U.S. President Joe Biden formally introduced the Indo-Pacific Economic Framework, or IPEF, this week during his first tour of Asia, revealing Washington’s long-awaited Asia-Pacific economic strategy.
It comes five years after the United States unilaterally withdrew from the Trans-Pacific Partnership, a trade agreement signed by 12 countries in Asia-Pacific, North America and South America.
With the withdrawal of the United States, the rest of the countries launched the CPTPP, or Integral and Progressive Trans-Pacific Partnership, one of the largest multilateral trade agreements in the world and one to which China applied to join.
Since then, the United States has largely been absent from the region, exacerbated by its trade war with China. But the IPEF has broken the ice.
Still, analysts and observers say the deal has no “teeth” and is more symbolic than an effective or real policy.
CNBC takes a look at the Indo-Pacific economic framework.
What is IPEF?
Considered a means of counteracting China in the region, it is a US-led framework for participating countries to strengthen their relations and engage in crucial economic and trade issues affecting the region, such as building supply chains. resiliently abused by the pandemic.
It is not a free trade agreement. No market access or tariff reductions have been described, although experts say it could pave the way for trade deals.
“I think President Biden has indicated that the start of a trade deal should not even be considered,” David Adelman, CEO of Krane Funds Advisors and a former U.S. ambassador to CNBC, told CNBC on Tuesday. Singapore.
What Asian partners really want is trade. I think they want market access. And the commercial component of IPEF is really missing.
Bryan Mercury
Professor of Law at the Chinese University of Hong Kong
Nor is it a security pact, unlike the four-nation Quad Group, which is made up of Australia, India, Japan and the United States.
For starters, the US will partner with 12 initial countries that include Quad members: Australia, India and Japan. It also includes seven ASEAN countries such as Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, as well as South Korea and New Zealand.
Washington has said the framework is open to new entrants.
“It’s a good collection of countries … but we have to remember that this is not really a policy change or a breakthrough for trade in the Pacific, it’s a framework,” Adelman said.
Why the Indo-Pacific?
“The future of the 21st century economy will be largely written in the Indo-Pacific, in our region,” Biden said this week.
U.S. President Joe Biden, Prime Minister of Japan Fumio Kishida, and Prime Minister of India Narendra Modi attend the Indo-Pacific economic framework for prosperity with other regional leaders through a video link on May 23, 2022.
Saul Loeb | Afp | Getty Images
The combined GDP of the participating countries represents 40% of world GDP.
About 60 percent of the world’s population resides in the Indo-Pacific, and the region is expected to be the largest contributor to global growth over the next three decades, the Biden administration said.
The U.S. wants to restore its economic leadership in the region and is “presenting the Indo-Pacific countries with an alternative to China’s approach,” said Commerce Secretary Gina Raimondo.
U.S. Homeland Security Adviser Jake Sullivan also said the framework is a means for the U.S. to “strengthen ties with allies and partners for the purpose of increasing shared prosperity.”
But analysts say it’s “more marketing than politics.”
“The good news is that the United States is actively engaging in trade in Asia and using its convening power to bring these 12 major economies together, now the bad news is that there really are no teeth,” Adelman said.
Four pillars of the IPEF
To be clear, specific framework terms and details are still being worked out. But to begin with, here are the four main principles of the framework:
- Connected Economy: Higher standards and standards for digital commerce, such as cross-border data flows.
- Resilient economy: resilient supply chains that will withstand unexpected disruptions such as the pandemic.
- Net economy: orientation towards commitments and green energy projects.
- Fair economy: implementing fair trade, including rules aimed at corruption and effective taxation.
“If we look at the four pillars, it’s really asking partners to do something to change their laws or regulations or the way they work,” said Bryan Mercurio, an international trade expert and law professor at China University. of Hong Kong.
“I think what the United States has to offer, and the only thing the United States has to offer, is money. That some, I think, will come, especially for clean energy, maybe even for resilience. supply chain and the fight against corruption. “Mercury said.
“But of course, what the Asian partners really want is trade. I think they want market access. And the IPEF business component is really missing.”
Where is China in this?
A natural free trade internationalist, Biden would rather work with Beijing to increase U.S. trade and wealth, but faces Chinese hawks in Congress, protectionist sentiments in the U.S., and even a possible resurgence of Donald Trump.
IPEF serves as a focal point for Biden’s plans to have more control over economic flows in the Indo-Pacific, especially with China at the center of the region’s supply chains.
As a non-trade agreement entry into Asia, Biden should not seek congressional approval and therefore avoid a battle for internal ratification, analysts at the Washington-based Center for Studies said. Strategic and International Studies, in a note.
This is crucial for Biden, who is facing a complicated political cycle at the national level at this juncture, Adelman said.
Former India Secretary of Commerce Ajay Dua told CNBC he saw the framework as an economic alliance to counter China’s emergence in the region.
Different from previous commercial offers
The Trans-Pacific Partnership, an ambitious major trade pact involving the Indo-Pacific countries, was part of President Barack Obama’s strategic pivot to Asia.
Trump pulled the United States out of the trade pact in 2017, after receiving criticism from the protectionist end of the U.S. political spectrum.
Japan’s Prime Minister Fumio Kishida, US President Joe Biden and India’s Prime Minister Narendra Modi attend the economic framework for the prosperity of the Indo-Pacific on May 23, 2022 .
Saul Loeb | Afp | Getty Images
The TPP evolved into the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership, now one of the world’s largest trading blocs that has attracted new applicants, including China.
But it is unlike the TPP or the CPTPP.
The Indo-Pacific economic framework remains “quite far from the ambition shown at the time of the launch of the CPTPP,” said Julien Chaisse, a professor of commerce at City University of Hong Kong.
“Generally, [this] seems to announce a kind of “soft law” framework with a great degree of flexibility that [allows] members only agree on a few rules / pillars, “Chaisse said.
“I believe that this framework of” soft law “allows for rapid US action [into the region]. “