Trade Cases

Leibowitz: IPEF failure a signal for the future?

Written by Lewis Leibowitz

Last week was billed as big. The annual meeting of members of the Asia Pacific Economic Cooperation (APEC) in San Francisco convened amid much fanfare.

A much-anticipated meeting between President Biden and President Xi Jinping of China was a featured event. So also, was the anticipated completion of the framework agreements establishing the Indo-Pacific Economic Framework (IPEF), a New Age agreement designed to forge lasting, mutually beneficial growth strategies between the US and 13 countries in the South Asia and Pacific regions.

It flopped.

Strategically, the IPEF proposed to establish a trade and economic platform to counterbalance China. The meeting between Presidents Biden and Xi was poised to be influenced by the simultaneous creation of a new, US-led coalition of countries whose mission was to reduce China’s influence in Asian economies.

As the US Trade Representative described it, IPEF’s aim is “to contribute to cooperation, stability, prosperity, development, and peace within the region.”

The four “pillars” of IPEF (trade, supply chains, “clean economy” and “fair economy”) were forward-looking, creating new incentives for the 14 countries to coordinate their policies. To translate the pillars into plain language, trade was about improving access to markets (lowering trade barriers), supply chains were to coordinate policies to reduce barriers to the movement of goods and services and to increase resiliency of supply chains, clean economy was about climate change and fair economy was about cooperation against corruption and money-laundering.

The IPEF was set up for success by the completion of negotiations on Pillar II (supply chains) last May. The parties announced “substantial completion of negotiations” in San Francisco last week, along with the clean economy and fair economy pillars.

Trade didn’t make the grade. It became clear weeks before the APEC conference that the trade pillar was in trouble. Members of Congress in both parties (but predominantly Democrats) opposed efforts to broaden access to the US market through digital trade.

USTR withdrew support at WTO discussions for widely-supported proposals to limit government interference with the digital economy in a surprise announcement last month. The IPEF talks sputtered to a stop while member countries struggled to figure out where the US was going.

In the meantime, many of the 13 partner countries (many of which are developing economies—Indonesia, Malaysia, the Philippines, and Thailand) that are interested in increasing trade opportunities with the US had balked at our government’s efforts to impose worker rights and environmental standards on production as part of IPEF.

These US proposals go back decades and are viewed in many developing countries as efforts to protect economically advanced economies from new competitive pressures. On the other hand, the absence of labor and environment requirements caused many liberals in Congress to urge the US to rebalance its policies.

It was a classic impasse. Time simply ran out on the trade pillar, which is currently just about at the starting line. Senator Sherrod Brown (Chairman of the Senate Banking Committee), Massachusetts Senator Elizabeth Warren, and Senator Ron Wyden (Chairman of the Finance Committee) were pleased with the collapse of the trade pillar.

Coming three weeks after the failure of the US and the EU to complete talks on a framework for coordinated policies on steel, aluminum, and climate change, the trade policy of the US is pretty much on hold.

Trade is a hot-button issue in the United States, as is clear from the failure of the steel and aluminum talks and the IPEF discussion. Many Republicans and Democrats are trade skeptics.

The US-China meeting achieved a decision to talk more, which is always useful, but little agreement on substance. The trade pillar was, in this context, a loss.

In the meantime, the world has at least two very hot wars and mounting threats to the post-World War II geopolitical order. US politics continue to downplay the increasing hostility in the world and its threat to smaller countries from the use of force by larger ones.

The number of countries that are currently unable to defend themselves is larger than ever. When the United Nations was established in 1945, there were 51 founding members. Today, there are 193. How many of them could withstand a foreign invasion without help? In 1945, many smaller countries were bound up in colonial empires, which have largely disappeared. So, collective security is much more complicated than it used to be. (I am certainly not in favor of recreating colonial empires.)

The relatively few countries that could credibly defend the global order would have their hands full if the system of collective security collapsed. Yet the preservation of the global order is dependent, at least in part, on the acceptance of common standards of behavior. Economic security does not just mean preserving one’s economic advantages but providing the space for countries to grow and prosper as the world changes.

IPEF and other initiatives are laudable in theory, but they must have tangible and mutually beneficial results. At least right now, we are not seeing enough of those results. Advancing the most important issues requires accommodation.

Action on climate change requires the cooperation of many nations, including adversaries. But climate action requires international trade facilitation to bring needed goods and technologies across international boundaries.

Important issues can work at cross purposes. People disagree frequently about which issues are the most important. Leaders lead by weighing important issues and setting priorities for action. We need that kind of leadership now.

IPEF members: Australia, Brunei, Fiji, India (Pillars II and IV), Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, Vietnam and the United States.

Lewis Leibowitz, SMU Contributor

Lewis Leibowitz

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