The first in-person ministerial meeting of the Indo-Pacific Economic Framework (IPEF) was concluded in Los Angeles last week (Sept 8-9, 2022). Ministers from 14 countries got together in Los Angeles (LA) for a two-day meeting, co-hosted by US Trade Representative Katherine Tai and US Commerce Secretary Gina Raimondo. Representing around 40 percent of the global economy, these countries include the U.S., Japan, India, South Korea, Australia, New Zealand, Vietnam, Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Fiji. What’s all the fuss about?
IPEF Is Born in Tokyo
On his first Asia trip, U.S. President Joe Biden announced (on May 23, 2022) that Japan, India and 10 other countries had committed to join the U.S.-led IPEF. Fiji joined a couple of days later, to become the fourteenth country. Needless to say, the IPEF excluded China (and some of its close ASEAN partners such as Cambodia, Laos, and Myanmar), not least because the IPEF is meant to counter the geo-economic rise of China.
China has solidified its geo-economic clout in the region thanks to three main facts: First, the Trump administration walked out of the Trans-Pacific Partnership (TPP) due to anti-globalization sentiments in the U.S. Second, China and other Indo-Pacific countries (including all the IPEF countries except for the U.S. and Fiji) officially joined the Regional Comprehensive Economic Partnership (RCEP), the largest free trade agreement (FTA) in the world. China is the leading economic actor in the RCEP. And third, preceding the first and second fact, China was already solidifying its role as the main geo-economic actor in the Indo-Pacific region (and Afro-Eurasia) via the Belt and Road Initiative (BRI). IPEF is, in a sense, a reaction to all these processes, especially the BRI.
Geopolitically, the U.S. and its allies have created several formations (including the Quad and AUKUS) and policies (such as high-tech decoupling) to contain or slow the rise of China. But in terms of long-term trade policies, the U.S. has fallen behind. With the IPEF, the U.S. aims to re-engage the region geo-economically and not let China ‘write the rules of the global economy’ in this century as Obama warned in 2015. In other words, the IPEF is a U.S. baby that was born in Tokyo, with much fanfare, to counter Beijing; it tried crawling in Los Angeles last week.
IPEF Starts Crawling in Los Angeles
The main aim of the ministerial meeting in Los Angeles, according to the statement released by the U.S., was for all participant countries to officially endorse the four pillars, ‘fill in the details’, ‘chart a path forward’, and announce ‘negotiation objectives’ regarding the four pillars of the IPEF. The four include fair trade, supply chain resilience, environment and green technologies, and anti-corruption. The following objectives were announced to facilitate future negotiations, according to the US statement:
About the pillar of fair trade, “the IPEF partners will seek high-standard provisions in areas that are foundational to resilient, sustainable, and inclusive economic growth”. The countries also ‘intend to advance inclusive digital trade’ by inter alia ‘promoting trusted and secure cross-border data flows’. They will also ‘seek to advance food security’.
As for the second pillar, ‘the countries will seek to coordinate actions to mitigate and prevent future supply chain disruptions and secure critical sectors and key products for our manufacturers.’ IPEF countries will try to identify which sectors can be subsumed under the rubric of national security and will seek to act collectively to increase resilience in those sectors. The global chip shortage and the US dependence on China for pharmaceutical products are two such supply chain problems, which manifested themselves during the COVID-19 pandemic.
As regards the third pillar, the IPEF countries will seek to enhance cooperation in the climate and renewable energy sectors by expanding investment opportunities, spur innovation, and unlock the green energy potential of the Indo-Pacific Region. About the ant-corruption pillar, the countries ‘will seek to level the playing field for businesses and workers within partner countries by preventing and combatting corruption, curbing tax evasion, and enhancing transparency’.
Will This Baby Walk?
It is indisputable that the IPEF has started slowly and steadily crawling. The countries held virtual ministerial meetings in May and July. This in-person ministerial meeting was the third meeting since May and has proved at least one thing: the countries are willing to meet and take the IPEF seriously. That’s already an achievement in and of itself, enough to call it a decent first year for the IPEF.
But, did the LA gathering meet its stated objectives? Did it fill in the details necessary to chart a path forward beyond platitudes? Yes and no. Yes, in the sense that there were enough details to cover the concerns of 14 countries, each of which has its own specific agendas, concerns, and challenges.
No, in the sense that when you look at those details they did not go beyond the typical general words and phrases that have been bandied around since May. Even a superficial content analysis of the U.S. statement can reveal that specifics are lacking and platitudes (such as openness, inclusivity, resilience, and the like) abound. With such vague words and expressions, geo-economic bonds cannot be created.
Speaking of bonds, the U.S. has been insisted since May that the IPEF is not going to be a typical FTA, with binding conditions and attractive incentives such as ease of access to the U.S. market. Absent such elements, the IPEF does not stand a realistic chance of competing with the likes of the RCEP (which is a binding FTA) or even the BRI (which is a discursive umbrella that works in practice through, inter alia, bilateral agreements and international organizations such as the AIIB).
A major blow to the IPEF meeting last week was the fact that India opted out of the trade dimension of the IPEF and only endorsed the other three pillars. The country wants to wait for the ‘contours to emerge’ and to see “what benefits member countries will derive and whether any conditionalities on aspects like environment may discriminate against developing countries”. For reasons not too dissimilar to these, India had also opted out of the RCEP.
Given the absence of details on conditionalities and incentives, one can argue that the IPEF remains, as of now, mainly a discursive arena. If this baby is to ever walk (i.e., if it is to become more than discursive), it needs to engage in painstaking negotiations for years with Indo-Pacific countries and to also formulate mutually agreed upon benefits and conditionalities.
Most Indo-Pacific countries have already shown that they do ‘mean business’, which is to say, they are not going to sacrifice their trade and geo-economic interests for superpower geopolitics. That’s why all these countries (including Australia, New Zealand, South Korea, and Japan, and all ASEAN countries) joined China in signing the RCEP.
If the U.S. is serious about countering China geo-economically, it needs to make trade concessions to these countries and in turn, derive concessions from them. Otherwise, the IPEF might never walk. The fact that India walked out of the first and most important pillar should serve as a wake-up call for the U.S. that details are scant and negotiations, when/if they occur, are going to be painstaking and take years to conclude. Geo-economics is a long-term game and needs meticulous long-term planning.