DECIPHERING THE INDO-PACIFIC ECONOMIC FRAMEWORK (IPEF)

In a recent article entitled “Filling in the Indo-Pacific Economic Framework”, Matthew P Goodman and William Alan Reinsch commented that the Biden Administration is all set to launch the “Indo-Pacific Economic Framework (IPEF)” as the proposed vehicle for US economic engagement in the Indo-Pacific region.[1]  The authors have highlighted the fact that a credible and durable economic strategy in Asia is critical to advancing the US commercial, diplomatic, and strategic interests. They also carved out a direction to the Indo-Pacific. According to the authors, the “Indo-Pacific needs to be developed in a way that meets several tests: providing tangible benefits for both Americans and Indo-Pacific partners; advancing binding rules and hard commitments as well as broad principles; being managed in a coherent and coordinated way; and, meeting the administration’s commitments to transparency and inclusiveness”.  While this article offers constructive suggestions on the contents and organization of the US administration’s concept with the goal of enhancing its prospects for success, it lacks in providing an economic agenda that takes care of the “ASEAN” pivot. As the article was written based on the feedback the authors received from the US government, it is not an official paper of the US government.

The authors have argued for a binding arrangement that the US government may pursue or place for negotiation.  Hence, the IPEF per se may not be a ‘best endeavour’ — that is, one that obliges the US to take all available courses of action to fulfil the obligation that a prudent, determined and reasonable party would take.[2]  Interestingly, it does not talk about ‘ASEAN Centrality’. With regard to ASEAN, the paper states, “The administration is unlikely to be able to invite all 10 member countries of the Association of Southeast Asian Nations (ASEAN) to participate in the IPEF, despite its focus on enhancing relations with ASEAN its first year. In light of political and human rights concerns, it is inconceivable that the administration would consider inviting Myanmar into the framework under current conditions. Laos and Cambodia are among the least-developed countries in the world and are unlikely to be able to participate in more than capacity-building elements of the initiative.” The paper clearly warns that the success of the IPEF will be dependent on major Southeast Asian economies such as Indonesia, Thailand, and Vietnam signing on and make significant commitments. It seems that the IPEF may divide the ASEAN, which may be used for the US expansion. Hence, instead of building an Indo-Pacific Economic framework, the initiative may undo the progress in the Indo-Pacific by other participating countries such as Japan, Indonesia and India, while strengthening ASEAN-China partnership.

The paper hints that the Biden Administration, at least initially, is considering limiting participation in the framework. The inclusions could comprise US treaty allies such as Japan, the Republic of Korea, Australia, and New Zealand, and partners such as Singapore, India, Bangladesh, Sri Lanka, etc.  The exclusions could be the Pacific-facing partners in the Americas such as Canada, Mexico, Peru, and Chile.

As the authors have hinted, the Biden Administration does not want the IPEF to be seen as an anti-China initiative, as the aim of this initiative is to raise standards, strengthen countries’ competitiveness, and enhance their ability to respond to global challenges and secure their national interests. However, over the last few years many Asian countries have already made enormous progress in trade-facilitation, supply-chain resilience, and infrastructure.  To improve further, these countries need the support of the latest features of the digital economy and technology, which are controlled by US companies.  Therefore, there may be divergences over high standards envisaged by the Biden Administration.  The US aim notwithstanding, it is quite likely that countries of Southeast Asia and East Asia will, indeed, see IPEF as another strategic move targeting China.  Since China is the largest trading partner of not only the US but also Japan, India and many Southeast Asian countries, the chances of this initiative of the Biden Administration failing to attract the requisite attention would appear to be quite high.  Insofar as the more toxic questions surrounding China and Taiwan are concerned, Beijing is clearly not ready to accept the high economic standards that the United States is seeking to advance; and Taiwan’s possible inclusion in the IPEF will intensify further political troubles for the region.

