On May 23, US President Joe Biden launched the much-anticipated Indo-Pacific Economic Framework for Prosperity (IPEF), with the declared goal of reclaiming US economic leadership in the Indo-Pacific region. The initiative, first mentioned by Biden in October 2021, appears to have gained traction, with seven ASEAN countries and all RCEP members (except China) on board.
While ASEAN’s inclusion is a big plus, garnering support from all corners, the importance of IPEF lies in the fact that it not only brings two key Indo-Pacific economies – India and the US – into the regional economic architecture, it puts them at center stage.
Intriguingly, these two greatest promoters of the Indo-Pacific region are regarded by many as outliers when it comes to free-trade agreements and economic multilateralism.
The US previously pursued FTAs with South Korea, Singapore, and even Malaysia and Thailand (which were never completed), as well as Asia-Pacific Economic Cooperation (APEC) membership. However, Washington’s withdrawal from the Trans-Pacific Partnership (TPP) and other decisions taken under Donald Trump’s presidency presented a different picture. That appears to be changing.
Being a “work in progress,” IPEF does not automatically translate into entering an economic pact; rather, it provides a framework – a rulebook of sorts – for the members of the Quadrilateral Security Dialogue and nine other APEC countries in the region that have joined IPEF.
While IPEF’s agenda had been conspicuously obscure, it now seems to have found firmer ground centering on four pillars: connected economy; resilient economy; clean economy; and fair economy. In this ambitious framework, we may finally have an institutional reality that fits with the regional sensibilities.
Bold or old?
Speculation has been rife on what each pillar contains. The recently released factsheet suggests that IPEF will contain most of the elements in the US Trans-Pacific Partnership Agreement (TPPA). The “connected economy” pillar contains most of what had been speculated, though there seems to be more emphasis on the digital economy. One may argue that the digital economy may expand beyond the commitments inscribed in the TPPA e-commerce chapter.
Certainly, the inclusion of measures to address “discriminatory and unethical use of artificial intelligence” (AI) is a new addition. What is conspicuously missing is market access, an important component to many IPEF countries.
The second pillar touches on supply chains and the need for commitments and implementable measures to “anticipate and prevent disruptions in supply chains.”
The third pillar, we suspect, is closely linked to Biden’s policy priorities, as he has listed climate policy as a significant goal for his administration both locally and globally in a Foreign Affairs article in 2020. Elements of Biden’s Build Back Better World (B3W) initiative, which aims to establish a modern, sustainable and clean economy, are visible within IPEF.
The “fair economy” pillar with its emphasis on “tax, anti-money-laundering, and anti-bribery regimes” will certainly expand on the anti-corruption provisions that were a part of the TPPA commitments and obligations, and now the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).
It is clear that instead of being an altogether fresh initiative, IPEF continues to champion the traditional areas of concern and strategic interests of the US with additional goals reflecting the Biden administration’s policies.
What’s in it for the rest?
Despite some concerns, IPEF’s shortcomings are not unfixable. In the digital-economy sector, for instance, there would be perennial concerns about regulating a continuously evolving sector. Yet this critical sector cannot remain unattended in a rules-based order.
The Covid-19 pandemic and the global race to establish digital economic agreement networks have demonstrated how strategically salient this sector has become. Furthermore, the ongoing foreign-debt-infused economic turmoil in Sri Lanka has brought responsibility and sustainability aspects of infrastructure investment and development into sharp focus.
Some of the elements mentioned such as those relating to AI and sustainable infrastructure development seem to target specific countries.
If commitments relating to the second pillar were used not for its stated goals but directed against a single country, such as China, it would have a significant impact on the region’s supply chain networks, given that China is a key trade partner for many in the region. Certainly, it would be inconceivable to imagine governments signing on to such pledges and obligations in such a scenario.
That said, the IPEF-signatory members of the Association of Southeast Asian Nations are clear that they want the US to be part of the economic architecture in the Indo-Pacific region and see virtue in such engagements despite China’s absence. True, China has displaced the US as the top trading partner for most of these countries, but that overlooks the fact that the US remains an important market, a tech leader, and an important source of investments.
Furthermore, the US is generally viewed as a responsible actor that adheres to the rules-based order, a view that is held by many on the ground. Certainly, for small and middle powers, having the US actively present on the economic front offers a cushion against uncertainties posed by the US-China trade war.
It will be interesting to see where these countries eventually lean toward once the IPEF follow-up process beings. The ease with which ASEAN countries embraced IPEF speaks volumes.
An agreement for the times
IPEF is a reflection of the changing times. It demonstrates how domestic circumstances in the US constrain its foreign-policy options. The absence of market access commitments reflects the United States’ increasingly assertive and protective approach (Make America Great Again, America First policy).
The US, whether because of domestic factors or international conditions, no longer has the means to shape developments as it used to, at least not by itself. This is also reflected in the negotiations to establish and maintain the global architecture – a shift from multilateralism to plurilateralism or minilateralism. The rise of minilaterals such as the Quad, and more recently AUKUS, reflect this new approach in the domain of security.
This could explain why IPEF is constructed in the manner it is, with four pillars, and why the US has reportedly not made it essential for interested parties to sign up to all four pillars.
This flexibility is perhaps borne by an acknowledgement that every country in the Indo-Pacific region is not built the same nor has the same concerns and interests. Thus for India, which refused to sign on to the Regional Comprehensive Economic Partnership (RCEP) because of concerns over the market-access obligations and rules-of-origin violations, IPEF may afford it that comfort zone that a traditional FTA could not.
Likewise for ASEAN members, a rigidly drafted agreement might find certain obligations too onerous. Certainly, Singapore would sign on to all four pillars with very few areas of concern over the level of commitments and obligations expected.
Such flexibility also supports US interests because negotiations involving more like-minded countries are expected to be concluded faster, which is important at a time when the US competition with China is intensifying and securing allies’ support is becoming increasingly complex.