What is IPEF?
The Indo-Pacific Economic Framework (IPEF) is a US-led international economic initiative and a central tenet of the Biden administration’s international trade policy. Launched by President Biden in May 2022, IPEF negotiations include 14 countries across the Indo-Pacific region and consist of four pillars:
- Trade — including labour rights, competition policy, trade facilitation and the digital economy.
- Supply chains — including critical sectors and goods, identification of supply chokepoints and information sharing.
- Clean economy — including initiatives on green technology, greenhouse gas reductions in priority sectors and incentives to enable energy transition.
- Fair economy — including reporting on corruption, technical assistance and capacity building for sharing of tax information.
IPEF is not a traditional trade agreement — it offers “incentives and opportunities”, many of which are yet to take shape, instead of trade liberalisation and lower tariffs. While the US Office of the US Trade Representative (USTR) will oversee the trade pillar negotiations, the other pillars are managed by the Department of Commerce — another significant difference from traditional trade negotiations.
With the conversation around IPEF moving fast and sentiment among both the governments and publics of IPEF members in flux, the following is an overview of potential pathways for the United States to operationalise IPEF’s first three pillars. It examines the opportunity and challenges of different policy options, considers their US domestic political implications, and provides an assessment of their likely overall viability.
Why have 14 countries joined an “economic framework”?
Biden administration officials hail IPEF as a modern framework that will deepen ties with allies and partners without sacrificing worker rights or wages. However, the unconventional agreement has attracted the criticism that it offers little of substance for US allies and partners, despite multiple negotiating rounds, most recently in Busan in July 2023. Nevertheless, IPEF member states remain hopeful that their participation in IPEF may be a pathway to greater US market access in the future. Participating in IPEF may also open the way for access to billions of dollars of US subsidies under the Inflation Reduction Act (IRA), a driving factor behind recent critical minerals agreements.
Five years after the US withdrawal from the Trans-Pacific Partnership (TPP) in 2017 under President Trump, the 23 May 2022 announcement of a new regional economic framework that included the United States was a significant one. The US withdrawal from the TPP instantly slashed the agreement’s share of global gross domestic product from nearly 40 per cent to around 13 per cent. Once described by US policymakers as the ‘gold standard’ of trade agreements, Congressional scepticism towards traditional free trade agreements has only increased since 2017. Congressional Trade Promotion Authority (TPA), which essentially authorises the US president to negotiate on behalf of the entire US Government and facilitated the signing of TPP in 2016, expired in July 2021 and the Biden administration has shown little interest in requesting a renewal thus far. While Congressional Republicans were the unlikely champions of providing President Obama the executive powers of TPA in 2015, the Republican Party has undergone a notable shift in attitudes toward free trade since the election of President Trump.
What is stopping the Biden administration from making a traditional trade agreement?
Opposition to traditional trade liberalisation in both parties makes it unclear whether Congress would support a renewal of TPA or pass legislative free trade measures, despite United States Studies Centre (USSC) polling indicating twice as many Americans support joining TPP-like agreements compared to those who do not.
Both major US parties, along with much of the rest of the world, have also re-evaluated trade policy in the wake of recent geopolitical developments and amid political concerns over support for traditional trade policies among their respective bases. The coronavirus pandemic revealed the vulnerabilities of the offshore production of critical medical supplies. Russia’s invasion of Ukraine and Europe’s ensuing energy crisis has also created uncertainty about the relative benefit of free trade and globalised supply chains. Nonetheless, there remains support in the United States and among key US allies in the Indo-Pacific for some form of collective trade action to strengthen international trade norms and reduce overreliance on Chinese exports such as critical minerals, semiconductors and information technology.
The Biden administration has made clear that the United States is unlikely to join the re-negotiated Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the successor to the TPP, despite the hopes of the agreement’s signatories. IPEF therefore presents an opportunity for closer US alignment with allies and partners while avoiding deep divisions in Congress.
What's next for IPEF?
Timeline of IPEF negotiations
Trade negotiators are aiming for substantial progress to have been made in time for the Asia-Pacific Economic Cooperation (APEC) summit in November 2023. In May this year, IPEF members announced the “substantial conclusion” of the IPEF Supply Chain Agreement under Pillar II of the framework. The agreement looks to establish three new multilateral bodies to map supply chains, improve responses to disruptions and promote labour rights. Despite progress in negotiations, key details on how IPEF will come together remain unresolved, with discussions continuing in the final negotiating rounds.
The options on the table for IPEF
This table assesses the feasibility of different policy options to operationalise IPEF. Pathways are considered against three criteria: (1) precedence in bilateral or multilateral arrangements involving IPEF states, (2) potential obstacles to securing US public and political support, and (3) an assessment of the overall feasibility of the policy option.
