As Washington steps up efforts to restore US ‘economic leadership’ in the Indo-Pacific region, US President Joe Biden launched the Indo-Pacific Economic Framework for Prosperity (IPEF) in Tokyo on May 23, with 13 member countries joining the framework.
In addition to the United States, other participants in the framework are Australia, Brunei, India, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand and Vietnam. Together, these countries account for around 40% of the world’s gross domestic product (GDP). However, the framework excludes China and some ASEAN countries such as Myanmar, Laos and Cambodia.
In the past, the United States has always been accused of pursuing an âall guns and no butterâ strategy in its policy towards the region. The newly launched IPEF is seen as the economic pillar of the US Indo-Pacific strategy to increase US economic presence in the region after the Trump administration. withdrew from the Trans-Pacific Partnership (TPP) in 2017, which paved the way for China to unhindered its economic footprint in the region.
Instead of just joining the TPP, which later became the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)Biden opted for the new economic framework to compete for influence with the Regional Comprehensive Economic Partnership (RCEP) that connects China and the other 14 Asia-Pacific economies in the world’s largest trading bloc.
Seen as a way to counter China’s growing economic influence in the region, IPEF will focus on four key pillars: supply chain resilience; clean energy, decarbonization and infrastructure; taxation and the fight against corruption; and fair and resilient trade. However, the Biden administration may face some challenges in implementing the framework due to the lack of clear business incentives and the attractiveness it brings to the region.
Lack of market access and rate reduction
Unlike the CPTPP and RCEP, the US-led IPEF is not a free trade agreement (FTA) because it offers neither expanded market access nor tariff reduction, which lacks trade incentives for countries in the region. Some analysts and observers say the deal lacks “teeth” and is “more symbolic than effective or real policy”.
International trade expert and professor of law at the Chinese University of Hong Kong, Bryan Mercurio, said that the United States could contribute money to IPEF, “especially for clean energy, can -be even for supply chain resilience and anti-corruption.â
âBut of course what the Asian partners really want is trade. I think they want market access. And the trade component of IPEF is really lacking,â he added.
Without greater access to the US market and tariff reduction commitments, it would be difficult for Washington to reduce the economic dependence of some countries in the region on China. However, Biden faces political pressure from left and right in the United States to avoid free trade agreements, which have led to “considerable backlashof the American people who are concerned about the outsourcing and outsourcing of American jobs and opportunities. The Biden administration is unlikely to grant Asian countries greater access to the U.S. market given strong protectionist sentiments at home.
High-level provisions on digital trade, labor and environmental standards
Importantly, Washington intends to seek “one-of-a-kind commitments” in new areas such as the digital economy, clean energy and decarbonization in the framework. It also seeks strong commitments on labor and environmental standards, which are highly unpopular in the region.
The Biden administration will face headwinds trying to persuade some countries in the region to make strong commitments in these areas because they do not share the same policies and standards as the United States. For example, Southeast Asia is not a monolith when it comes to digital trade, and each country in the region is at different stages of digital development. Some developing countries in the region may not be able to meet IPEF’s so-called high standards on digital trade, labor and the environment.
The United States and India also have differing views on digital trade, labor and environmental standards in the framework. India has always opposed the inclusion of such standards in any free trade agreements it enters into.
According to Prabir De, a professor at the Research and Information System for Developing Countries (RIS), “some areas offered in the IPEF do not seem to serve the interests of India”. Brazil also argues that the IPEF formulation contains issues that directly conflict with India’s stated position, such as prohibition/restrictions on cross-border data flows and location requirements for data, including for financial services. Similarly, when it comes to business resilience, as Pranab Dhal Samanta argues in The economic period”Politically sensitive labor and environmental standards could prove to be a challenge for India.”
Ddecoupling countries in the Chinese economy region
One of the biggest challenges for the United States is decoupling IPEF members from the Chinese economy, which would be destructive for some economies in the region. beijing said the economic framework proposed by the United States is an attempt by Washington to decouple the countries of the region from the Chinese economy, but many countries in the region are concerned about the “enormous cost” of such a move. Apart from the United States and India, the other IPEF members have already joined China in signing the RCEP, which is the world’s largest binding FTA with regional market access and tariff reduction.
Without commercial incentives such as access to the US market, it would be difficult for the Biden administration to secure meaningful commitments from IPEF members to the new economic framework in relation to RCEP. It remains to be seen whether and why IPEF members would be willing to risk their economic ties with China in exchange for intangible IPEF gains.
At this point, the IPEF is more symbolic than effective as it lacks the teeth to actually turn into meaningful action due to the absence of market incentives and clear tariff concessions. Although the IPEF can help Washington increase its economic presence and strengthen its ties with its Asian partners in the region, its implementation involves significant national and international challenges.