makes this unlikely at the moment.

Nonetheless, states have been eager to join IPEF. Fourteen have already signed — Australia, Brunei, Fiji, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, the US and Vietnam. Lucio Blanco Pitlo III, research fellow, Asia-Pacific Pathways to Progress, says that this stems from a desire by regional states to have the US balance against Chinese economic influence. The 2022 State of Southeast Asia Survey by ISEAS Yusof-Ishak notes that 64.4% of respondents are concerned about China’s growing economic influence in the region.

The seemingly light nature of IPEF may also have been a response to the controversy surrounding the TPP. “I think that the biggest problem with [TPP] was that we did not have the support at home to get it through,” says US Trade Representative Katherine Tai. Speaking at a press call on May 23, she described the TPP as something fragile that the US could not deliver on. IPEF, she says, is a more robust and comprehensive approach that goes beyond trade.

“The IPEF is about the best that could be put forward. If one accepts the proposition that the political spectrum in the US has shifted sufficiently to preclude the traditional pursuit of free trade agreements, the IPEF presents a very interesting opportunity to see what can be accomplished under the ‘new normal’ for trade,” says Olson of Hinrich.

The first round of IPEF negotiations took place in Brisbane from Dec 10–15, 2022.

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