Feasible | Some difficulties | Challenging
|Area of focus||Feasibility||The US challenge||Precedence|
|1. Limited trade deals|
|Critical minerals agreements||Agreements are popular with IPEF states but controversial in US Congress||Agreements transfer US subsidies offshore||US-Japan Critical Minerals Agreement|
|Digital trade deals||There is both precedence and regional interest in US Congress||Concept is popular with industry bodies but not with progressives||Singapore-Australia Digital Economy Agreement; Digital Economy Partnership Agreement|
|Pharmaceutical agreements||US reticence for a deal given partner reluctance and rejection from Comprehensive and Progressive Agreement for Trans-Pacific Partnership||Strong pharmaceutical industry support but likelihood of higher prices for consumers||Trans-Pacific Partnership|
|2. Capacity building in the region|
|Upskilling initiatives||The subject of IPEF’s first deliverable||Limited cost to public-private partnerships||IPEF Upskilling Initiative|
|Educational exchanges||Both precedence and political support exists||Large impact despite comparatively small funding requirements||Quad Fellowship; New Colombo Plan|
|Work visas||While skilled workers are needed, the details of work visas are contested||There are associated labour costs, domestic political difficulties, and negotiation and implementation are likely to be complex||Chapter 12 of Comprehensive and Progressive Agreement for Trans-Pacific Partnership|
|3. Strategic alignment|
|Climate alignment||There is a high barrier to entry to climate reform for poorer countries||There is a chance for US leadership on the subject, but potential for rescission under a new administration||Singapore-Australia Green Economy Agreement|
|Labour agreements||Difficult to implement labour reforms without incentives for IPEF states||Popular in the United States but harder to sell abroad||United States-Mexico-Canada Agreement|
|Agricultural standards||Potential difficulty in securing regional support without greater incentives||US business and political support, but challenge lies in providing reciprocal benefits for IPEF members||United States-Mexico-Canada Agreement|
|Just Energy Transition Partnerships||A model already exists, with the cost spread across partners||US costs are shared by partners||Vietnam, Indonesia Just Energy Transition Partnerships|
|Infrastructure financing||Potential for IPEF to act as a forum for infrastructure coordination||Potentially high costs, with limited progress previously seen in similar programs||Australian Infrastructure Financing Facility for the Pacific|
|5. The IPEF Supply Chains Agreement|
|Technical assistance to map supply chains||IPEF Supply Chain Council||Broad political support||Australia-UK Joint Supply Chains Resilience Initiative|
|Data sharing on supply chains||IPEF Supply Chain Crisis Response Network||Carries commercial risks for business||Australia-Japan-India Supply Chain Resilience Initiative|
|Friend-shoring supply chains||Popular concept in theory, but difficult in practice||Friend-shoring protects supply chains but raises costs||Export bans are an existing but controversial precedent|
Limited trade deals
Critical minerals agreement
Critical minerals agreements (CMAs) in essence provide a framework in which nations agree to work together in securing more resilient critical mineral supply chains. However, CMAs are diverse in both form and ambition. IPEF members including the United States, Japan and Indonesia have pursued CMAs to forge greater investment links for critical minerals projects, increased research cooperation and the removal of regulatory barriers to critical minerals trade – often within the framework of memoranda of understanding (MOUs). In the case of the Biden administration, its thus far sole CMA has seen it commit to the lower-level ambitions of the MOUs but also, and perhaps most notably, agree to not impose duties on critical minerals being traded.
- Key field | Critical minerals are of increasing importance, with the International Monetary Fund forecasting a sixfold increase in demand that will be worth US$12.9t over the next twenty years. There is significant potential to work with Australia in particular, which provides 55 per cent of the world’s lithium, a key element for electric vehicle batteries. There are also opportunities to strengthen ties with other IPEF members, such as Vietnam, which is believed to have the second-largest rare earths reserves behind China, and Indonesia, which has the world’s largest nickel reserves along with Australia.
- A back door to US Government subsidies | Critical minerals agreements provide a backdoor to IRA incentives without the need for a complete free trade agreement and have proven a popular option with Indo-Pacific states. These agreements promote allied economies and trade while helping to consolidate control of minerals, though the impact on US workers and manufacturing is likely to complicate negotiations.
- Details matter | The IRA creates US advantages in critical minerals by incentivising domestic production. Effective cooperation is also dependent on the long-term creation of processing and refining capacity outside of China, while accounting for the environmental and health risks associated with these operations. Australia must improve its own capabilities in downstream refining, manufacturing and battery integration — though programs such as the Australian Government’s A$2b Critical Minerals Facility may assist with this.
