IPEF partner countries and businesses need more from the fledgling agreement -- it's time they raise their voices.
International trade is at a crossroads. The United States, long a bastion of free trade and international cooperation, finds itself grappling with new priorities. The imperative to rejuvenate domestic industries, coupled with a shift toward the Indo-Pacific region, has culminated in the Indo-Pacific Economic Framework Agreement (IPEF).
The IPEF is not just another trade agreement; it's an emblem of the evolving dynamics of global economic engagement. It's an attempt by the Biden Administration to move the United States beyond traditional trade agreements following its withdrawal from the Trans-Pacific Partnership at the beginning of the Trump presidency.
It is part of a reconfiguration of trade policy that focuses more on reshoring and domestic investment, emphasizing economic cooperation over traditional trade arrangements. This shift reflects a growing understanding of the interconnected nature of global economies and a recognition that broader economic collaboration can foster greater prosperity.
This ambitious vision faces significant hurdles. Reluctance among US lawmakers and policymakers to embrace agreements that could increase offshore investments or imports is palpable. The fear that such engagements may be perceived as benefiting foreign interests adds to this tension. This reluctance threatens to undermine economic engagement with strategic partners in the Indo-Pacific region, preventing the IPEF from being a meaningful agreement that will establish new norms on digital trade and provide discipline for customs and trade facilitation among other key priorities.
This reluctance is problematic for the region.
On this side of the Pacific, IPEF partner countries have made it clear from day one that they want to go well beyond the IPEF. Beyond stabilising supply chains and protecting worker rights, they seek greater access to US markets and a more liberalised investment environment to fund clean energy investments and infrastructure. Moreover, they are just as eager to see their own supply chains diversified.
It's no secret that nearly every country's largest trading relationship is with China. This has not happened overnight. Indo-Pacific economies have cultivated strong trade and investment relationships with China, whether through bilateral or multilateral arrangements, specifically the Asean-China free trade agreement and RCEP.
But, as with any economic or financial situation, dependence on a single revenue source is problematic. Just as US economic headwinds were cause for concern last year, China's economic headwinds are causing some trepidation now, and the European Union's economic situation remains stagnant.
Partner countries are acutely aware that US domestic economic priorities are aimed toward reshoring and encouraging investment within US borders. At the same time, it's unclear if the IPEF will be legally robust enough to withstand a change in administration in Washington either next year or beyond.
With all this hanging over the agreement, the IPEF simply does not currently provide the deeper economic engagement the region seeks. This view also extends to the many US-headquartered businesses operating in the region.
Those companies -- operating in sectors from tech to agriculture and mining -- have made it clear to the US government that their interests often align with those in the region when it comes to opening up trade and investment.
Greater liberalisation will mean new markets for US exports, a stronger US economic presence and deeper economic integration. Moreover, they hope the IPEF is just a starting point, and that the agreement will provide an open structure that will lead to a full-blown free trade agreement in the future and a chance to regularly revisit the IPEF's scope and ambition until that time comes.
Without establishing proper discipline and norms in critical areas such as digital trade, express shipments, and trade facilitation, the IPEF may fall short of supporting US companies operating in the Indo-Pacific and their host governments. It would provide little counterweight to FTAs in place or underway with the European Union, China, and India.
This requires more than mere signatures.
US officials and negotiators must make a robust and long-term commitment to trade liberalisation across the Indo-Pacific. Immediate commitments to capacity building and comprehensive support for IPEF implementation are not mere afterthoughts; they are the sinews that will bind this agreement and make it a functional reality.
IPEF partners also need to demand more. There may be the perception that this is a low-stakes agreement. Because market access isn't on the table, the agreement will seem economically benign. But this is where partner countries and businesses in the region must raise the stakes and call for a longer-term vision that promises greater commitments going into the future.
Jackson Cox is the Interim President of the American Association of the Indo-Pacific.