On September 8 and 9, top trade officials of the United States and the other Indo-Pacific Economic Framework (“IPEF” or “Framework”) partner countries—Australia, Brunei Darussalam, Fiji, India, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand and Vietnam—launched formal negotiations in Los Angeles.
This marked the first in-person ministerial-level meeting since the IPEF launched on May 23, 2022 and follows three informal meetings since May 2022, the latest event being the virtual ministerial on July 26-27, discussed in detail in our previous post.
The Los Angeles ministerial involved intensive discussions on what to include in the scope of the Framework. Ultimately, the IPEF partners reached consensus on ministerial statements for each of the four IPEF framework pillars: Trade, Supply Chain, Clean Economy, and Fair Economy. All 14 IPEF partners have joined three of the pillars, and 13 joined the fourth—with just India opting out of the Trade pillar. While this near unanimous support for the four pillars is certainly a positive sign, the real work begins now.
This blog post summarizes how the ministerial statements characterize the four pillars and outlines next steps for the Framework and key remaining questions.
Takeaways from the Ministerial Statements
The ministerial statements confirmed the four pillars of negotiation and provided added clarity on the scope and content of each pillar. While the statements add little to the substance, they indicate a political commitment among the partners to the Framework.
- Pillar I (Trade): In the Trade pillar, all IPEF partners but India agreed to seek “high-standard, inclusive, free, fair, and open trade commitments” and “intend to pursue provisions and initiatives related to” nine key areas that are foundational to resilient, sustainable, and inclusive economic growth: labor, environment, digital economy, agriculture, competition policy, transparency and good regulatory practices, trade facilitation, inclusivity, and technical assistance and economic development. On digital trade, for instance, the IPEF partners agree to address discriminatory practices and promote and support “trusted and secure cross-border data flows.” India opted out of the Trade pillar, citing concerns over possible commitments relating to environment, labor, digital trade, and public procurement.
- Pillar II (Supply Chains): In this pillar, all 14 IPEF partners will seek to coordinate actions to mitigate and prevent future supply chain disruptions and secure sources of supply in critical sectors and key products. The partners will look for ways to “anticipate, withstand, or rapidly recover from shocks,” focusing particularly on six key areas: jointly establishing criteria for critical sectors and goods, increasing resiliency and investment in critical sectors and goods, establishing an information-sharing and crisis response mechanism, strengthening supply chain logistics, enhancing the role of workers, and improving supply chain transparency.
- Pillar III (Clean Economy): The IPEF partners will seek to expand investment opportunities, spur innovation, and improve the livelihoods of citizens as the partners unlock the region’s abundant clean energy resources and address substantial carbon sequestration potential. This effort will include cooperation on climate-friendly technologies, as well as mobilizing investment and promoting usage of low- and zero-emissions goods and services. The partners will seek to promote clean energy transitions with the active participation of our stakeholders, including the private sector, workers, and local communities.
- Pillar IV (Fair Economy): The IPEF partners will seek to “level the playing field for businesses and workers within IPEF member countries” by “preventing and combatting corruption, curbing tax evasion, and improving domestic resource mobilization.” The partners in particular intend to effectively implement and expedite progress on international conventions and standards on anti-corruption, including the United Nations Convention against Corruption (UNCAC), standards of the Financial Action Task Force (FATF), and as applicable, the OECD Anti-Bribery Convention. The partners also seek to support, as applicable, the ongoing work of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting’s Two-Pillar Solution to Address the Tax Challenges Arising from Digitalization of the Economy.
Ambassador Katherine Tai stated in her remarks at the closing of the ministerial that the Administration’s “intention now is to move towards negotiations with our partners on each pillar, with the first round of discussions taking place after this ministerial.” She also referred to continued discussions in the “weeks and months ahead,” although specific timelines for negotiations on each pillar remain unclear.
According to Australian Trade Minister Don Farrell, the IPEF partners have agreed to hold a virtual ministerial in November 2022 and an in-person ministerial in January 2023, in addition to monthly meetings among senior officials. According to news reports, U.S. Commerce Secretary Gina Raimondo similarly said during a closing press conference that the next ministerial could be held early next year.
Key Remaining Issues
Many of the questions about the IPEF flagged in the previous post remain unanswered. For instance, it remains to be seen how and through what incentive structure the Biden Administration will seek to accomplish its goal of building consensus around high-standard commitments, particularly given the diversity in levels of economic development among IPEF partners. The IPEF partners continue to seek what U.S. Commerce Secretary Gina Raimondo calls “concrete and tangible economic benefits” notwithstanding the Biden Administration’s unwillingness to offer greater access to the large U.S. market through tariff reductions. While some officials of the IPEF partners, including Commerce Secretary Gina Raimondo, suggested members could reach a preliminary agreement on certain topics—a so-called “early harvest”—U.S. Trade Representative Katherine Tai recently called such an idea “premature.”
Notably, Ambassador Tai and Secretary Raimondo announced during the IPEF ministerial that select U.S. companies have agreed to provide virtual training and career development for 5,000 women in IPEF countries by 2032. This undertaking, known as the “IPEF Upskilling Initiative,” is a public-private program to provide primarily women and girls in IPEF emerging economies and middle-income partners access to training and education in digital skills. Initial countries taking part in the Initiative include Brunei, Fiji, India, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam. Whether the Biden Administration will offer more public-private programs like the IPEF Upskilling Initiative—and whether any such assistance programs may incentivize other IPEF partners to embrace high-standard commitments in other areas—remains to be seen.
It also remains unclear through what mechanisms the Biden Administration will achieve enforceable and durable agreements under the Framework. According to press interviews with some of the trade ministers of the IPEF partners, the partner countries are working toward incentive-based, self-enforcing commitments, in lieu of a dispute resolution mechanism with formal remedies, as is typically included in traditional trade agreements. But the specifics of any enforcement approach remain unknown.
While the IPEF is viewed by many as an effort to counterbalance China’s economic influence in the region, there is no indication so far that it is explicitly focused on addressing the economic and trade practices of third countries such as China. In contrast, the U.S.-EU Trade and Technology Council has committed itself to joint efforts to address “non-market economic policies and practices,” which is understood as a reference to China. The difference might simply reflect the reality that some IPEF partners—as neighbors closely tied to China economically—are reluctant to be seen as taking active steps against China. In fact, Beijing has strongly objected to the IPEF in the past, publicly accusing the U.S. of “destroying peace,” “weaponizing and ideologizing” economic issues, and coercing regional countries into taking sides.
Lastly, there is an ongoing discussion about the role of Congress in the IPEF negotiations and in any agreements concluded under the Framework. Despite bipartisan concerns from members of Congress, the Biden Administration appears to be set on pursuing an executive agreement that would not require formal Congressional approval. No details have been made available on any formal consultation process with Congress, although the Administration has emphasized its intention to consult actively with Congress.
Companies should closely follow negotiations on all four IPEF pillars, especially as the IPEF partners begin to engage in formal, text-based discussions. It is possible that Commerce and USTR may roll out a formal process for engagement with industry and other stakeholders. Because it aims to deal with cutting-edge issues, the Trade pillar, in particular could have wide-ranging effects for labor and economic regulations, corporate accountability, the digital economy, and more. We will continue to monitor these developments and provide guidance to clients seeking to evaluate the potential impact of IPEF negotiations and agreements.