- Resistance in Congress | While there is US political support for measures that secure US control of critical minerals and reduce Chinese dominance of processing, both major parties in Congress are upset by Biden administration deals that allow IRA incentives to flow overseas rather than remaining at home. Democratic Senator Joe Manchin threatened to sue the US Treasury over such uses of electric vehicle tax credits. The US-Japan Critical Minerals Agreement was particularly contentious for its perceived lack of transparency and lack of congressional oversight.
Have we seen this before?
- Already in motion | Allies and partners are already exploring a range of agreements with the United States that would ease trade between them and unlock IRA incentives designed to encourage US domestic manufacturing. This was the goal of the US-Japan Critical Minerals Agreement signed in March 2023, which focused on electric vehicle battery supply chains and monitoring of ‘foreign investment’ in the critical minerals sector. However, the agreement does not contain binding or enforceable provisions, and has invited controversy among both US political parties due to its lack of transparency and shift away from domestic production. In effect, the US partners are seeking to be qualified as free trade partners, and thereby receive access to IRA subsidies, even where they lack a conventional free trade agreement with the United States. A European deal is expected to echo this approach, while Indonesia has also expressed interest in a similar agreement. The US-Australia Climate, Critical Minerals and Clean Energy Transformation Compact also seeks to secure US access to Australian minerals by paving the way for US investment to be permitted in Australian critical minerals projects and for Australian suppliers to be treated as domestic producers in the United States.
Digital trade agreements
Digital trade is an emerging and increasingly important area for the Indo-Pacific. Digital trade agreements set the ‘rules of the road’ by aligning data and consumer protections across borders and seeking to avoid unfair trade practices that restrict digital trade. Already gaining interest from regional states such as Singapore, New Zealand and South Korea, agreements in this area are an opportunity to tie access to digital markets with democratic values by setting standards on privacy, censorship and cybercrime, and regulating the flow of data across borders.
Digital trade agreements set the ‘rules of the road’ by aligning data and consumer protections across borders
CPTPP includes a digital trade chapter that is generally viewed positively by businesses, despite their desires for stronger intellectual property (IP) protections and aligned standards. While agreements such as the Digital Economy Partnership Agreement (DEPA), signed in 2020 between New Zealand, Chile and Singapore, are a step in this direction, there is space for IPEF to enact a wider multilateral regional agreement along these lines.
- New opportunity | Indo-Pacific states have expressed interest in recent digital trade agreements and there is a clear opportunity to set standards and influence future development of the field. For businesses, governments and unions across the region, the clarification of the ‘rules of the road’ is a significant issue. Ambassador Tai has called digital trade a “very high priority” on which the USTR is “actively working,” having met with multiple Indo-Pacific trade ministers on the issue.
- Already occurring | Allies and partners are already cooperating in the digital field in small groupings beyond CPTPP. DEPA has garnered interest from Canada (requested to join), South Korea (acceded to the agreement in June), the United States and China itself, which is in negotiations to join. There is also potential to work with Japan, currently a leader in digital trade rulemaking and a proponent of ‘data free flow with trust.’ Cooperation would require an agreement to not impose tariffs on each other’s digital content or force technology transfers as a condition of market access, to agree to open cross-border data flows, and to harmonise policies on such matters as labour rights, digital inclusion and digital market facilitation for small and medium-sized businesses.
- A balancing act | Effective standards will require balancing international and domestic needs and creating fair rules which do not stymy innovation. A new digital trade agreement within IPEF may also be hampered by the United States not having a traditional mechanism for limiting cross-border data flows, even on national security grounds. In essence, the United States lacks the robust data privacy laws that other nations already have, making international agreements involving data privacy provisions more challenging. Existing digital trade agreements are both relatively few in number and new, making evaluation of their efficacy difficult. Additionally, the expiration of TPA means new agreements will either lack market access if enacted through executive agreements or will require a lengthy process of congressional consultation.
- Domestic politics | In Congress, the digital economy is divisive. While some key members of Congress see it as a priority, there is no consensus on how, or whether, to progress digital trade discussions, with both conservative and progressive politicians criticising large technology firms. Additionally, others in Congress express limited interest or knowledge of the issue, making swift action unlikely. A number of progressive representatives and organisations oppose US international action on digital trade, arguing that digital agreements harm workers and allow big technology firms to avoid regulation.
Have we seen this before?
- Singapore-Australia Digital Economy Agreement; Digital Economy Partnership Agreement (DEPA) | A number of precedents for digital trade agreements exist, but require work to expand their scope and strength. The DEPA, originally between Singapore, Chile and New Zealand, has attracted interest from other Indo-Pacific states, but lacks binding rules and provisions on source codes, instead focusing on sharing best practices, establishing frameworks for future cooperation, and largely replicating existing obligations under CPTPP’s digital trade provisions.
