This Q&A first appeared in Asia Times’ Southeast Asia Insider newsletter. If you’re not already a subscriber, please sign up here.
US President Joe Biden formally announced his administration’s Indo-Pacific Economic Framework for Prosperity (IPEF) last week, with a dozen nations – including seven from the Association of Southeast Asian Nations (ASEAN) – stepping forward to join negotiations to formalize the new and loosely defined economic pact.
Appraisals of the initiative have thus far been mixed, with critics saying the proposed framework doesn’t offer participating countries enough value to serve as an effective economic counterweight to China.
Asia Times’ correspondent and Southeast Asia Insider editor Nile Bowie has followed the story closely and shared his assessment of the IPEF in this week’s Southeast Asia Insider Q&A.
A dozen countries have thus far committed to entering negotiations on the IPEF. Why?
Initial take-up for this nascent economic grouping did exceed my expectations. The participating nations include Australia, Brunei, Indonesia, India, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam.
Together with the US, they represent 40% of the world economy’s gross domestic product (GDP). Ahead of the framework’s launch, it was a given that Japan, Australia, New Zealand and Singapore would join the IPEF.
But the inclusion of seven other ASEAN nations wasn’t clearly telegraphed. Earlier this month at the US-ASEAN summit in Washington DC, several Southeast Asian leaders expressed interest in the IPEF but appeared to take a noncommittal “wait and see” approach, with for example Vietnam saying more clarity on the details of the proposal was needed.
The Biden administration reportedly made an eleventh-hour call to lower the barriers to participation in the initial round of discussions around the framework’s so-called four “pillars,” which are supply chain resiliency, digital economy rules, clean energy and infrastructure, and taxation and anti-corruption.
Signatories will have to set the parameters on what will be negotiated within each pillar, and uniquely, countries can opt-in and out of the individual pillars they want to participate in. That means participating countries won’t necessarily have to commit to all four pillars.
By offering a good deal of flexibility to participants to act upon the components that serve their interests, the White House has succeeded in attracting a higher number of participants than would otherwise have been expected. Countries have shown a willingness to engage, but crucially that doesn’t necessarily imply a commitment to join the final arrangement.
As trade experts have pointed out, there isn’t a historical precedent for such a loosely defined framework in which participants choose à la carte what they’re prepared to abide by. There are also structural aspects of the proposed framework that have many observers questioning whether it will be effective in achieving its strategic aims.
What exactly are the IPEF’s aims?
The IPEF’s purpose is to add economic heft to an Indo-Pacific policy that has thus far focused on geopolitical alliances like the Quad and AUKUS. Washington hopes that the IPEF can fill the void created by Donald Trump’s withdrawal from the Trans-Pacific Partnership (TPP) and serve as a counterbalance to China’s increasing economic and political influence in the region.
But crucially, the IPEF is not a trade agreement in the traditional sense because it doesn’t promise partner countries broader access to coveted US markets. That fact sticks out most as a critical flaw because without market access there are limited incentives for participating nations to commit to raising labor or environmental standards, let alone the costly restructuring of their supply chains.
The US is understandably reluctant to offer allies and partners tariff relief or wider market access. Free trade creates winners and losers. American multinationals have profited enormously from neoliberalism, which many working-class Americans associate with the offshoring of blue-collar jobs and the stagnation of living standards.
The Biden administration’s political instincts are correct that if it pursues the sweeping trade agreements of old, it will be skewered on both sides of the aisle. In this respect, Biden does deserve credit for attempting to reshape US trade policy in accordance with the legitimate concerns of his constituency. But there is a good deal of skepticism that the framework can achieve its intended purpose with its constraints and current scope.
Much like the TPP before it, the IPEF aims to establish the economic “rules of the road” for the region while excluding Asia’s largest economy by design. The Biden administration’s push for supply chain resilience appears to be aimed at cutting Chinese inputs out of regional supply chains.
But without the bargaining chip of US market access, there are few meaningful incentives for IPEF signatories to create separate production lines for exports to the US market.
Apart from India, every country that has agreed to IPEF talks are parties to the binding Regional Comprehensive Economic Partnership (RCEP), and some could conclude that their interests are best served not by decoupling from China but by abstaining from the geoeconomically consequential pillars of the IPEF.
Countries in what the US calls the Indo-Pacific care most about market access and infrastructure financing, and in both of those areas the US is trailing behind China, with its sprawling Belt and Road Initiative (BRI) and participation in multilateral trade deals like RCEP and ambitions to join the successor to the TPP, both of which Washington has steered clear.
That said, Asian nations place high value in the US as a counterbalance and economic engagement – whatever its shape – has indeed been broadly welcomed within the region. Shortcomings aside, it is early days for the IPEF and the formidable grouping of nations could very well find ways to shape a meaningful agreement. The definitive shape of things is still to come.
How long will IPEF negotiations likely take?
Parameters for the negotiations are expected to be set by late June or early July. The Biden administration reportedly aims to conclude negotiations for each pillar within 12-18 months, with the Asia-Pacific Economic Cooperation (APEC) leaders’ meeting, which will be hosted by the US in November 2023, being seen as an informal deadline for finalizing the framework. Each signatory government would then have to ratify the framework.
It isn’t clear what possible enforcement mechanisms could be written into the framework. Observers say the lack of market access provisions means the IPEF ultimately won’t require congressional sign-off. As the economic linchpin of the Indo-Pacific policy, there is a great deal riding on this initiative and its failure would mark a significant setback for American interests in the region.
But it remains to be seen how meaningful the framework will ultimately be, or if it will be durable enough to survive the Biden administration if Republicans are returned to power in 2024.