United States and 12 Indo-Pacific Countries Begin Discussions on Indo-Pacific Economic Framework, but Stop Short of Launching Formal Negotiations

Alert

26 May 2022

15 min read

On May 23, 2022, the United States and 12 other Indo-Pacific countries agreed to launch "collective discussions towards future negotiations" on the Indo-Pacific Economic Framework (IPEF) proposed by the Biden Administration. The countries that have agreed to participate in these discussions with the United States are Australia, Brunei Darussalam, India, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. In the coming weeks, these countries will discuss the potential scope of the IPEF’s four "pillars," with a view to reaching agreement on the scope and launching formal negotiations at a later date. In a Joint Statement issued on May 23, the participating countries affirmed that they intend for the IPEF’s four pillars to cover the following general topics: (1) Trade; (2) Supply Chains; (3) Clean Energy, Decarbonization, and Infrastructure; and (4) Tax and Anti-Corruption.¹

The decision to begin a scoping discussion for the IPEF is an important first step, but a less ambitious one than the Biden Administration initially proposed when negotiating the Joint Statement with participating countries. According to reports, the United States initially proposed that the Joint Statement should announce a commitment to begin formal negotiations on the IPEF text, rather than preliminary discussions on its scope. However, some developing countries were not ready to commit to formal negotiations, owing to a lack of clarity regarding US objectives for the IPEF, as well as concerns that the Framework as currently envisioned might not offer sufficient incentives for participation. To ensure that the Joint Statement would attract a broad and diverse range of signatories, particularly from ASEAN countries, the United States reportedly agreed to scale back the ambition of the Joint Statement, accepting a commitment to begin scoping discussions that could lead to text-based negotiations at a later date. This approach leaves some uncertainty as to which countries will ultimately participate in the IPEF, and how soon text-based negotiations might begin.

This alert provides an overview of the Joint Statement, the Biden Administration’s stated objectives for the IPEF, key US stakeholder reactions, and next steps and challenges for the IPEF process.

Joint Statement on the IPEF

The Joint Statement begins by acknowledging that the signatories’ economic policy interests in the Indo-Pacific region "are intertwined," and that "deepening economic engagement among partners is crucial for continued growth, peace, and prosperity." The signatories therefore "are launching the process to establish the Indo-Pacific Economic Framework for Prosperity," which is intended "to advance resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness for our economies[.]" Specifically, the signatories are "launch[ing] collective discussions toward future negotiations on the following pillars" of the IPEF:

Trade. The signatories "seek to build high-standard, inclusive, free, and fair trade commitments and develop new and creative approaches in trade and technology policy that advance a broad set of objectives that fuels economic activity and investment, promotes sustainable and inclusive economic growth, and benefits workers and consumers." These efforts "include, but are not limited to, cooperation in the digital economy."
Supply Chains. The signatories "are committed to improving transparency, diversity, security, and sustainability in our supply chains to make them more resilient and well-integrated." They seek to coordinate crisis response measures; expand cooperation to better prepare for and mitigate the effects of disruptions; improve logistical efficiency and support; and ensure access to key raw and processed materials, semiconductors, critical minerals, and clean energy technology.
Clean Energy, Decarbonization, and Infrastructure. In line with the signatories’ Paris Agreement goals and economic priorities, they "plan to accelerate the development and deployment of clean energy technologies to decarbonize our economies and build resilience to climate impacts." This involves "deepening cooperation on technologies, on mobilizing finance, including concessional finance, and on seeking ways to improve competitiveness and enhance connectivity by supporting the development of sustainable and durable infrastructure and by providing technical assistance."
Tax and Anti-Corruption. The signatories "are committed to promoting fair competition by enacting and enforcing effective and robust tax, anti-money laundering, and anti-bribery regimes in line with existing multilateral obligations, standards, and agreements to curb tax evasion and corruption in the Indo-Pacific region." This involves "sharing expertise and seeking ways to support capacity building necessary to advance accountable and transparent systems."

The Joint Statement further notes that the signatories "are continuing to identify additional areas of cooperation," and that they "invite participation from additional Indo-Pacific partners that share our goals, interests, and ambitions for the region[.]"

The Joint Statement does not discuss how participation in the IPEF will be structured. The United States has proposed a modular approach that would allow countries to participate only in those pillars of the IPEF that they select, and to decline participation in others. In the United States’ view, this approach is essential to ensuring that a broad range of countries are willing to participate in the IPEF in some form. The Joint Statement alludes to this structure by stating that the signatories will "maintain a flexible approach" to the discussions, but does not elaborate.

Importantly, the Joint Statement does not commit any of the signatories to participation in formal negotiations on the text of the IPEF once the initial scoping discussions are complete. Moreover, the Joint Statement does not indicate which pillars of the IPEF each signatory intends to join. This approach reflects the relatively cautious attitude that some Indo-Pacific countries have taken towards the IPEF and its trade pillar, despite welcoming as a general proposition the United States’ efforts to engage more deeply with the region.