Blue trade deal on pharmaceuticals
‘Blue’ trade deals cover medical supplies trade and the regulation of pharmaceutical products, as well as stronger IP protections. There is strong US business support for measures to reduce regulation, strengthen IP protection and increase data flows across borders in the medical field. However, some governments are hesitant to do so given the likelihood that such changes would result in higher prices. The United States advocated for similar provisions in TPP, predominantly in Chapter 18: Intellectual Property, which were suspended in CPTPP after the US withdrawal.
- Faster access to more medicines | A ‘blue’ deal has the potential to increase Indo-Pacific market access to new medicines and reduce wait times for stock availability. There is strong industry support from US trade groups such as the Pharmaceutical Research and Manufacturers of America (PhRMA) for such measures. Given that innovative pharmaceutical products are primarily US-produced but generics are China-dependent, such measures could also tie into digital trade and supply chain initiatives.
- Indian industry | There are particular potential benefits for India in this area given its pharmaceutical business interests and desire for self-reliance, though India has thus far elected not to participate in IPEF’s trade pillar. India has sought the relaxation of regulatory burdens on its pharmaceutical industry in free trade agreements, including with Australia, to speed access to markets and increase investment in its domestic production. Doing so may help reduce its own dependence on Chinese pharmaceutical products and ingredients, a priority given that currently almost 70 per cent of India’s active pharmaceutical ingredients are imported from China.
- Price hikes and regulatory restrictions | While US and potentially Indian businesses would benefit from a pharmaceutical agreement, similar provisions in TPP were widely criticised for having the potential to result in higher prices for consumers. It is also difficult to align regulatory mechanisms across borders given their complexity and restrictiveness in some states. The removal of US-backed pharmaceutical TPP provisions in CPTPP because of concerns over price rises and US market dominance demonstrates the largely negative view held on the issue by other states in the region; many of the CPTPP members that suspended the TPP provisions are also IPEF members. While pharmaceutical business groups have lobbied the US Government to do more on the issue, it has not proven to be a priority.
Have we seen this before?
- ASEAN Pharmaceutical Regulatory Policy; TPP | ASEAN’s regulatory policy sets guidelines for approvals and safety rules, with the eventual goal of a common regulatory framework, but does not provide immediate market access measures. CPTPP included duty elimination and IP protection, but its provisions were significantly weakened from TPP with the suspension of over 20 provisions — potentially a cause of current US Government hesitancy.
Capacity building in the region
Upskilling initiatives involve funding for training programs and form one of IPEF’s earliest deliverables, announced with the IPEF Upskilling Initiative in September 2022. Such initiatives, typically delivered through public-private partnerships, are one of the “incentives and opportunities” on offer in place of traditional market access. While the current initiative focuses on digital skills for women and girls, such programs could be expanded and extended to other areas such as business management or reskilling workers to support renewable energy transitions.
- Targeted aid | Upskilling initiatives develop useful and practical skills in partner states, such as digital skills and training that are currently lacking. Such programs are targeted to the needs of the region and can harness public-private partnerships, as seen with the IPEF Upskilling Initiative’s collaboration with the Asia Foundation and 14 US tech companies. Through harnessing private industry expertise and organisations, upskilling initiatives are relatively inexpensive for governments.
- Lower impact | While the programs can be useful for those who receive training, they are often limited in scope and reach, and therefore less consequential for the region compared to other major economic initiatives. The IPEF Upskilling Initiative has been criticised by a range of women’s rights organisations, unions and civil society organisations as being overly favourable to large tech companies and failing to engage meaningfully with women’s rights.
Have we seen this before?
- IPEF Upskilling Initiative | One of IPEF’s early deliverables announced in September 2022 involves the provision of digital skills training to seven million women and girls across IPEF partner states over the next decade, a clear precedent for programs that could be expanded within IPEF. The Initiative was the result of a Malaysian request and proposal to provide digital training in the region, indicative of governmental support for such initiative
Educational exchanges and global mobility programs provide funding and pathways for students and professionals to study and work overseas and are a relatively inexpensive way of promoting closer ties between states and addressing skills shortages. There are a range of precedents which IPEF could replicate, though the long-term impact of such a program is likely to be limited compared to broader economic initiatives.
- Closer ties | Educational exchanges promote intercultural outreach and understanding and are relatively inexpensive but achieve wide publicity in involved countries. They are also able to target key areas of cooperation, such as STEM fields as seen in the Quad Fellowship program. Educational exchanges are an uncontroversial political issue and there is strong bipartisan support for STEM-related initiatives that can be promoted as ‘friend-shoring’ expertise in key sectors.
- Tried and tested | Education initiatives have proven a popular ‘soft’ option for multilateral groupings in the past and help to address skill shortages that are of concern to developing states, particularly in digital fields in which IPEF members are interested and in need.
- Small scale | While a fellowship program, or similar, is relatively simple to implement, it is likely to be small in scale and achieve limited impact compared to a wider-reaching economic agreement.
