IPEF: Three Pillars Succeed, One Falters
The Biden administration will have to spend the next year to ensure that its key Indo-Pacific economic agreement, the Indo-Pacific Economic Framework for Prosperity (IPEF), maintains the confidence of the other signatories and lasts beyond U.S. political cycles. Launched in May 2022, IPEF negotiations have proceeded relatively smoothly for three of the four pillars, including supply chains, clean economy, and fair economy pillars, but ran into trouble around fair and resilient trade and failed to be negotiated in time for the Asia-Pacific Economic Cooperation Summit. IPEF also ran into U.S. domestic politics and threats from former president Donald Trump to “knock out” IPEF, further undermining the durability of this initiative and potentially pushing other Republican candidates to says similar statements in their campaigns, as was the case for the Trans-Pacific Partnership (TPP) deal in 2016. The United States will have to reassure the 13 other signatories of its economic commitment to the region and how it will last beyond 2024.
Negotiators aimed to have the final framework for the four pillars of IPEF finalized by last week’s Asia-Pacific Economic Cooperation (APEC) summit and highlight the accomplishments that had been achieved in the 18 months since the initiative had been announced. The U.S. Department of Commerce led the three pillars on supply chains, clean economy, and fair economy and announced a “substantial conclusion” of the agreement at APEC. Commerce Secretary Raimondo highlighted achievements through the clean economy pillar, an economic cooperation agreement supporting signatories’ transitions to clean economies by improving and enhancing the regulatory and policy environment, sharing best practices, accelerating the deployment of clean technologies, and capturing the resulting economic opportunities.
Through the Fair Economy pillar, IPEF partners are imposing legally binding and nonbinding commitments and recognizing and supporting efforts on tax transparency and exchange of information, domestic resource mobilization, and effective implementation and administration of tax policies in the IPEF region to support anti-corruption efforts. This builds on the supply chain agreement announced earlier in the year as part of pillar two that was heralded as the “world’s first multilateral supply chain agreement” to “make [their] supply chains more resilient and competitive” and “establish a framework for lasting cooperation on issues like workforce development, supply chain monitoring, investment promotion, and crisis response.”
The first pillar, negotiated by Office of the U.S. Trade Representative, did not have as much luck though it had been clear for months now that this pillar would not reach “substantial conclusion” by APEC. The fair trade pillar did not focus on traditional trade items such as market access, making it less attractive to the region and perspective members, but also ensured that IPEF did not have to go through U.S. Congress for ratification. It instead focused on labor, trade facilitation, regulatory practices, agriculture, and the digital economy with legally binding commitments, which is unlike the other pillars, meaning it would be more difficult to complete regardless. Digital trade also proved to be an obstacle for the United States, with concerns expressed over Big Tech’s influence over cross-border data flows, data localization, and source code.
Perhaps the biggest unforced error was not engaging enough with Congress in the first place to discuss what IPEF was and was not, and what it intended to accomplish in terms of national security and foreign policy. At the start of APEC, Senator Sherrod Brown hosted a news conference call and issued a press statement to discuss his efforts to protect Ohio workers by pushing the Biden administration to drop the trade pillar from IPEF. Brown, who also was against the TPP, North American Free Trade Agreement, and Central America Free Trade Agreement, said his opposition to pillar was due to unenforceable protections for workers and that IPEF was negotiated behind closed doors. Recognizing his track record and that Brown is in a tough campaign fight should have prompted some efforts to mitigate the fallout for what would become the headline story for IPEF at the start of APEC.
If the United States wants to ensure that the Indo-Pacific region believes it is committed economically for the long run and is a viable alternative to strategic competitors like China, it will have to use the next year to make IPEF a durable and credible framework that can outlast shifts in political winds. Otherwise, it can be assured that no future multilateral economic initiative will get off the ground due to lack of trust in the ability for the United States to execute it. In addition to previous CSIS recommendations on IPEF durability, the Biden administration needs to engage with Congress early and often about the intent and goals of IPEF, acknowledging that there will be areas of agreeing to disagree, and identifying areas where Congress can codify pieces of IPEF into legislation akin to the U.S.-Taiwan Initiative on 21st-Century Trade. The administration can also take steps to build permanence into IPEF, including creating an office or an envoy that can continue to coordinate and convene these efforts and ensure continuation of agreed-upon mechanisms like the supply chains agreement.
Thirteen countries put their trust in the United States to come up with an alternative to TPP and make a credible economic commitment to the Indo-Pacific region. The next year will be critical to proving the skeptics wrong.
Erin Murphy is a senior fellow with the Asia Program at the Center for Strategic and International Studies in Washington, D.C.