India, the largest democracy in the world, may also be uncomfortable with the US high standards, and would like to avoid risks, as it is not a partner in the ASEAN-led RCEP.  This may lead to India taking time to consider joining, should an invite to join the IPEF be extended by the Biden Administration.  Further, some areas proposed in the IPEF do not appear to serve India’s interests. For example, the IPEF talks about digital governance but the IPEF formulation contains issues that directly conflict with India’s stated position.  Amongst these are the prohibition / restrictions on cross-border data flows and data localization requirements, including for financial services; the prohibition of the levying of customs duties on digital products distributed electronically; promotion of the interoperability of privacy rules and related enforcement regimes, such as the APEC Cross-Border Privacy Rules (CBPRs), while respecting U.S. federal and state privacy laws and regulations.  Although India has received explicit recognition for the first time in the recently announced 2022 Indo-Pacific Strategy of the United States, India is likely to be selective while dealing with the costs and benefits.[3]  Thus, India may avoid any further financial commitments in regional funding mechanisms such as B3W (Build Back Better World) or BDN (Blue Dot Network), or those that are likely to generate controversies, such as labour standards, subsidies, including transnational subsidies, state-owned enterprises, etc.

According to the authors, the Biden Administration does not view the IPEF as a single undertaking, like a traditional trade agreement, but rather as a platform for separate negotiations on topics of interest, conducted at differential speeds, with configurations based on the target country, and with an array of potential outcomes.  Although it appears a good initiative, it would be difficult to implement due to the structural differences between the US and other nations, except perhaps Australia, New Zealand, and Singapore.

It seems that the US government is not keen to join the CP-TPP.  According to the authors, “the White House’s clear preference is to develop the IPEF into a credible platform for US economic engagement in the Indo-Pacific region”.  In the present post-Covid times, countries are more concerned with their own economies; and hence, except, perhaps, for some smaller economies, the response may be muted.  Based on the alliances and partnerships with the US, the following nations, apart from the US, could comprise the initial grouping: Singapore, the Philippines, Australia, New Zealand, Japan, Korea, Vietnam, Taiwan and Malaysia.

The focus of the IPEF, as outlined by the paper, is on seven aspects, namely: trade facilitation, particularly for Small and Medium Enterprises (SMEs); standards for a digital economy and technology; supply-chain resilience; decarbonization and clean energy; infrastructure; workers’ standards; and, other areas of shared interest.  Although many of these areas are relevant to the countries in South-, Southeast- and East Asia, there would be a requirement to invest huge resources and active participation in the implementation phase.  There is need of an organisation or secretariat to drive and oversee this initiative, in the absence of which, momentum would be lost.  Till the setting up of such an organisation, regional bodies such as the APEC could be engaged.  It is important to note that along with the BRI, China introduced the AIIB and other institutions such as the BRI Forum.  The paper is silent on such supporting-organisations and does not mention any specific funding-blueprint.

Regarding negotiations, the authors have stated that the Biden Administration appears to prefer a ‘menu approach’, with an overall framework of principles and goals to which countries would be asked to commit.  Given that some nations, like India and ASEAN countries including Indonesia, are facing issues with the digital economy and e-commerce, decarbonisation and clean energy, and workers standards, negotiation through a menu-driven approach is likely to face a certain degree of difficulty.

It is apparent that Indo-Pacific countries would have apprehensions with the six sectors and the likely associated political complications.  Costs for Asian countries that have been severely impacted by economic crisis and other social issues due to the ongoing pandemic, could outweigh the benefits.  However, the IPEF may garner interest if it is turned into a real economic programme instead of merely advancing the US security-objectives.

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About the Author:

 Dr Prabir De is a Professor at the Research and Information System for Developing Countries (RIS); Coordinator of ASEAN-India Centre (AIC) at the RIS; and, an Honorary Adjunct Fellow at the National Maritime Foundation (NMF), New Delhi.  The views expressed are the author’s and do not reflect the position of the AIC, RIS or the NMF.

Endnotes

[1] Matthew P Goodman and William Alan Reinsch, “Filling in the Indo-Pacific Economic Framework”, Center for Strategic and International Studies,  https://www.csis.org/analysis/filling-indo-pacific-economic-framework

[2] Best endeavors is a phrase commonly found in commercial contracts that places an obligation on the identified party to use all efforts necessary to fulfill the terms set out. A best endeavors policy places a party under a stricter obligation compared to a reasonable endeavors obligation.

Best Endeavors Definition – Investopediahttps://www.investopedia.com

[3] Refer, https://www.whitehouse.gov/wp-content/uploads/2022/02/U.S.-Indo-Pacific-Strategy.pdf

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