Have we seen this before?
- Quad Fellowship; DFAT’s New Colombo Plan; ASEAN Fellowships; ASEAN-Australia exchanges | A range of existing programs could serve as models for IPEF, funding individual fellowships, or short- and long-term exchange programs that can be targeted at key emerging areas of interest to IPEF states.
Critical industry work visas
In addition to the free flow of goods, the free flow of people and knowledge across borders is a potential area for closer cooperation between IPEF members. The introduction of new visas for workers in critical industries to travel and work across IPEF member states would facilitate development and innovation, particularly in critical technology and renewable energy sources, but could prove politically difficult in the United States given the divisiveness of immigration issues.
- Skill sharing | Specialised visas for IPEF workers would facilitate educational exchanges for US allies and partners, particularly in critical technology, assisting with capacity building and the sharing of important skillsets, and alleviating concerns in some IPEF states over a lack of expertise. This issue has driven calls from Australian universities for scientists to help implement the AUKUS deal, and proposals for an AUKUS skilled visa scheme. Flexibility for each member to define their own terms, as seen in CPTPP, would assuage concerns over alignment of immigration regimes. Critical industry work visas are likely to be largely uncontroversial domestically in the United States provided they are limited to clear definitions, rather than providing for a broad expansion of immigration.
- Devil in the details | The definition of what constitutes a ‘critical industry’ is contested and could prove a hindrance in negotiations. In some industries considered ‘critical’ such as nuclear or renewable technology, certain IPEF states would have little to offer, potentially making shared visa policies more workable through more technically-focused agreements such as AUKUS. Successful implementation is also likely to rely on navigating political divides on immigration issues in the United States, and on the clearing of severe visa delays which have plagued IPEF states, particularly India, during COVID-19 and which still persist despite bureaucratic adjustments and the use of extra staff.
Have we seen this before?
- CPTPP Chapter 12 | CPTPP expedited and lengthened visas for businesspeople, including visitors, investors, professionals, technicians, and intra-company transferees. There is scope for individual countries to adjust their own rules and maintain flexibility, with the main challenge being the specification of relevant key industries.
Removing barriers for climate-related alignment
Aligning environmental standards across borders would facilitate the transition to a clean energy future by promoting low and zero emission goods, sustainable agricultural practices and cooperation on clean technology research and development. Green economy agreements can be umbrellas for a range of initiatives including joint investment in renewable technologies, establishment of multilateral bodies to coordinate decarbonisation efforts, and the reduction of regulatory barriers to promote clean technologies such as electric vehicles. Agreement of a common tool for measuring carbon content of goods may also be a more modest, and less politically fraught, option. Investing in decarbonisation not only has geopolitical benefits for the United States by demonstrating commitment to climate action, but is considered to enhance the competitiveness of regional exports.
Investing in decarbonisation not only has geopolitical benefits for the United States by demonstrating commitment to climate action, but is considered to enhance the competitiveness of regional exports.
- Green economy | Supporting clean energy measures is a positive for a region facing some of the most significant impacts of climate change and would create new jobs in the growing field of renewable technology while demonstrating US commitment to the issue.
- Doubled down US leadership | There is an opportunity for the US Government to make funding “go further” by identifying green investment opportunities, de-risking and creating a consistent and uniform climate accounting and regulatory system. Additionally, some IPEF states have already shown they are prepared and willing to align on environmental standards, as seen in the Singapore-Australia Green Economy Agreement.
- Duplication risk | IPEF risks expending political capital for little gain by duplicating existing efforts on climate initiatives and declarations, such as the ASEAN Plan of Action for Energy Cooperation set by ASEAN partners in May 2022, which was itself highly contested.
- No confidence | Environmental protections and provisions in the IRA and elsewhere have proven politically controversial at the US domestic level and are unlikely to be strongly adhered to in a future White House administration that is less supportive of international climate efforts, thereby hampering ally and partner confidence in negotiations. More modest efforts, such as agreement on standards for carbon content measurement, may mitigate some of these issues.
- Barrier to entry | Less developed IPEF economies view large investments in renewable technology and environmental regulations as a significant hurdle that is difficult to justify without the incentive of US market access, and an exclusionary barrier to the economic development that industrialised economies have enjoyed. However, adjustments to regulations, such as local content provisions for electric vehicles, in order to share IRA subsidies with allies and partners and address concerns expressed by members such as South Korea, would come at the potential cost of political support in the United States.
Have we seen this before?
- Singapore-Australia Green Economy Agreement (SAGEA)| The SAGEA signed in October 2018 established 17 joint initiatives for collaboration including on renewable energy, waste management and sustainable food practices. The agreement has so far resulted in the establishment of a range of dialogues, government reporting alignments and grant programs to support decarbonisation. While it contains relatively few commitments of major substance, its limited depth makes the agreement a comparatively simple model to transpose to a broader grouping such as IPEF.
