IPEF — Two Steps Forward, But One Important Step Still Missing



Jane Mellsop | Asia Society Policy Institute

The fourteen members of the Indo-Pacific Economic Framework for Prosperity (IPEF) released the agreement texts for two of the IPEF pillars on 14 March 2024 — the Clean Economy Agreement (CEA) and the Fair Economy Agreement (FEA) — as well as a text establishing the IPEF institutional mechanisms (the IPEF institutional agreement). These agreements represent an important step for the U.S.’ re-engagement in the Indo-Pacific region and illustrate the U.S.’ strength in pulling together outcomes with a broad group of 13 partner countries in a remarkably short time span. Meanwhile, the absence of outcomes on the trade pillar continues to underscore the U.S. political divide on all things trade.

The CEA covers a wide range of initiatives to advance the transition to clean economies, from clean energy technology development to decarbonize industries, through to greenhouse gas capture and energy security. The FEA contains provisions to ensure corruption and bribery activities are criminalized, that enforcement of such is effective, and steps are taken to raise public awareness and promote the role of the private sector. The FEA also promotes the transparency and exchange of tax information among members’ tax authorities in order to improve tax administration and compliance. The IPEF institutional agreement sets up two bodies: the IPEF Council to oversee the operation of all of the IPEF agreements and consider any proposals for new members or new agreements; and the IPEF Joint Commission to consider the implementation of each of the pillar agreements.

Initial analysis of these three new texts reveals the following:

Cooperation is Key to Meeting Objectives

Like the earlier IPEF Supply Chain Agreement, these agreements focus on cooperation among the members as a key mechanism to advance their objectives. Unlike traditional trade agreements, the CEA and FEA do not set out detailed rules which can be enforced through binding dispute resolution, and, interestingly, do not contain any reference upfront to the importance of the rules-based multilateral trade system (although this was included in the Preamble of the Supply Chain Agreement). In the case of the CEA, the agreement seems to provide a menu of initiatives and areas from which parties can pick and choose according to their interests and means. The tax section of the FEA is also focused on improving cooperation through greater exchange of information.

This cooperation ethos also extends to the private sector, with the CEA and FEA highlighting the importance of stakeholder engagement, education and input, and social dialogue on these issues in order to achieve effective implementation.

Economic Inclusion and Labor Rights are Highlighted

Economic inclusion features prominently in the three texts. The CEA notes at the outset that each Party’s efforts to transition to a clean economy should be implemented in a manner that is “just and inclusive.” There is specific recognition that local communities and Indigenous Peoples have an important role to play in transitions to clean economies and Parties intend to partner with them in the implementation of the agreement. The FEA also emphasizes the importance of ensuring the benefits of free trade, investment and economic growth are broadly shared, and includes a specific provision advancing gender equality and women’s empowerment in anti-corruption programs.

In line with this Administration’s focus on a worker-centric trade policy, and the earlier IPEF Supply Chain Agreement, both the CEA and the FEA include a number of provisions promoting labor rights. Both agreements highlight, for example, the role of workers’ organizations as part of broader participation, with the CEA also including a number of provisions on the importance of promoting labor rights, employment, decent work and just transitions to a clean economy. Notably, the FEA includes specific provisions around migrant workers’ rights. The IPEF institutional agreement’s Preamble also refers to the importance of an Indo-Pacific region that has “the potential to achieve sustainable and inclusive economic growth.”

Implementation is Flexible and Capacity Building is Provided

Layers of flexibility regarding implementation are featured in these texts. This is not a surprise given the disparate grouping and their different levels of development and approach to these policy areas. While the agreements are legally binding, the drafters have allowed sufficient flexibility for countries to determine how they will implement many of the provisions. For example, many of the FEA’s provisions state that Parties ‘should,’ or ‘endeavor to,’ do something ‘where possible’ or ‘where appropriate.’ Many of the CEA’s key initiatives simply refer to ‘interested Parties’ working together on cooperative activities, rather than all Parties. Both the CEA and FEA also contain a specific provision that Parties are only required to implement the commitments within their available resources — a significant ‘out’ — and in the FEA, Fiji alone is designated to receive a longer transition period for some commitments.

Alongside this flexibility is an emphasis throughout the CEA and FEA texts on technical assistance and capacity building. Both agreements recognize sharing of information, best practices and other forms of capacity building will be needed to achieve its objectives. This is usually a big ask coming from ASEAN economies in trade negotiations, and no doubt was something they requested from these agreements, particularly given that market access was not on the table. Capacity building is also acknowledged as necessary in order to support the ‘inclusive’ and ‘just’ policies that are prescribed.

Building on the CPTPP for Anti-Corruption Provisions

The anti-corruption provisions in the FEA draw from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) text in several places, but also include additional provisions that are also not found in the UN Convention Against Corruption. For example, the FEA includes new provisions that each Party “may encourage its law enforcement authorities…to consider implementing measures to incentivize enterprises to develop effective internal controls,…as well as to encourage disclosures of misconduct.” Another new addition is that Parties should require an external auditor of an issuer’s financial statement who discovers a suspected offense to report it to the issuer’s management and monitoring bodies. Other advances include bringing some of the Financial Action Task Force’s recommendations into the FEA.

Withdrawing from the IPEF

Like the Supply Chain Agreement, the FEA and the IPEF institutional agreement allow Parties to withdraw only starting three years after the entry into force of the Agreement. Interestingly, a similar provision is not found in the CEA, where a more usual rule of simply giving notice for withdrawal applies (that withdrawal becoming effective after 6 months). This could signal that other countries were less willing to tie themselves down to a three-year rule in that sector, or because of the more ‘opt-in’ nature of many of the provisions in the CEA, a longer period before withdrawal was simply not considered necessary. But the three-year rule could also represent an effort by the United States to show its reliability as a partner by signaling that Washington can make a binding commitment past the upcoming elections.

Next Steps

The release of the final texts of these three new agreements is encouraging for the U.S.’ commitment to the Indo-Pacific region and to generating greater economic connections with this dynamic part of the globe. IPEF members will soon sign these three agreements, most probably in June when the Ministers meet in person. Work to implement the supply chain pillar is already in train, with members setting up the various committees and councils to undertake the specified initiatives. The members have already established five cooperative work programs under the CEA, and announced that the inaugural IPEF Clean Economy Investor Forum will be held in Singapore in June to foster greater investment in climate-related projects in the region.

The Missing Piece

All of the activity on the Commerce-led pillars highlights the missing piece of IPEF — the USTR-led pillar on trade. The IPEF institutional agreement includes reference to the not-yet-concluded Agreement on Trade and even refers to the Trade Commission that will be set up under that new trade agreement. Unfortunately, prospects for progress on the trade pillar remain slim to none during the U.S. election year. It is a good time for the U.S. to reflect internally on what adjustments could be made to that pillar to make it more acceptable domestically and more attractive internationally.

Jane Mellsop is the Director of Trade, Investment, and Economic Security at the Asia Society Policy Institute in Washington, D.C.

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