June 26, 2022

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What is the Indo-Pacific framework, who’s inside it, and why it’s important

What is the Indo-Pacific framework, who's inside it, and why it's important

our president Joe Biden He formally presented the Indo-Pacific Economic Framework, or IPEF, this week during his first Asian tour, revealing Washington’s long-awaited economic strategy in the Asia-Pacific region.

It comes five years after The United States withdrew unilaterally of 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 remaining countries continued to launch the CPTPP, or the Comprehensive and Progressive Trans-Pacific Partnership – one of the largest multilateral trade deals in the world, and one of the China asked to join.

Since then, the United States has been largely absent in the region, exacerbated by its trade war with China. But IPEF broke the ice.

However, analysts and observers say the deal lacks “the teeth” and is more symbolic than effective or real policy.

CNBC takes a look at what the Indo-Pacific Economic Framework is all about.

What is IPEF?

As a way to counter China in the region, it is a US-led framework for participating countries to consolidate their relations and engage in critical economic and trade matters of interest to the region, such as building resilient supply chains affected by the pandemic.

It is not a free trade agreement. No market access or tariff cuts have been identified, although experts say it could pave the way for trade deals.

“I think President Biden, unfortunately, has indicated that it shouldn’t even be seen as the beginning of a trade agreement,” David Adelman, managing director of Crane Fund Advisors and a former US ambassador to Singapore, told CNBC on Tuesday.

What the Asian partners really want is trade. I think they want to get into the market. And the commercial element of the IPEF is really missing.

Brian Mercurio

Professor of Law at the University of Hong Kong, China

Nor is it a security agreement, unlike the four-nation Quartet, which consists of Australia, India, Japan and the United States.

For a start, the United States will partner with 12 initial nations that include members of the Quartet: Australia, India, and Japan. It also includes seven ASEAN countries such as Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam as well as South Korea and New Zealand.

Washington said the framework is open to new participants.

“It’s an amazing group of countries…but we need to remind ourselves that this isn’t a real policy change or a breakthrough in trans-Pacific trade — it’s a framework,” Adelman said.

Why the Indo-Pacific region?

US President Joe Biden, Japanese Prime Minister Fumio Kishida, and Indian Prime Minister Narendra Modi attend the Indo-Pacific Economic Framework for Prosperity with other regional leaders via video link on May 23, 2022.

Saul Loeb | Afp | Getty Images

The GDP of the participating countries represents 40% of the global GDP.

About 60% of the world’s population lives in the Indo-Pacific region, and the region is expected to be the largest contributor to global growth over the next three decades, Biden administration said.

Commerce Secretary Gina Raimondo said the United States wants to restore its economic leadership in the region and “offers the Indo-Pacific countries an alternative to China’s approach.”

US National Security Adviser Jake Sullivan also said the framework is a way for the United States to “strengthen relationships with allies and partners for the purpose of increasing shared prosperity.”

But analysts say it is “more marketing than politics”.

“The good news is that the United States is actively involved in trade in Asia and is using its power to bring these twelve important economies together, and now the bad news is that there really are no teeth in this,” Adelman said.

Four pillars of IPEF

To be clear, specific terms and details of the framework are still being worked out. But as a start, here are the four main principles of the framework:

  • Connected EconomyHigher standards and rules for digital commerce, such as cross-border data flows.
  • Flexible economy: Resilient supply chains that will withstand unexpected disruptions such as a pandemic.
  • clean economyTargeting green energy commitments and projects.
  • fair economyImplementing fair trade, including rules that target corruption and effective taxation.

“If you look at the four pillars, you really are asking partners to do something to change their laws or their regulations or the way they operate,” said Brian Mercurio, an international trade expert and professor of law at the Chinese University of Hong Kong.

“I think what the United States has to give, and the only thing the United States has to give, is money. And I think some will come soon, particularly for clean energy, maybe even some for supply chain resilience, anti-corruption,” Mercurio said. .

“But of course, what the Asian partners really want is trade. I think they want access to the markets. And the trade component of the IPEF is really missing.”

Where does China come from?

Biden, as a naturalist of free trade, would prefer to work with Beijing to raise trade and wealth for the United States, but he faces China hawks in Congress, protectionist sentiment in the United States, and even the prospect of a resurgence Donald Trump.

The IPEF serves as a middle ground 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 would not need to seek congressional approval, thus avoiding a domestic ratification battle, analysts at the Washington-based Center for Strategic and International Studies said in a note.

This is critical to Biden, Adelman said, who faces a difficult political cycle domestically at this juncture.

Former Indian Commerce Minister Ajay Dua told CNBC that he sees the framework as an economic alliance to counter the emergence of China in this region.

Different from previous business deals

The Trans-Pacific Partnership, an ambitious major trade agreement involving the Indo-Pacific nations, was part of President Barack Obama’s strategic pivot in Asia.

Trump pulled the United States out of the trade agreement in 2017, after it was criticized by protectionism from the American political spectrum.

Japanese Prime Minister Fumio Kishida, US President Joe Biden, and Indian Prime Minister Narendra Modi attend the Indo-Pacific Economic Framework for Prosperity on May 23, 2022.

Saul Loeb | Afp | Getty Images

The Trans-Pacific Partnership has evolved into a comprehensive and progressive agreement for the Trans-Pacific Partnership, and is now one of the world’s largest trading blocs that has attracted new applicants, including China.

But it is different from TPP or CPTPP.

Julian Chase, professor of commerce at City University of Hong Kong, said the Indo-Pacific economic framework is still “a far cry from the ambition that emerged at the time of the launch of the CPTPP”.

“Total, [this] It seems to be declaring a kind of “soft law” framework with a great deal of flexibility [allows] Members only have to agree on a few rules/pillars.”

“I think this ‘soft law’ framework allows for quick US action [into the region]. “

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