Alignment on labour standards
Aligning different regulatory regimes and introducing enforcement mechanisms to create international oversight of labour rights can lift working conditions to a higher standard, but is unlikely to be workable with less developed IPEF member states such as India, Vietnam and the Philippines. Despite this, the announcement of the IPEF Labor Rights Advisory Board under the IPEF Supply Chain Agreement indicates that less intrusive mechanisms are a feasible option for promoting labour rights and channeling investment to businesses that respect them.
- Good for workers | Workers’ rights are a key element of IPEF’s trade pillar and the inclusion of labour standards in a US-backed trade arrangement would encourage improvements overseas. For labour rights organisations and the United States in particular, the opportunity to raise labour standards in IPEF is critical.
- Domestically popular | The United States-Mexico-Canada Agreement (USMCA), for which now-USTR Katherine Tai helped to consolidate political support in 2019, included strong labour provisions and received unusually strong bipartisan support. In particular, Democrats are strongly in favour of enforceable labour provisions and such measures are domestically popular in the United States.
- Not so easy | For developing IPEF states such as India, Vietnam and the Philippines, rapidly reaching and maintaining US-backed labour standards would be a difficult process without increased assistance from wealthier states or the incentive of greater market access than currently exists within IPEF. This required level of assistance may not be forthcoming and is likely to raise business and consumer costs for publics not necessarily willing to pay the price for goods produced with higher labour standards. Insistence on a high standard of labour rights may prove a friction point in developing regional policy.
Have we seen this before?
- USMCA | USMCA’s Rapid Response Mechanism is widely regarded as a positive development for workers’ rights across North America, providing an effective means of enforcement to support unionisation and collective bargaining. However, replicating such a system across 14 diverse states, rather than the mere three states of USMCA that already had robust trade linkages, would be considerably more challenging. Additionally, a strong enforcement measure is likely to require congressional approval, which the United States has sought to avoid.
Alignment on agricultural standards
In 2021, IPEF states represented close to 22 per cent of all US agricultural exports, which are a key target for the removal of ‘non-tariff trade barriers.' These may include aligning regional safety evaluation procedures on biotech goods, or incentivising the removal of regional trade restrictions. Promoting sustainable agricultural practices is also a “key topic of interest” in negotiations. However, while an agreement in this area has been a priority for US industry groups and is likely to benefit US exporters, agriculture is a highly contentious topic and the benefits for regional states wishing to export agricultural goods to the United States are less clear.
In 2021, IPEF states represented close to 22 per cent of all US agricultural exports, which are a key target for the removal of ‘non-tariff trade barriers.'
- Reliable food trade | Aligning agricultural trade standards has the potential to ease the trade of food and other key products without requiring formal market access. US agricultural industry groups and members of Congress have called for IPEF to prioritise the sector by establishing clear regulatory requirements and standards to ensure the competitiveness of US exporters and ensure reliable trade processes.
- Sustainable farming | Given the significant environmental impact of the agricultural sector, the potential for IPEF to promote sustainable agricultural practices is important. The provision of incentives for the use of sustainable agricultural technologies is a potential means of doing so
- Uneven benefits | Harmonising diverse regional agricultural standards, such as Vietnam’s banning of certain pesticides, would likely prove difficult. It will require addressing the concerns of member states about certain products and potentially providing other incentives. Negotiations may also be hindered if there is a perception among IPEF members that the benefits for US exporters are not matched by reciprocal arrangements for imports into the United States that benefit regional states.
Have we seen this before?
- USMCA | USMCA included agricultural provisions similar to those for which US agricultural industry groups have pushed in IPEF. However, replicating the provisions of USMCA in IPEF — a significantly wider group of countries which have diverse standard regimes and priorities and lack the geographic proximity that USMCA enjoys — would likely prove challenging.
Just Energy Transition Partnerships (JETP)
Just Energy Transition Partnerships (JETP) are a financing mechanism through which high-income states help to fund the energy transition of developing states. For many developing states, transitioning away from fossil fuels is seen as unfeasible without external assistance. JETPs are an innovative mechanism for ensuring developing countries are not economically disadvantaged by the green energy transition process.
- Striking a good balance | JETPs are a useful means of combining climate goals with developing countries’ needs. They involve a combination of private and public funding and address the concerns of developing states about the equity of energy transitions. JETPs can be tailored to the needs and context of specific partner countries, with support from wealthier states. The outcome is the potential for a fairer and greener economy, assisted by foreign funding mechanisms. The range of economies involved in the IPEF agreement make it a potentially fruitful area of cooperation.
