TWN Info Service on Free Trade Agreements
16 September 2022
Third World Network

Trade: Indo-Pacific Economic Framework entails WTO-plus commitments
(An earlier version of this article was published in SUNS #9644 Tuesday 13 September 2022)

Geneva, 12 Sep (D. Ravi Kanth) -- The trade ministers of the Indo-Pacific Economic Framework (IPEF) on 9 September concluded their first ministerial meeting in Los Angeles, United States, announcing a comprehensive work program in four pillars such as trade, supply chains, a clean economy, as well as a fair economy.

But the work program seems somewhat dented due to lack of market access and formal approval from the US Congress, raising doubts about whether it can be an enforceable binding agreement or will be one of the best-endeavour provisions on high standards and commitments, said people familiar with the discussions.

The IPEF text on the trade pillar includes language on the controversial Joint Statement Initiative (JSI) in services and other issues.

As a result, the text appears to seek WTO-plus commitments in a range of areas without resolving the existing mandated issues such as the permanent solution for public stockholding (PSH) programs for food security or the special safeguard mechanism (SSM) for developing countries in agriculture, said people familiar with the negotiations.

It also remained silent on the issue of access to affordable COVID-19 medicines or the need to suspend patents and other intellectual property on pharmaceuticals for increasing access to vital new drugs.

At this juncture, the work program is one of intentions and it remains to be seen what the texts in these four areas will include in terms of standards and commitments. Consequently, there is no clarity yet on how the IPEF will shape up, said people, who asked not to be quoted.

Though not mentioned in the final text of intentions, there appears to be some security-driven goals such as striking special deals with Vietnam, Thailand, Malaysia, and Brunei "as part of America's efforts to increase its own economic and security power base in Asia to counter China," according to a column by Ms Rana Foroohar in the Financial Times on 12 September.

At the end of the two-day ministerial meeting in Los Angeles on Friday, trade ministers from 14 countries have agreed to intensify their negotiations on the four pillars such as the trade pillar (pillar one), the supply chains pillar (second pillar), the clean economy pillar (third pillar), and fair economy pillar (fourth pillar).

The 14 members of the IPEF include Australia, Brunei Darussalam, Fiji, India, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, the United States, and Vietnam.

The US wants to intensify the pace of the negotiations at arriving at standards and broad commitments in all four areas, but other members indicated their constraints for fast-tracking the negotiations later this year.

According to the Inside US Trade of 12 September quoting Australian Trade Minister Don Farrell, “Members of the Indo-Pacific Economic Framework for Prosperity have set an ambitious schedule in the coming months with ministerials in November and January, as well as monthly meetings among senior officials”.

"This meeting was a chance to deepen our partnership and fill in the details about how we will work collectively to address the challenges and opportunities that will define the 21st century," said US Trade Representative (USTR) Ms Katherine Tai, after the meeting.

According to a press release from the Office of the USTR, the meeting, hosted by Ambassador Tai and US Commerce Secretary Ms Gina M Raimondo, has made "real progress" and the Framework "will advance resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness for our economies."

Although the IPEF appears to be targeted at isolating China in the Indo-Pacific region in the arena of trade to buttress the US security goals, China was not mentioned during the two-day meeting, said people, who preferred not to be quoted.

According to the Financial Times columnist Foroohar, "some national security officials are eager to cut new deals with countries such as Vietnam, Malaysia, Thailand, and Brunei as part of America's efforts to increase its own economic and power base in Asia to counter China."

INDIA OPTS OUT OF TRADE PILLAR

India has opted out from joining the trade pillar on grounds that the "contours of the framework, particularly any commitments required on the environment, labor, digital trade, public procurement, are certain areas in which a broader consensus is yet to emerge on all nations," said the Indian commerce minister Mr Piyush Goyal.

"We are yet to see what benefits member countries will derive and whether any conditionalities on, for example, environment may discriminate against developing countries, who have the imperative to provide low cost and affordable energy to meeting the needs of a growing economy," the Indian minister said.

In its move to get more countries on board Deputy USTR Sarah Bianchi had reportedly said that a country can pick which pillars to join or not.

At a press conference after the meeting, the Indian minister said that "India, while continuing to engage with the trade track in the IPEF, will wait for the final contours to be decided before we formally associate with the track."

Also, many IPEF members were earlier associated with the Trans-Pacific Partnership (TPP) Agreement and are now members of the Regional Comprehensive Economic Partnership (RCEP) of which China is also a member.

They have already taken commitments in several areas of the trade pillar, while India has boycotted the two agreements.

According to the Indian minister, on the digital component of the trade pillar, India is "in the process of firming up digital framework and laws, particularly regarding privacy and data."

However, it is not clear whether the minister was referring to the issue of data localization.

CONTROVERSIAL GOALS

In sharp contrast, the USTR said that "on the digital economy, we want to build confidence in the digital economy, address discriminatory practices and promote trusted and secure cross-border data flows, among other important issues."

In her column in the Financial Times on 12 September, Foroohar writes that US Senators Mr Bernie Sanders and Ms Elizabeth Warren "along with 42 House Democrats wrote a letter to the Biden Administration last week requesting more transparency around the Asia trade negotiations, so they don't become a race to the bottom."

Foroohar writes that the USTR told her that "new trade deals, in her (Ambassador Tai's) view, must not mean lower wages, lower environmental standards or allowing multilateral companies to avoid taxes or lock-in monopoly power."

