IPEF Comes into Focus at LA Ministerial

Source the Center for Strategic and International Studies

 

Media www.rajawalisiber.com – Trade ministers representing 14 countries kicked off formal negotiations on the Indo-Pacific Economic Framework for Prosperity (IPEF) on September 8 and 9, 2022, at a ministerial-level meeting in Los Angeles. This new U.S.-led framework, spearheaded by the U.S. Trade Representative (USTR) and Secretary of Commerce, represents the return of the United States to broad economic engagement in the Indo-Pacific five years after U.S. withdrawal from the Trans-Pacific Partnership (TPP). IPEF is intended to provide an alternative to expanding Chinese economic statecraft in the Indo-Pacific and complement an evolving U.S. security strategy in the region.

At the end of the ministerial, USTR and Commerce released an announcement of negotiating objectives that included joint statements for each of IPEF’s four policy pillars: trade, supply chains, clean economy, and fair economy. U.S. secretary of commerce Gina Raimondo lauded the summit as a success, saying “This ministerial gave us an opportunity to show that we can deliver concrete and tangible economic benefits for partner countries while pursuing an inclusive and high standard framework at the same time.”

Q1: What happened at the IPEF ministerial?

A1: The Los Angeles convening marks the first formal in-person IPEF ministerial meeting, coming after three informal convenings since May. Though the joint statements from the ministerial served more as signaling devices than technical agreements, they confirmed the core pillars of negotiation remain unchanged and provided additional clarity on the scope of pillar issue areas.

After months of discussion, participating countries finally determined which IPEF pillars they would join. With the exception of India, all IPEF participants joined all four pillars—a remarkable demand signal for engagement with the United States that exceeded the predictions of some analysts. India opted to join all pillars except the trade pillar, citing concerns about binding environment and labor provisions. No new countries joined IPEF negotiations in Los Angeles, despite the U.S. secretary of state’s recent announcement that the United States remains open to more participants. Bangladesh, Laos, and Cambodia all remain potential IPEF participants, but it remains to be seen whether these countries join.

The ministerial was also full of activity on the margins of the formal negotiations. Commerce and USTR, in partnership with 14 U.S. companies and The Asia Foundation, unveiled a new IPEF Upskilling Initiative leveraging private sector commitments to provide digital skills training to seven million women and girls over the next decade. Though details on implementation remain unclear, the initiative has the potential to address gender-based inequality and grow a broader STEM workforce in the Indo-Pacific to accelerate digital economic transformation. A group of protesters, coordinated by the Trade Justice Education Fund, California Trade Justice Coalition, and Public Citizen’s Global Trade Watch, also gathered outside the ministerial to push for stronger transparency, labor, environmental, and digital privacy provisions in the IPEF negotiations.

Though U.S. officials struck an optimistic tone at the end of the summit, the real work now begins. As outlined in a previous CSIS Economics Program brief , regional partners continue to seek “tangible outcomes”—i.e., meaningful economic or financial concessions—to offset the Biden administration’s unwillingness to offer greater access to the large U.S. market. Ministerial statements reconfirmed that IPEF parties do not plan to negotiate tariff liberalization. Developed economies also did not indicate which concessions they were prepared to make on various pillars, including on decarbonization. It remains to be seen how negotiations will continue and whether compromise can be reached on trickier issues, such as unlocking energy resources or curbing tax evasion.

Q2: What do the ministerial statements indicate about the scope of upcoming negotiations? 

A2: As expected, there were no substantive outcomes from the ministerial, but the parties further clarified what the scope of negotiations will look like in each pillar:

Trade Pillar: This pillar will focus on nine key issues: labor, environment, digital economy, agriculture, transparency and good regulatory practices, competition policy, trade facilitation, inclusivity, and technical assistance and cooperation. Rather than indicating the trade mechanisms countries would use to pursue these policies, the statement said the parties “intend to pursue provisions and initiatives related” to those areas.

Supply Chains Pillar: All countries agreed to negotiate ways to “anticipate, withstand, or rapidly recover from shocks,” focusing on six key areas: establishing criteria for critical sectors and goods, increasing resiliency and investment in critical sectors and goods, establishing an information-sharing and crisis response mechanism, strengthening supply chain logistics, enhancing the role of workers, and improving supply chain transparency.