- Implementation | There is plenty of buy-in from US partners and developed states, with the Indonesia JETP growing out of the G20. However, significant proportions of JETP financing are provided in loans, potentially harming developing economies in the long-term. Additionally, financing for foreign climate-related initiatives is unlikely to be popular among Republicans, especially given the need for deepened US aid spending.
Have we seen this before?
- Indonesia; Vietnam JETPs | Indonesia and Vietnam, both IPEF members, have already announced JETPs in the last year. While the agreements include a range of targets and the announcement of billions of dollars in funding support, details of how the partnerships will operate in practice and the tangible measures that will lead to carbon neutral economies are yet to be established. Nevertheless, the partnerships represent a positive step forward for climate cooperation and could serve as models for similar programs within IPEF.
Grant or loan programs can finance the development of key infrastructure across the Indo-Pacific, such as telecommunications, transport and trade links. IPEF could serve as a forum for coordinating approaches to infrastructure financing, creating tangible outcomes and benefits from IPEF for people across the region.
- Intelligent investment | Infrastructure financing provides long-term benefits to partner countries by addressing direct economic concerns and providing much needed investment in the region. Coordinating investment initiatives such as the airport or cable projects financed through the Australian Infrastructure Financing Facility for the Pacific (AIFFP) can provide plug-ins and more surety for private investment which in turn develops the infrastructure necessary for resilient supply chains, such as ports, railways and communication links — a major incentive for several governments participating in IPEF negotiations. Infrastructure financing can include both seed funding for novel initiatives as well as major loans for nation-building projects or regional communication infrastructure.
- High cost, high reward | Financing requires significant resources and commitment, as well as clear coordination to ensure investments are effective. Previous efforts such as the Blue Dot Network have often failed to achieve their goals despite headline announcements. This makes delivering on infrastructure commitments all the more essential to maintaining trust between partners.
While there is general congressional support for a harder line on China and support for regional infrastructure initiatives, there is little urgency in Washington
- Resistance in Washington | While there is general congressional support for a harder line on China and support for regional infrastructure initiatives, there is little urgency in Washington and the risk of cuts to foreign spending could potentially harm the delivery of regional infrastructure support and carry reputational risks.
Have we seen this before?
- AIFFP | The Australian Infrastructure Financing Facility for the Pacific has provided hundreds of millions of dollars in loans and grants for infrastructure projects across the Pacific, including projects at Fijian airports and the East Micronesia Cable. Coordination through IPEF could expand these funding models across the region.
The IPEF Supply Chain Agreement
On 27 May 2023, IPEF members announced the “substantial conclusion” of the IPEF Supply Chain Agreement, which covers Pillar II of the framework. The agreement looks to establish three new multilateral bodies:
- The IPEF Supply Chain Council as a platform for developing sector-specific action plans for resilience.
- The IPEF Supply Chain Crisis Response Network as a channel for information sharing in the event of supply chain disruptions.
- The IPEF Labor Rights Advisory Board to support the promotion of labour rights in IPEF supply chains.
The proposed text of the agreement, released ahead of the fifth round of negotiations in September 2023, opens the door to more resilient supply chains including through the following approaches:
Technical assistance to map supply chains
A counterpart to data collection and sharing between allies and partners, the provision of technical assistance through funding, training or skill-sharing to other countries to map their own supply chains would strengthen data sharing systems and support individual countries which lack the requisite knowledge to understand their own vulnerabilities. Identification and monitoring of supply chains, nomination of key sectors and the setting of specific criteria to track will all be required to strengthen the resilience of supply chains. The IPEF Supply Chain Council’s function as a platform to develop sector-specific supply chain plans will help to facilitate this.
- Helping hand | Developing states often lack the funding or technical knowledge to properly assess their own supply chain vulnerabilities. Practical or financial assistance would both boost the capacity of other IPEF states and serve as a net gain to the region by ensuring greater coverage of understanding.
- Knowledge not a cure | While the mapping of supply chain vulnerabilities provides useful guidance for policy decisions and awareness of potential issues, it is not a solution to the vulnerabilities themselves, which will require significant resources to resolve.
- Unclear benefits for some | While these initiatives boost the capacities of smaller states, the immediate benefits to assistance-providers are more difficult to articulate, potentially hampering political support in Washington and elsewhere. There is significant US support for actions related to decoupling and the strengthening of US manufacturing capability and strength, including supply chain resilience. However, the provision of financial assistance would likely attract debate given that foreign aid remains a controversial issue. This US interest in establishing alternative suppliers of key goods differs from the interest of developing IPEF states in integrating local manufacturing into US supply chains. While not incompatible, this difference is important for both sides to acknowledge.
Have we seen this before?
- Australia-UK Joint Supply Chain Resilience Initiative | This initiative, jointly developed by the Australian Office of Supply Chain Resilience and British Global Supply Chains Directorate, offers support to international partners to understand and strengthen their supply chains through the provision of information and frameworks for supply chains mapping and risk mitigation.