US statements on IPEF objectives

Alongside the Joint Statement, the White House has issued its own statement summarizing, in general terms, the Biden Administration’s objectives for each IPEF pillar.² Some of the US objectives go beyond those mentioned in the Joint Statement, particularly in the area of trade, suggesting that the United States’ ambitions in this area may exceed that of some of the other signatories. Officials expect that the trade pillar will be the most challenging aspect of the IPEF to negotiate, and that securing broad participation in the trade pillar may prove difficult given the level of US ambition in this area.

Trade. For the trade pillar, the United States will seek: (1) "high-standard rules of the road in the digital economy, including standards on cross-border data flows and data localization;" (2) commitments that facilitate e-commerce, while "addressing issues such as online privacy and discriminatory and unethical use of Artificial Intelligence;" (3) "strong labor and environment standards;" (3) unspecified "corporate accountability provisions;" (4) commitments on trade facilitation, including for "accelerated implementation" of the World Trade Organization’s Trade Facilitation Agreement; (5) commitments on transparency and regulatory practices; and (6) commitments that facilitate agricultural trade "through science-based decision making and the adoption of sound, transparent regulatory practices."³
Supply Chains. The United States intends to promote supply chain resiliency by "establishing an early warning system, mapping critical mineral supply chains, improving traceability in key sectors, and coordinating on diversification efforts."
Clean Energy, Decarbonization, and Infrastructure. The United States "will pursue concrete, high-ambition targets that will accelerate efforts to tackle the climate crisis, including in the areas of renewable energy, carbon removal, energy efficiency standards, and new measures to combat methane emissions." The United States will also seek "first-of-their-kind commitments" on infrastructure, though the White House statement does not elaborate on this point.
Tax and Anti-Corruption. The United States will seek commitments "to enact and enforce effective tax, anti-money laundering, and anti-bribery regimes that are in line with our existing multilateral obligations[.]" These will include provisions on the exchange of tax information, criminalization of bribery in accordance with UN standards, and "effective implementation" of beneficial ownership recommendations to address corruption.

The United States has previously made clear that it will not discuss market access, including tariff liberalization, in the context of the IPEF. US Trade Representative Katherine Tai reiterated this position in public remarks on May 23, arguing that the United States’ average most-favored nation (MFN) tariff rate of 2.4 percent is already "very low," and that the focus on tariff liberalization in "traditional" US trade agreements has made those agreements politically fragile.⁴

Next steps

The United States has indicated that the signatories will begin discussions in the coming weeks to determine the scope of the IPEF and the pillars in which each country will participate.⁵ The United States has not laid out a timetable for concluding the scoping discussion and moving to text-based negotiations, but US Secretary of Commerce Gina Raimondo has suggested that this could take months to achieve.⁶ The Administration previously indicated that it hoped to conclude the IPEF negotiation in 2022, but this now appears unlikely, and the Administration reportedly is now aiming to conclude the negotiation within 18 to 24 months.

The Biden Administration has indicated that it may seek to implement certain elements of the IPEF as they are completed, rather than waiting until the entire framework is finalized. White House National Security Advisor Jake Sullivan cited the proposed "early warning system" for critical supply chains as one potential early-harvest outcome that could be implemented before the full framework is complete.⁷

US stakeholder reactions

The launch of the IPEF process has generated mixed reactions among US stakeholders:

The US Chamber of Commerce stated that the IPEF is "a positive step toward strengthening economic ties in the region," but "seems bound to fall short of the high standards and robust benefits of the U.S. trade agreements negotiated with several regional economies, including Australia, Korea, and Singapore."⁸ The Chamber lamented that the IPEF will not cover market access, adding that "it’s hard to see how [the IPEF] can be enforceable without such a provision[.]" The Chamber also expressed disappointment that Biden Administration in some instances "is trying to use trade policy tools to achieve goals that would be better addressed by domestic policy reforms."
The United Steelworkers Union (USW) stated that its support for the IPEF "will depend on the substance of any agreement and the results it provides to our workers[.]"⁹USW indicated that its members appreciate the value of cooperation with allies, but warned that "workers will not hesitate to oppose bad trade and economic initiatives." USW also indicated that it intends to engage with the administration "across all issues, as well as on which countries may be suitable partners." In public comments submitted to USTR in April, the Labor Advisory Committee on Trade Policy and Negotiations (which includes the USW and other US labor unions) expressed concern about including countries such as Malaysia, Thailand, the Philippines, and Indonesia in the IPEF, citing alleged "labor and human rights challenges" in those countries.¹⁰
Senate Finance Committee Chairman Ron Wyden (D-OR) welcomed the IPEF as an opportunity "to write the rules of the road for trade[.]"¹¹ Senator Wyden praised President Biden for "recognizing the need for a fresh and innovative approach to trade policy and trade agreements that puts American values first." Congressional Republicans offered a more critical response, however. House Ways and Means Committee Ranking Member Kevin Brady (R-TX) stated that the IPEF is a "strong opportunity" but "isn’t nearly ambitious enough," and argued that the Biden Administration "must obtain Congressional approval [of the IPEF] as the Constitution requires."¹²