Clean Economy Pillar: This pillar is divided into five subcategories: energy security and transition; greenhouse gas (GHG) emissions reductions in priority sectors; sustainable land, water, and ocean solutions; innovative technologies for GHG removal; and incentives to enable the clean economy transition. The statement described this pillar as “part of a future-oriented effort” that expands opportunities, spurs growth, and improves livelihoods during the just energy transition.

Fair Economy Pillar: This pillar will focus on anticorruption, tax, capacity building and innovation, and cooperation, inclusive collaboration, and transparency. Per the statement, members “look forward to jointly working to develop these provisions and initiatives as part of our individual and collective efforts to innovate and strengthen our approaches [to anticorruption and tax].”

Overall, ministerial statements outlined solid enthusiasm among the participating countries across topic areas. It is not surprising that India, which has historically resisted trade agreements that require concessions, opted against negotiating within that pillar. It is also clear from the structure of the statements and the prioritization of pillars that the Biden administration remains keen on focusing overwhelmingly on labor and environment concerns.

Q3: Which pillars received the most attention at the ministerial? 

A3: Supply chain issues garnered the most enthusiasm in the leadup to the Los Angeles ministerial. Every participating country has had supply chain issues of its own, whether as a result of Covid-19, shipping disruptions, or other causes. The core objective of the supply chain pillar is to advance discussions on supply chain transparency and resilience—in other words, to create information-sharing mechanisms that would reduce supply chain disruptions and frictions.

Partner countries are also seeking greater transparency and alignment on critical goods issues. Parties will work to establish criteria for identifying which sectors are critical to national security and economic resilience and also to identify ways to prevent ongoing disruptions to global trade. This will be tricky for U.S. negotiators, who have encountered difficulty in making concrete progress on transparency mechanisms in venues such as the U.S.-EU Trade and Technology Council, particularly related to semiconductor supply chains. Companies remain reluctant to share proprietary information with governments and competitors and are inherently reticent about disclosing supply chain details.

Encouraging greater transparency in supply chains is not the only problem IPEF members face in building new supply chain frameworks. As the United States rethinks its long-term approach to supply chains, partner governments are keen to attract business as part of the ongoing reshuffle. There remain substantive challenges to coordinating which countries will be able to participate more significantly in critical sectors, for example facilitating increased critical mineral mining and processing capabilities or pursuing policies that make IPEF members more attractive for “friend-shoring” of semiconductor supply chains.

IPEF overall presents an opportunity both for the United States, along with participating members, to design policies that adequately incentivize companies to relocate supply chains. As CSIS has previously argued, encouraging companies and governments to capitalize on momentum behind “the great reshuffle” of supply chains will likely depend on the right combination of policies. These include the provision of targeted incentives, transparency on industrial policy, and the promulgation of consistent trade policies that provide more certainty in an international business environment.

Overall, the complexities involved in bringing about greater convergence on these policy areas makes it unclear what concrete outcomes the supply chain pillar will be able to produce, particularly on critical inputs, whether semiconductors or critical minerals.

Q4: What are likely next steps for IPEF negotiations? 

A4: The initial U.S. goal was to conclude the IPEF negotiations within 18 months, ahead of its hosting of the Asia Pacific Economic Cooperation (APEC) Leaders’ Meeting in November 2023, an ambitious timeline that could prove challenging given the current pace of negotiations. Whether negotiations will produce any “early harvests”—specific agreements that occur earlier than others—also remains an open question. The Biden administration has indicated that early harvests remain unlikely, particularly on trade.

In terms of next steps, Ambassador Katherine Tai indicated in her concluding statement that “Our intention now is to move towards negotiations with our partners on each pillar, with the first round of discussions taking place after this ministerial.” She also alluded to continued discussions in the weeks and months ahead, although specific timelines for negotiations on each pillar remain unclear.

Aidan Arasasingham is a program coordinator and research assistant with the Economics Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Emily Benson is a fellow with the Scholl Chair in International Business at CSIS. Matthew P. Goodman is senior vice president for economics at CSIS. William A. Reinsch holds the Scholl Chair in International Business at CSIS. 

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