The IPEF gains momentum but lacks market access

Authors: Aidan Arasasingham and Emily Benson, CSIS

On 23 May 2022, US President Joe Biden and 12 regional counterparts officially launched the Indo-Pacific Economic Framework for Prosperity (IPEF).

After almost five years since the United States withdrew from the Trans-Pacific Partnership (TPP), the IPEF aims to reassert US regional economic engagement and provide a US-led alternative to China’s economic statecraft in the Indo-Pacific. Yet there remain questions about the ability of the United States to incentivise closer regional economic cooperation through this framework.

Twelve regional counterparts, including Australia, Indonesia, Japan and South Korea, joined the Tokyo IPEF launch on 23 May 2022. It was widely anticipated that close US allies like Japan, Australia, New Zealand and Singapore would join the IPEF launch, but seven other Indo–Pacific countries — including all of ASEAN’s APEC members— also joined.

With an increasingly assertive China aiming to redefine rules and norms in the region, the IPEF is seen as an economic complement to US regional security guarantees and a commitment to fostering a free and open Indo–Pacific. Security underscores regional interest in the IPEF since the tangible economic benefits of the Framework remain unclear.

Several countries were not included in the IPEF launch. Given political and human rights concerns, Myanmar did not participate. Laos and Cambodia also did not join. Pacific Rim countries that participated in TPP negotiations (Canada, Mexico, Peru and Chile) were not invited. Pacific Island nations were also absent, though Fiji joined several days later.

Taiwan was notably absent. While Taiwan indicated some interest in joining the IPEF, it was ultimately left out to secure the participation of other countries otherwise reluctant to antagonise Beijing. The announcement of the US–Taiwan Initiative on 21st Century Trade on 1 June 2022 appears to be a bilateral consolation prize to deepen trade relations with Taiwan.

The IPEF has four pillars, each led by an individual agency — Connected Economy, Resilient Economy, Clean Economy and Fair Economy.

The Connected Economy is led by the US Trade Representative and covers fair and resilient trade topics including labour, the environment and climate, digital economy, agriculture, transparency and good regulatory practices, competition policy and trade facilitation. The Resilient Economy covers supply chain resilience topics and is led by the Department of Commerce (DOC). The Clean Economy is led by the DOC and covers infrastructure, clean energy and decarbonisation. The Fair Economy covers tax and anti-corruption topics and is also led by the DOC.

Countries can opt to join any number of the four pillars but are expected to commit to all aspects of each pillar they join. Still, the IPEF is limited as a tool for US regional trade integration in the absence of US market access or tariff liberalisation.

Washington’s unwillingness to provide market access incentives could make the IPEF a non-starter in regional capitals. Though securing participation in the launch was an effort that came down to the eleventh hour, it appears that the IPEF’s decentralised pillar approach with low barriers to participation has proven successful for now.

Since the IPEF is not a traditional trade agreement, the administration will not need to seek congressional approval and can avoid a politicised battle for domestic ratification. If Republicans gain control of one or both chambers of Congress after the 2022 midterm elections, it is likely that congressional pressure for lawmakers to play a greater role in the IPEF will intensify. An agreement that does not require the input of Congress signals to other countries that the United States does not intend to make significant concessions.

There are other significant drawbacks to the IPEF since it is not a traditional trade agreement. Without the promise of US market access, the United States is removing a significant incentive for regional partners to agree to high US standards. A lack of enforcement mechanisms also limits the ability of the United States to secure its interests.

The IPEF is the centrepiece of the administration’s economic policy in a critical region. Failure would be a significant blow to its objectives — even if Washington has managed to encourage closer collaboration through alternative arrangements, namely the US–EU Trade and Technology Council.

If the United States is able to replicate this level of cooperation and momentum in the Indo-Pacific the IPEF could similarly become an ambitious framework for a broader set of partners.

Aidan Arasasingham is a Program Coordinator and Research Assistant with the Economics Program at the Center for Strategic and International Studies (CSIS) in Washington, DC.

Emily Benson is a Fellow with the Scholl Chair in International Business at CSIS.