Are Market Access Negotiations in the IPEF Unnecessary?
During a recent Senate Finance Committee hearing discussing the Biden administration's trade policy agenda, U.S. trade representative Katherine Tai emphasized the scope of the novel Indo-Pacific Economic Framework for Prosperity (IPEF), which did not include market access. The IPEF is the economic complement to the administration’s security ambitions in the region. As of mid-June, the IPEF consists of 14 members, including the United States. The IPEF is divided into four pillars: supply chain resiliency, decarbonization and infrastructure, fair and resilient trade, and tax and anti-corruption measures. The administration has repeatedly underscored that despite its reluctance to offer market access, the agreement will be a high-standard one with enforceable measures.
Ambassador Tai defended IPEF in the U.S. Senate recently amid questions about the administration’s refusal to engage in tariff negotiations. “We're actually living in a pretty tariff-liberalized world as it is,” she said. Furthermore, Tai argued that the administration is not engaging in tariff liberalization because traditional trade agreements “have led us to a place where we are facing a considerable backlash that we are listening to from our own people about concerns regarding the offshoring and outsourcing of American jobs and opportunity through these types of arrangements.”
Since the launch of IPEF discussions began in October 2021, there has been a running assumption that the United States has little to offer in terms of tariff liberalizations and therefore that negotiating partners would have little to gain from the removal of tariffs on goods traded with the United States. However, a closer analysis of the data reveals that there are myriad tariff peaks that together do provide leverage for the United States as it embarks on the next level of negotiations within the IPEF.
Q1: What are market access and tariff liberalization?
A1: Market access can play a critical role in deepening trade relations throughout the global economy. Countries provide trade policy concessions to allow companies to enter foreign markets with increased efficiency at reduced costs. Not only are tariff liberalizations a way of removing immediate barriers to trade and facilitating greater market access, but they also provide key leverage in international trade negotiations.
Market access and tariff liberalization have been the cornerstones of trade negotiations since the end of World War II. Globally, tariffs have dramatically decreased since the founding of the General Agreement on Tariffs and Trade (GATT) in 1947 and then the World Trade Organization (WTO). According to World Bank data, the weighted average of applied global tariffs for all goods has decreased by 69 percent since 1994.
Despite an overall decrease, tariff rates continue to vary between goods and countries. Furthermore, there are still industries and sectors for which countries continuously seek protection. While in some cases tariffs can be used as trade remedies against unfair competition, they can also be used as more direct mechanisms to shield the domestic industry from fair foreign competition.
Q2: Is tariff liberalization a key feature of the Biden administration’s trade policy?
A2: No. The hallmark of the Biden administration’s trade policy has been a focus on what it calls “worker-centric trade,” in line with its broader “foreign policy for the middle class.” The perception that removing tariffs could hurt U.S. workers, coupled with the belief that negotiating new trade deals could hurt Democrats in the upcoming midterm elections, has led the Biden administration to pursue economic arrangements that do not involve tariff liberalization. However, international trade is generally viewed more favorably among Americans than the administration claims. According to the 2021 Chicago Council Survey, around three-quarters of Americans consider international trade to be beneficial and 68 percent of citizens say globalization is good for the United States.
Perhaps the most prominent example of this new approach to economic relations is the U.S.-EU
Trade and Technology Council (TTC), which convened for the first time in September 2021. The TTC is divided into 10 working groups. These include working groups on nonmarket economic practices, climate and clean tech, and global trade issues, among others. From the outset, the purpose of the TTC has not been to address many of the outstanding bilateral trade issues, but to discuss new areas where the parties can achieve tangible progress.
In May 2022 in Tokyo, the Biden administration formally launched the Info-Pacific Economic Framework for Prosperity (IPEF), another economic arrangement that does not involve market access concessions. The IPEF includes 13 countries throughout the region in addition to the United States, but questions remain as to what the United States will be able to offer in terms of “tangible benefits” (tariff liberalization and market access) in exchange for policy commitments from participating countries.
In June 2022, the Biden administration announced an economic arrangement modeled after the IPEF, the “Americas Partnership for Economic Prosperity” (APEP), at the Summit of the Americas in Los Angeles. The goal of this new arrangement is to effectuate closer collaboration within the region on issues of trade and economics. Like IPEF, no market access negotiations are contemplated.
Q3: What are the tariff levels on imports from IPEF countries?
A3: The administration’s reluctance to pursue market access, although primarily motivated by domestic political constraints, assumes that existing U.S. tariffs on goods exported from IPEF countries are already low. The administration has noted that, on average, U.S. tariffs are reasonably low. Data from the United States International Trade Commission (USITC) captures the tariff profile of imports from the region and can thus help clarify what sort of leverage, if any, the U.S. government has as it pursues negotiations with IPEF partners. CSIS collected data on the top 10 imports based on dollar value from all IPEF countries, using the six-digit HS code level. CSIS then analyzed the tariff peaks for these goods. This data was then matched with the six-digit HS Code on the US tariff schedule for 2021. In general, many key exports to the United States from IPEF countries face relatively low tariff rates. However, some goods, in which IPEF countries have a comparative advantage, face relatively high tariffs.