Data collection and sharing
Collection and sharing of commercial data can be an effective means of boosting supply chain resilience and visibility of how other groups are operating across the region. However, while this may help to identify supply chain vulnerabilities, businesses are often reticent to share information that could disadvantage them; implementation would therefore require significant effort to address and coordinate these concerns. IPEF can serve as a platform to distribute this information, as it will in crises through the IPEF Supply Chain Crisis Response Network.
- Identification | Supply chains issues can strike suddenly and be severe, in part because of a lack of visibility on their chokepoints and vulnerabilities. Collection and sharing of commercial data can help to identify bottlenecks and reshape supply chains to be more resilient
- Commercial in confidence | Data collection and sharing is a sensitive issue with both security and commercial implications. Despite the net benefit to business of strengthened supply chains, sharing of risks and commercial information has the potential to render businesses less competitive, a significant barrier to business cooperation with government data collection efforts. Benefits for member economies are likely to depend on the extent to which they are willing and able to report information, with those sharing more information risking negative commercial ramifications.
Have we seen this before?
- Supply Chain Resilience Initiative | The Australia-Japan-India Supply Chain Resilience Initiative includes elements of information sharing and alignment between the three partners involved. However, an expanded IPEF-wide agreement would require significant negotiation to expand the concept to a broader grouping.
'Friend-shoring' supply chains
‘Friend-shoring’ supply chains involves promoting the sourcing and manufacturing of goods in countries regarded as economic partners. Amid growing strategic competition with China, ‘de-risking’ or ‘friend-shoring’ has emerged as a US policy to protect supply chains and prevent the flow of sensitive goods, particularly dual-use technology, to China. Regional export bans are one method of ‘friend-shoring’ supply chains and could change the regional balance of power in favour of the United States, but risk significant costs.
- Grow IPEF industries | Policies to 'friend-shore' trade and investment in IPEF states would assist IPEF states seeking to diversify their economies and grow domestic industries, with some having implemented export controls to this end, such as Indonesia’s export controls on nickel. For businesses dependent on the reliable provision of goods from overseas, ‘de-risking’ has the potential to insulate their supply chains against broad geopolitical events, such as the COVID-19 pandemic, or the imposition of restrictive policies by unfriendly supplier states.
- Public support | There is strong US public support for measures to protect national security interests through ‘friend-shoring’ of key goods and regional bans on trade of sensitive technologies with countries such as China. USSC polling from September 2022 found over 70 per cent of Americans would be willing to pay up to $500 more for a phone not made in China, suggesting public willingness to absorb the associated costs, at least within the United States.
- Unlikely to be widespread | Implementing bans or ‘friend-shoring’ policies to prioritise US supply chains across a range of diverse IPEF states, some of which are heavily trade-dependent on China, will likely encounter difficulties. Bans on sensitive technology have not been as popular or widespread in the region as they have been in the United States and can impact both consumers and businesses. Beyond binding government regulations, ‘de-risking’ by US companies is also likely to be on a case-by-case basis and harder to harmonise, with current suppliers unlikely to be cut off entirely and some US businesses unlikely to adopt changes.
Have we seen this before?
- Semiconductor export controls | The United States, Netherlands and Japan are believed to have reached a deal in January 2023 to restrict the export of semiconductor technology to China, following US controls introduced in October 2022. Targeted export controls can guide future investment while stymying competition overseas.
- Huawei & tech bans | Bans preventing Huawei from accessing 5G networks, defence export controls and restrictions on other sensitive technology have all been used previously, but are largely US-based or in concert with its closest allies, rather than across broad trade groupings such as IPEF.
Clear progress on a range of initiatives has already been made by IPEF negotiators. The substantial conclusion of the IPEF Supply Chain Agreement and the establishment of the IPEF Upskilling Initiative indicate momentum as the APEC Summit in November approaches, by which time negotiators hope to have largely concluded negotiations.
Diverging interests between the United States and other IPEF members, political sensitivities in the United States, and the difficulties of negotiation and implementation together mean IPEF is unlikely to reach the lofty ambitions many laid out for it at its outset back in May 2022. Nevertheless, there remain feasible pathways forward for IPEF states to achieve some of their goals. In particular, some alignment on trade, labour, climate and agricultural standards is likely to result in a degree of trade facilitation, while technical assistance and cooperation are already evident in the IPEF Supply Chain Agreement. Moreover, regardless of its immediate concrete outcomes, the existence of a wide-ranging IPEF agreement would have the potential to increase alignment among its member states, strengthening connections and cooperation across the Indo-Pacific.
Regardless of its immediate concrete outcomes, the existence of a wide-ranging IPEF agreement would have the potential to increase alignment among its member states, strengthening connections and cooperation across the Indo-Pacific