U.S. Must Aim High With IPEF to Maintain Influence – Pacts That Exclude Washington are Reshaping Supply Chains and Trade Flows



Barbara Weisel | Nikkei Asia

The U.S. and its 13 partners will sit down in Bali next week for a new round of Indo-Pacific Economic Framework for Prosperity negotiations. They are moving quickly in hopes that the initiative will boost their pandemic recovery efforts, clean energy transition and digital transformation.

Indo-Pacific countries recognize that the IPEF has the potential to deepen commercial ties, promote sustainable economic growth and development, diversify trade flows and bolster U.S. commitment to the region.

These nations are keen to expand economic ties with the U.S. to complement progress made in recent years on political and security issues. But they have legitimate questions about whether the U.S. is prepared to engage seriously on economic matters of interest to them.

The U.S. says that it views the IPEF as a key tool to advance its economic and strategic interests, and that developing deeper ties with Indo-Pacific allies and partners is critical. It says its aim is to sustain and build its leadership and influence, deepen its economic relationships, catalyze progress on global issues and deter malign regional actors.

The challenge now is to raise the level of ambition so that the IPEF can achieve these goals.

The new U.S. “worker-centric” model for trade initiatives has been met with skepticism even among allies and, so far, is more a slogan than a clearly defined policy. Washington has yet to articulate how its approach can promote trade and investment among IPEF members, advance the interests of workers, protect the environment, promote innovation and strengthen competitiveness.

Success will require the U.S. to move from rhetoric to substance and put forward a bold framework.

First, the agreement must provide clarity and predictability through binding and enforceable rules and standards. These rules must be detailed enough to provide tangible benefits, especially if the U.S. continues to refuse to offer the kind of market access that have traditionally been the trade-off for developing countries to accept new high-standard rules.

What might these rules include?

On the trade pillar, IPEF members could increase market opportunities by addressing specific nontariff barriers their exporters face today and establishing processes for tackling new ones.

They could agree to rules simplifying and modernizing customs procedures to make trade faster, cheaper and more predictable across the region, while helping governments detect fraud and enforce health, safety and labor regulations.

They also could agree to strong digital trade rules, comparable to the high standards set in recent U.S. agreements, to facilitate trusted data flows, support small businesses and encourage innovation and inclusion. They could include intellectual property protections to promote trade in innovative goods and services, and agree on common standards in key sectors to make trade more seamless.

On the supply chain pillar, IPEF governments could agree on information sharing and coordination mechanisms that would provide early warning of potential supply-chain shocks and ensure more effective responses.

They could establish common, trusted standards to promote secure supply chains and environmental sustainability and combat forced labor. To foster the development of IPEF supply chains in critical goods, they also could provide preferential access to each other’s markets, including eliminating tariffs on critical minerals, food, medicine, medical technologies and batteries.

On the clean energy pillar, to support their climate goals, IPEF members could eliminate barriers to trade in environmental goods and services, offer incentives for goods produced using clean energy, and develop common standards and metrics for carbon emissions and carbon intensity.

They could coordinate joint research and development projects on clean energy and offer royalty-free licenses for the deployment of the resulting technologies in IPEF countries. They could also secure financing to build supply chain and clean energy infrastructure through investment protection commitments.

Second, the U.S. and other IPEF members should establish a new model of engagement with stakeholders. Governments need stakeholders invested in the IPEF’s success. They are depending on business to provide technical assistance, participate in public-private partnerships, finance infrastructure, share information and reorient supply chains. They also are relying on the expertise of businesses and other stakeholders to inform their discussions on how to incentivize the outcomes they seek.

As they develop protocols for new issues that were not addressed in previous trade agreements, the U.S. and other governments should establish working groups that include both government and stakeholder representatives. These groups would be tasked with developing proposals on specific issues and would also be a resource to inform government discussions.

Third, the U.S. needs to act with urgency. Trade liberalization is proceeding between IPEF members and third parties outside of the framework, shaping regional supply chains and trade and investment flows and influencing broader relationships and regional dynamics. But the speedy conclusion of political commitments should not take precedence over substantive economic outcomes.

The IPEF will be seen as a test of the effectiveness of the new U.S. worker-centric approach to trade agreements. To pass muster, the agreement must be robust enough to increase trade among IPEF members, enhance supply-chain resilience and significantly advance their energy transitions.

Some IPEF members may be willing to accept incremental progress and will certainly welcome offers of new projects or technical assistance from the U.S. and other countries. But baby steps will do little to achieve the initiative’s objectives. Given the challenges at this pivotal moment, the U.S. must pursue a grander vision. Success is critical, and the U.S. cannot afford to come up short.

Barbara Weisel is a managing director of Rock Creek Global Advisors in Washington and a member of the advisory board of the American Association of the Indo-Pacific. She was previously the chief U.S. negotiator for the Trans-Pacific Partnership Agreement.

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