Further, the USTR has apparently said that "this is about building the economy from the bottom up and the middle out," implying that it would focus on workers' interests.

The USTR, according to Foroohar, controls the negotiations in the trade pillar, while the US Commerce Secretary Ms Raimondo is in charge of talks around supply chains, infrastructure and tax.

The brief summary issued by the USTR suggests that "the IPEF partners will seek high-standard provisions in areas that are foundational to resilient, sustainable, and inclusive economic growth, including labor, environment, digital economy, agriculture, transparency and good regulatory practices, competition, inclusivity, trade facilitation, and technical assistance and economic development."

Even though the issue of government procurement is not listed in the summary, apparently it was discussed during the meeting.

"The United States and the IPEF partners will seek high-standard provisions that benefit workers and ensure free and fair trade that contributes to promoting sustainable and inclusive economic growth and that meaningfully contribute to environmental protection," the summary indicated.

In digital trade, there are fundamental issues involving the free flow of cross-border data without any data localization, a permanent moratorium on customs duties on electronic transmissions, and several other controversial issues. These issues that are contentious at the WTO are also in the IPEF The summary states, "we intend to advance inclusive digital trade by building an environment of trust and confidence in the digital economy, by addressing discriminatory practices, and by promoting trusted and secure cross-border data flows. We will seek to advance food security and sustainable agricultural practices and the benefits of good regulatory practices in supporting good governance and will work towards harnessing best practices with respect to facilitating trade."

The text calls for "facilitating digital trade; addressing discriminatory practices; and advancing resilient and secure digital infrastructure and platforms."

The text says that IPEF members "will work to promote and support, inter alia: (1) trusted and secure cross-border data flows; (2) inclusive, sustainable growth of the digital economy; and (3) the responsible development and use of emerging technologies."

It also mentions micro, small, and medium enterprises (MSMEs) by proposing that IPEF members share "best practices on regulatory approaches and policy issues in this dynamic area of the economy and cooperate on a range of issues, including business promotion, standards, and MSMEs and start-ups."

NO PSH OR SSM

On agriculture, the text underscores the need for "advancing food security and sustainable agricultural practices, including promoting the use of appropriate technologies to improve climate-smart, sustainable practices that are context-appropriate and evidence-based; increase productivity while optimizing land, water, and fuel use; and help contribute to climate change adaptation and mitigation, food security and resiliency."

Further, it says that "in a manner consistent with World Trade Organization (WTO) Agreements, we will seek to enhance food and agricultural supply-chain resilience and connectivity; avoid unjustified measures that restrict food and agricultural imports; and avoid unjustified prohibitions or restrictions on food and agricultural exports" among others.

Interestingly, it does not talk of the outstanding issues in agriculture such as the permanent solution for public stockholding programs for food security and reduction commitments in most trade-distorting subsidies.

The US appears to have subtly brought the issues of competition policy, which has all along been its priority in the global trade negotiations, trade facilitation, and even government procurement into the ambit of the IPEF negotiations, said people familiar with the discussions.

JAPAN'S FOCUS ON SUPPLY CHAINS

As regards the supply-chain pillar, where Japan has apparently announced around $200 million in assistance for companies to move their production from China to Japan, the summary says that "the countries will seek to coordinate actions to mitigate and prevent future supply chain disruptions and secure critical sectors and key products for our manufacturers."

Japan apparently spoke about its supply-chain resilience initiative at the meeting.

The summary says that "the United States will work with IPEF partners to identify sectors and products critical to our national security, economic resilience, and the health and safety of our citizens - and then act collectively to increase the resilience of these sectors, creating jobs and economic opportunities in key industries of the future."

According to the summary, "partners will identify sole sources and choke points in critical supply chains, and work collaboratively to address them by promoting and supporting investments in new physical and digital infrastructure. Partners will use data to improve supply chain logistics and invest in new training and development opportunities to up-skill workers and ensure that all citizens share in the benefits of increased supply chain resilience. Finally, the countries will seek to ensure that the work promotes the labor standards that underpin fair, sustainable, and resilient supply chains."

However, there appears to be a lurking fear that the whole IPEF initiative could suffer a setback if China intensifies its military encirclement of the Taiwan Straits and blocks the trade routes, said people familiar with the proceedings.

In the third clean energy pillar, the summary says that "the IPEF countries 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 substantial carbon sequestration potential."

More importantly, according to the summary, "the (IPEF) partners aim to advance cooperation on clean energy and climate-friendly technologies, as well as mobilize investment and promote usage of low- and zero-emissions goods and services. This work will be part of a future-oriented effort to enhance energy security and reduce overall greenhouse gas emissions. The partners seek to promote just transitions with the active participation of our stakeholders, including the private sector, workers, and local communities."

However, the summary is silent on whether the technology transfer, including sharing patented technologies without any fee, is included in the text.

In the last pillar dealing with the "fair economy", the IPEF countries "will seek to level the playing field for businesses and workers within partner countries by preventing and combating corruption, curbing tax evasion, and enhancing transparency, recognizing the importance of fairness, inclusiveness, the rule of law, accountability and transparency."

In a nutshell, the IPEF, which seems to be a security-driven trade mission of the US to further isolate China in the Asia-Pacific region, seems like a grand attempt to foist high standards and commitments that are apparently WTO- plus commitments without any payment by the US.

Agreeing to the IPEF goals could erode the policy space of developing countries and weaken their multilateral trade priorities, particularly at the WTO, said people familiar with the development.+