Outlook

Deepening US engagement with Indo-Pacific countries is a central component of the Biden Administration’s foreign policy strategy. The Administration has acknowledged that this effort must extend beyond security cooperation to include the expansion of US trade and economic relationships with Indo-Pacific countries. The Joint Statement demonstrates that a diverse range of Indo-Pacific countries are similarly interested in expanding their trade and economic relationships with the United States. However, the Joint Statement does little to answer the main outstanding questions surrounding the IPEF, including which countries will ultimately participate, what level of ambition can be achieved, and how any trade commitments undertaken in the IPEF can be enforced. The IPEF’s relevance for the business community will depend in part on how these questions are resolved. Some of the key challenges and considerations are as follows:

Balancing inclusivity with high ambition. The Biden Administration has expressed a desire to secure broad participation in the IPEF, while also ensuring that the Framework includes high standard commitments in politically sensitive areas such as digital trade, labor, and the environment. This will be difficult to achieve, given the differing levels of development and divergent policy approaches of the Joint Statement’s signatories. The Administration has suggested that making participation in certain IPEF pillars optional would facilitate broad membership in the overall framework, while allowing like-minded countries to pursue high standard outcomes in the most sensitive areas such as trade. However, this approach could greatly limit the IPEF’s commercial significance. The US Chamber of Commerce recently warned that the IPEF’s impact "will be most felt only if countries like Vietnam, Malaysia and Korea sign up for a high-standard digital framework."¹³
Exclusion of market access. The United States’ decision to exclude market access from the IPEF will increase the difficulty of achieving broad participation and high standard commitments that meaningfully influence domestic policies. In past US trade agreements, the promise of duty-free access to the US market has been critical for securing commitments on labor, the environment, digital trade, and other sensitive issues. The exclusion of market access from the IPEF has caused some countries to question the incentives for participation, particularly in the trade pillar. This week, Secretary Raimondo suggested that the IPEF will incentivize participation in other ways, noting that the infrastructure pillar will involve "sources of public and private capital flowing from the United States . . . into infrastructure projects in countries in the region."¹⁴ At this stage, however, the details of these proposed arrangements are unclear. Moreover, and as noted above, the United States has proposed a flexible structure that would allow countries to participate only in those pillars of the IPEF that they select. It is therefore unclear whether, or how, the United States intends for benefits associated with the infrastructure pillar to incentivize participation in other pillars, including trade.
Enforceability and effectiveness. The absence of market access commitments from the IPEF has also raised questions as to how its trade obligations could be enforced. Market access commitments play an essential role in the enforcement of trade agreements: WTO and FTA dispute settlement mechanisms allow a complaining party to suspend market access concessions (e.g., by raising tariffs) where a dispute settlement panel finds that the respondent party has violated its obligations. Though the United States has suggested that benefits other than market access (e.g., infrastructure financing) could attract participants to the IPEF, such benefits are untested as a means of enforcing trade commitments. On May 23, Secretary Raimondo stated that "there will be incentives to . . . live up to the commitments that will be part of the [IPEF] agreement," and that "the greatest enforcement is that if you don’t hold up your end of the bargain, you don’t receive the benefits[.]" However, she did not elaborate on how this would work.

Taiwan’s absence from the list of signatories to the Joint Statement has also caused some observers to question whether the IPEF will include meaningful outcomes on semiconductor supply chains. Taiwan has expressed a desire to join the IPEF, but it is not included in the initial group of signatories. The Biden Administration has indicated that it plans to pursue "deeper bilateral engagement with Taiwan on trade and economic matters" on a separate track, which will allow the United States "to enhance our economic partnership with Taiwan and also to carry IPEF forward with this diverse range of countries."¹⁵
Implications for CPTPP. Few Indo-Pacific countries appear to the view the IPEF as comparable to US participation in the CPTPP, in terms of the economic benefits it would deliver and the level of commitment that it would signal to the region. Some observers have expressed hope that the IPEF could serve as a stepping stone for an eventual US accession to the CPTPP, but the Biden Administration has repeatedly downplayed this possibility. Moreover, Administration officials have sought to portray the CPTPP (and FTAs generally) as an outdated approach to trade policymaking that is ill-suited to current priorities, arguing that the IPEF represents a better approach focused on "resilience, sustainability, and inclusion[.]"¹⁶ It is too early to tell whether a successful conclusion of the IPEF would facilitate an eventual US accession to the CPTPP or, alternatively, make it easier for the United States to justify remaining outside the agreement.
Durability. The Biden Administration has indicated that it does not intend to seek congressional approval of the IPEF, and will instead treat it as an executive agreement. This approach avoids the challenges associated with securing congressional approval, but also raises questions as to the durability of US support for the IPEF. Members of Congress may feel less invested in an agreement implemented by executive action than one that goes through the challenging process of congressional approval, which normally requires bipartisan support. Some US negotiating partners may therefore question whether the United States will support the IPEF and remain committed to its implementation over the long term – particularly given the recent experience of the United States’ withdrawal from the TPP after obtaining difficult concessions from Indo-Pacific partners.

_{White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.}

_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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