Critical exports in the region, such as textiles and food items, all face tariff rates above zero for certain goods. Vietnam, India, Indonesia, Malaysia, and Brunei, all exporters of textiles, clothing apparel, and jewelry, can face tariffs of over 15 percent for some goods. Vietnam and Indonesia are known as the second- and third-largest suppliers of shoes to the U.S. market after China. Both countries face a tariff peak of 48 percent on certain sports footwear (HS code 6404.11 and 6110.20). Similarly, India was the third-largest exporter of bed linens globally in 2020. Exporting $981 million worth of bed linens to the United States alone, India faces a 20 percent tariff (HS code 630231).
Food items, such as meats, dairy, and fish, which are all significant exports from Australia, New Zealand, and Fiji, can face rates as high as 15–25 percent for certain items. For example, Australia and New Zealand are large exporters of bovine meats. Australia is the second-largest exporter of bovine meats worldwide, exporting $626 million to the United States in 2020. Australia and New Zealand face 26 percent on this good (HS code 0202.30). In Fiji foodstuffs are the most exported product. It faces a 35 percent tariff on tuna and a 16 percent tariff on vegetables, fruit, and nuts (HS code 1604.14 and 2006.00). Further complicating the tariff profile of these goods is that agricultural tariffs can also be based on weight or quantity (HS code 630231). CSIS examined only ad valorem tariffs, therefore the impact of specific tariffs could be great as well.
Even though tariffs are lower for other products, reducing or entirely removing them could produce gains in countries where the goods are produced. Thailand, Indonesia, and Malaysia are all exporters of rubber that can face tariffs of around 3 percent (HS code 4011.10). Major exporters of cars, such as Japan and South Korea, can face a 2.5 percent tariff on vehicles depending on the type (HS code 8703.23). Therefore, while tariff rates are generally low, IPEF countries stand to gain by exporting certain goods of which they are competitive producers.
Q4: How much would IPEF countries gain from tariff negotiations with the United States?
A4: IPEF countries could receive measurable benefits from limiting the amount spent on duties when importing to the United States, specifically in industries where they have an established competitive advantage.
One clear example is the Japanese auto industry. While a single category of passenger motor vehicles only faces a tariff of 2.5 percent, the total of those tariffs accounted for around $480 million in 2021 (HS code 8703.23). The importance of tariff liberalization in past trade negotiations, including during the TPP negotiations, underscores the widely held belief among countries that reducing tariffs is beneficial.
Vietnam and Indonesia have a robust textiles industry and specifically export many shoes to the United States. In 2021, Vietnam faced a total of $466 million and Indonesia faced $116 million in duties for sports footwear alone (HS code 6404.11). Similarly, India maintains a strong jewelry industry and textile sector. For example, jewelry parts faced duties of $173 million and bed linen faced $70 million in 2021 (HS code 7113.19 and 6302.31).
In total IPEF countries spent a cumulative of $12 billion on duties for all goods exported to the United States in 2021. This figure comes from the USITC estimated data on calculated import duties and is an aggregate in dollars for all dutiable goods as shown in the harmonized tariff schedule. This is not an insignificant amount. Although tariffs are levied on the importer, the cost is usually passed onto domestic consumers through higher prices. This creates economic inefficiencies by shrinking the overall producer and consumer surplus. Consequently, tariffs can harm U.S. economic welfare by creating a deadweight loss to the U.S. economy.
Q5: What are the key takeaways from an assessment of tariffs on goods from IPEF countries?
A5: A closer analysis of the data on tariff peaks on goods entering the United States from IPEF countries suggests that the administration has leverage it can use to exact policy concessions among IPEF partners as it prepares for a summer ministerial. Tariff negotiations could have a significant impact on market access for the region since IPEF countries have a comparative advantage in many goods that face higher-than-average tariffs entering the United States. Critical exports from the region, such as automobiles, textiles, and food items, are a few examples of sectors that face high duties.
At the same time, these are sectors with an active U.S. industry that have historically been opposed to greater foreign competition. Given these domestic political considerations, the administration must weigh the potential costs of granting market access to foreign competitors. However, closing the door to market access concessions in negotiations will result in a shallower IPEF with fewer substantive commitments from the other participants. Therefore, to create a durable trade architecture within the IPEF, the administration should reconsider its firm stance against negotiating market access and should signal to partners that they are willing—where they are politically able—to reduce or remove tariffs.
William Reinsch holds the Scholl Chair in International Business at CSIS. Elizabeth Duncan is an intern with the Scholl Chair.
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