Economics/Class Relations

What are the U.S. and more than a dozen other countries doing with a new type of economic agreement in the Indo-Pacific?

The Signal

What are the U.S. and more than a dozen other countries doing with a new type of economic agreement in the Indo-Pacific? Wendy Cutler on Biden’s experimental attempt to pick up where Obama left off.
A dozen countries have now joined with the United States to launch a new economic initiative known as the Indo-Pacific Economic Framework for Prosperity (IPEF). The governments of Australia, Brunei, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam are all “initial partners” in this American-led initiative—widely understood as an attempt to counter China’s influence in a part of the world where, as U.S. President Joe Biden put it, “the future of the 21st-century economy is going to be largely written.” Biden announced the framework in Tokyo on May 23, during his first trip to Asia since taking office, saying the participating states would write new economic rules to “help all of our countries’ economies grow faster and fairer.” (The White House subsequently confirmed that a fourteenth country, Fiji, would also join.) Yet, speaking for skeptics, David Adelman, the former U.S. ambassador to Singapore under President Barack Obama, said there’s “no teeth” to the new effort—and a lot remains uncertain, not least in the region, about the specific commitments and outcomes the IPEF will produce over the coming months and years. What can we understand about it now?
Wendy Cutler is the vice-president of the Asia Society Policy Institute, who worked for nearly three decades as a diplomat and negotiator in the Office of the U.S. Trade Representative, where she was a senior negotiator on the Trans-Pacific Partnership (TPP), the abandoned trade deal negotiated by the Obama administration. Cutler sees a wide range of possibilities for this new endeavor at the outset; it could coalesce into a large, meaningful initiative or splinter into smaller efforts of lesser significance. In her telling, part of the uncertainty comes not just from a current lack of details about the IPEF—to be worked out over a lengthy period of negotiation—but from questions about who will shape those details and whether the U.S., with its polarized domestic politics, will even remain committed to the framework. Cutler says the United States will have a special challenge on its hands, holding together such an unconventional foreign policy while navigating the likelihood of intensified Chinese economic engagement in Indo-Pacific Asia.
Graham Vyse: What’s been driving the U.S. to create the IPEF?
Wendy Cutler: The Biden administration wanted to focus on the Indo-Pacific region early on. It’s a dynamic, growing region, where a lot of innovation is happening. But as the administration was stepping up its engagement there, its partners were saying, You’re doing a lot on the security front, but your approach to economics is weak. Many of America’s trading partners would prefer that the U.S. return to the TPP, but the Biden administration isn’t interested in that, so the administration developed something new.
Now, the announcement of this framework indicates that the actual negotiations haven’t begun yet—that all these countries have committed to, so far, is to open discussions on shaping the pillars of negotiation. That process will launch immediately, with the goal of concluding it by the summer, holding a minister-level meeting to bless an agreed-on outline for negotiations, and then beginning those negotiations around four pillars: We know there will be one pillar for establishing resilient supply chains; another for clean energy, decarbonization, and infrastructure; a third related to taxes and anti-corruption measures; and a forth concerning trade, dealing with digital trade, labor and environmental issues, and regulatory practices.
Vyse: What’s motivating more than a dozen Asia-Pacific countries to join this framework?
Cutler: It’s a good turnout. Generally, these countries are motivated by a desire to see increased U.S. economic engagement in the region. There was a void there when the U.S. left the TPP in 2017, and China has been actively trying to fill that void, but many of the countries joining the new framework want America back with an economic agenda in the region. Some will say they want it as a counterweight to China. Others won’t say that out loud, but it’s what they’re thinking.
Vyse: And what’s so important to them about having the U.S. as a counterweight to China?
Cutler: Well, many of these countries have strong ties to China, and it’s their largest trading partner; but they’re concerned that being too dependent on China will result in being overly subject to Beijing’s influence and in losing their economic autonomy and flexibility.
Vyse: Gina Raimondo, the U.S. Commerce Secretary, recently said that this new framework is “intentionally designed not to be a ‘same old, same old’ traditional trade agreement.” How exactly does it differ from a traditional trade agreement?
Cutler: This is a big reason why the fate of this initiative will matter so much—because, for the first time in recent years, the U.S. is saying it has a better idea than a ‘same old’ trade agreement. In many respects, the IPEF is going to be a test for an alternative model: Will it work in this region, or will countries end up being more interested in traditional trade agreements?
Traditional trade agreements involve what we call “market access,” commonly from lowering tariffs, but that’s off the table here. The U.S. won’t be negotiating that or discussing it with other countries. In fact, this would be the first time America has moved forward on an economic initiative like this without market access on the table.
More from Wendy Cutler at The Signal:
Market access has historically been a key incentive for other countries to agree to the rules and standards that the U.S. pushes in trade agreements. For example, during negotiations over the TPP, Vietnam was focused on access to the American apparel and footwear market. In return for lower tariffs on those products, the Vietnamese were willing to agree to U.S. proposals for high labor standards and intellectual-property protection. The test with the IPEF—without tariff offers—is whether countries will see enough reason to do what America wants them to do. Another difference with the IPEF is its scope. It’s an economic framework, not simply a trade framework. Issues related to infrastructure and decarbonization aren’t typically included in trade agreements, and Asia-Pacific countries are willing to discuss these issues with the U.S.—though they’re still pressing America to return to the TPP. I don’t even think America’s strongest allies—Japan, for instance—are yet convinced that the IPEF is going to be as robust and significant as the TPP. The burden will be on the Biden administration to demonstrate that.”
The TPP became a scapegoat, in my view, for everything that was wrong with globalization and new technologies. The Trump administration—and then the Biden administration—took the view that the TPP wasn’t the right way to go. They took the view that the U.S. has to look at these initiatives through the lenses of the American middle class and American workers, making sure any proposal will benefit them and not leave them behind.”
I hear three major concerns about the IPEF from the region: The first is the lack of tariff-cutting offers from the U.S. The second is a worry about durability—a fear that the next U.S. administration will disavow itself from this initiative just as Trump disavowed the Obama administration’s TPP. Particularly with this year’s U.S. midterm elections approaching—and the 2024 presidential campaign getting underway—that worry is going to grow, unless the Biden administration can convince these other nations that there’s bipartisan support for the initiative in America. The third major concern I often hear is countries saying they don’t really know what they’re being asked to do. The idea of working on resilient supply chains sounds alright to them, but they want to know the details.”

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