Overview
In October 2021, President Biden announced the United States’ intention to pursue an “Indo-Pacific Economic Framework” (IPEF) as a means of strengthening U.S. ties in the Asian region. Substantive discussions on the IPEF have not yet begun, and indeed, there has not yet been an announcement how the negotiations will be conducted or which nations will be involved. Nevertheless, enough about this proposed framework of agreements has been announced that companies in the region can begin to prepare for the process. This article will discuss what is known about the IPEF, why the current administration is taking this approach, and how countries in the Asian region may be affected by this new agreement.
By way of background, in February 2016, after years of negotiations, the Trans-Pacific Partnership (TPP) was signed. The TPP covered 12 countries, including the United States, and was described as a high-standard “21st Century” trade agreement. However, one of then-President Trump’s first actions in office was to withdraw the United States from the TPP. The remaining TPP countries renegotiated the agreement without the United States (essentially removing certain elements of the agreement the United States alone had backed), and ultimately entered into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Since President Biden’s inauguration in January 2021, pressure has been building for the United States to reengage with Asia on economic and commercial matters. The IPEF is the United States’ current policy response.
As envisioned by the Biden Administration, the IPEF will address issues of economic cooperation outside of those covered in typical free trade agreements. The broadest topic is “fair and resilient trade,” which the Administration has indicated will include: high-standard labor commitments; environmental sustainability; cooperation in the digital economy; sustainable food systems and science-based agricultural regulation; transparency and good regulatory practices; competition policy; and trade facilitation. All of these issues are addressed in CPTPP. In addition, the Administration will pursue agreements covering supply chain resilience; infrastructure, decarbonization, and clean energy; and, tax and anti-corruption. These negotiations will be led by the U.S. Department of Commerce and the Office of the United States Trade Representative, and Commerce has recently published a request for comment on the goals the United States should be pursuing in these negotiations. Comments are due by April 11, 2022.
The United States has explained its intention that these subjects would be negotiated in an independent “modules,” rather than one consolidated agreement like the CPTPP. In the view of the United States, the standards to be pursued in each of these areas would be high, meaning that not all countries would necessary be able to meet such standards. Countries would determine which modules they wanted to participate in, and not every country in the region would be expected to participate in every module.
Despite the Biden Administration’s announcement that the IPEF is its signature trade policy priority for the Asia region, key details regarding this initiative remain scarce. Perhaps the most important open issue is that the United States has not yet identified the specific countries in the Indo-Pacific region it will seek to include in this effort. At present, the front runners for inclusion in the IPEF are Australia, Indonesia, Japan, Korea, New Zealand and Singapore (of which, only Indonesia and Korea are not current CPTPP Member States, although Korea is seeking such accession). Malaysia, Thailand and Vietnam have been mentioned but their inclusion in the IPEF negotiations is less clear – while Vietnam and Malaysia are both CPTPP members, it seems as if the United States will be trying to achieve even higher goals with the IPEF. Perhaps the only country the United States will affirmatively seek to exclude is China, since the IPEF is an effort to rebuild U.S. relations in the region as a counterbalance to China.
But the United States may find it challenging to find negotiating partners. For political reasons, the Biden Administration has indicated on a number of occasions that the IPEF would not be a trade agreement of the sort requiring Congressional approval. This means that the United States likely will not have an ability to offer increased access to the U.S. market as an inducement for countries to enter into these negotiations. Nevertheless, for their own strategic reasons, countries in the region may enter into these negotiations even though the prize of increased access to the U.S. market will likely be off the table.
But even if market access is not being offered as part of the negotiations, companies whose governments participate in these negotiations will still enjoy certain advantages. The IPEF is likely to rewrite or improve international standards in a number of the areas described above; governments who advocate for the recognition of their own national standards are likely to see advantages for their companies over those who are excluded from the discussions. And the Biden Administration has also shown a willingness to roll back the 25 percent tariff on steel products in exchange for commitments on steel overcapacity and increase environmental standards. The Biden Administration might consider a comparable compromise through some of these IPEF modules as well.
Given that negotiating partners have not been identified and negotiations have not yet begun, predicting a specific timeline for these negotiations is impossible. But it is notable that the United States will be hosting APEC in 2023, and that all of the countries that have been mentioned in this context are APEC members. It is reasonable to speculate that as host, the United States would like to announce at least some IPEF-related agreements during the final APEC ministerial conference, which it typically held late in the year.
While the IPEF may not deliver all of the benefits of a full-fledged free trade agreement, it nevertheless offers certain opportunities for companies in the countries that ultimately take part in this agreement. The next few months will offer some important insights into the trajectory of these negotiations, and parties in the region would do well to mind these developments.
