Explained | What is the Indo-Pacific Economic Framework for Prosperity?


The U.S.-led economic grouping of a dozen countries representing 40% of global GDP proposes to advance resilience, economic growth, competitiveness, and equity in member countries. However, some analysts see it as a way to counter China’s growing influence in the region.

The U.S.-led economic grouping of a dozen countries representing 40% of global GDP proposes to advance resilience, economic growth, competitiveness, and equity in member countries. However, some analysts see it as a way to counter China’s growing influence in the region.

The story so far: On Monday, India agreed to join the Indo-Pacific Economic Framework for Prosperity (IPEF), a US-led economic grouping comprising 12 countries. Prime Minister Narendra Modi, who was in Japan for the Quad Summit, joined US President Joe Biden, Japanese Prime Minister Fumio Kishida and leaders from ten countries at the launch of the framework in Tokyo, paving the way for negotiations between the ” founders “. ‘ These include Australia, Brunei, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand and Vietnam. Together, these countries account for 40% of global GDP.

The economic framework is broadly based on four pillars: trade, supply chain resilience, clean energy and decarbonization, and taxes and anti-corruption measures. A joint statement suggests that the framework aims to “advance resilience, sustainability, inclusiveness, economic growth, equity and competitiveness” in these economies.

Modi described the grouping as born out of a collective desire to make the Indo-Pacific region an engine of global economic growth, calling for joint and creative solutions to address the region’s economic challenges. “India is keen to engage with partner countries under the IPEF framework and work to advance regional economic connectivity, integration and boost trade and investment in the region,” a statement read. of the government.

The analysts of East Asia Forum suggest, however, that security, not economics, will drive US commercial engagement in the region. “The United States continues to dominate global finance, but China will soon have the largest economy in the world,” he argued in a separate context.

What does the framework imply?

The United States Trade Representative (USTR) will spearhead the trade pillar, while the others (i.e. supply chain resilience, clean energy and decarbonization, taxes and anti-corruption measures) will fall under the jurisdiction of the US Department of Commerce.

On the Trade At the forefront, the effort is to establish “high-level, inclusive, free and fair commitments” to fuel economic activity and investments that benefit both workers and consumers. What stands out, however, is the willingness of the United States to expand cooperation to strengthen the digital economy and trade.

Digital commerce includes not only the buying and selling of goods online, but also the flows of data that enable the operation of global value chains and services, such as smart manufacturing, platforms and applications. The idea here is to overcome downstream costs for businesses as well as increase the ability to use data processing and analysis and improve cybersecurity outside of their geographies.

As for supply chain resilience, the framework aspires to secure access to key raw and processed materials, semiconductors, critical minerals and clean energy technologies, particularly for crisis response measures and business continuity. US Commerce Secretary Gina Raimondo at a press briefing explained how workers at Michigan’s auto manufacturing plants experienced massive furloughs when semiconductor packaging operations were shut down in Malaysia in due to a COVID outbreak. “If we had more transparency, more communication, more data sharing and an early warning system, this might not have happened,” she said.

In accordance with the Paris Agreement, the clean energy, decarbonization and infrastructure provide technical assistance and help mobilize finance, including concessional finance, to improve competitiveness and strengthen connectivity by supporting countries in the development of sustainable infrastructure for the adoption of renewable energy.

Renewable energy is cheaper than fossil fuels, however, its high start-up costs relative to using existing infrastructure prevent mainstream adoption. Public policy analysts at the Center for Strategic and International Studies (CSIS) suggest that regional partners would like the United States to help close the gap through climate finance and sharing expertise.

Finally, the pillar on taxation and the fight against corruption aims to promote fair competition by applying strong tax, anti-money laundering and anti-corruption regimes in accordance with existing multilateral obligations, standards and agreements to combat tax evasion and corruption in the region.

How do members participate?

Countries are free to join (or not join) initiatives under any of the stipulated pillars, but are expected to honor all commitments once they sign up. Negotiations due to begin after the launch aim to determine and list the provisions of each pillar and give countries the opportunity to choose their “commitments”. CSIS suggests the deals would be finalized within 18 months, possibly ahead of the Asia-Pacific Economic Cooperation (APEC) to be hosted by the United States in November 2023.

In addition, the framework would be open to other countries willing to join in the future provided they are willing to adhere to the stipulated objectives and other necessary obligations.

What relationship with China?

A recent report by the US Congressional Research Service claimed that observers believe the US lacks an economic and trade strategy to counter China’s growing economic influence in the region following the withdrawal of the former President Donald Trump of the Trans-Pacific Partnership (TPP) in 2017. The TPP was signed by his predecessor Barack Obama in an effort to curb China’s influence in the region. Former President Trump had indicated that the United States would only sign trade agreements with individual allies.

China, meanwhile, is part of the Regional Comprehensive Economic Partnership (RCEP) grouping with Australia, Brunei Darussalam, Cambodia, China, Japan, Lao PDR, New Zealand, Singapore, Thailand and Vietnam. He also expressed his desire to join the TPP’s successor agreement, the Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP) and the Digital Economic Partnership (DEPA) with Chile, New Zealand and Singapore. The United States does not participate in any of these arrangements.

Secretary Raimondo recently said that many American companies are looking to move away from manufacturing in China. The IPEF would therefore provide an advantage to participating countries, allowing them to bring these companies to their territory.

Observers argue that the exclusion of US ally Taiwan from the arrangement, despite its willingness to join, shows Washington’s geopolitical caution. “Despite the recognition that Taiwan could be eligible on the basis of its economic merit, it is clear that its inclusion would further politicize the framework and strengthen China’s opposition to the effort, thus forcing an unwelcome choice for partners. between compliance with the imperatives of Washington or Beijing”. says CSIS. Washington defended its position by indicating that it intended to pursue “deeper bilateral engagement with Taiwan” that would help strengthen both their economies.

What are the big challenges we are looking at?

Critics have raised concerns about the feasibility of a grouping that U.S. officials say would be neither a “free trade deal” nor a forum to discuss tariff cuts or increased access to market.

Unlike a traditional trade deal, the US administration will not need congressional approval to act under IPEF, avoiding a politicized battle over domestic ramifications, according to CSIS. It also raises doubts among potential participants about his willingness to offer significant concessions as part of the deal.

Washington, however, says the countries will work closely with the United States under the IPEF, facilitating greater transparency, coordinated supply chains and shared technical expertise. It should also boost the digital economy, improving infrastructure and acquiring investment. “…The United States is going to be a partner of choice on all elements of this framework, even setting aside the issue of traditional tariff liberalization,” National Security Adviser Jake Sullivan said.

Domestic political volatility has raised concerns about the sustainability of IPEF. According to CSIS, “The memory of strong American leadership on the TPP, followed by an abrupt withdrawal from the agreement after presidential candidates Hillary Clinton and Donald Trump walked away from it for the purpose of domestic politics, still haunts many regional partners, just like the Trump. the tariffs of the administration and the general mercantilist position. He adds that the Biden administration should therefore create and maintain strong bipartisan support for IPEF.

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