Ichiro Suzuki
President Joe Biden, in Tokyo in late May, unveiled a new economic framework for the Asia-Pacific region. The Indo-Pacific Economic Framework (IPEF) is formed to replace the Trans Pacific Partnership (TPP), promoting economic cooperation and rule-making to create a free and open Indo-Pacific region.
The IPEF encompasses 13 countries that include the U.S. India, Japan, South Korea, Australia, New Zealand, Fiji as well as ASEAN countries. As was the case with the original TPP, the IPEF is designed to contain the increasingly assertive China. It excludes not only the People’s Republic but also countries that are heavily dependent on China. These countries include Laos, Cambodia, Myanmar and Pakistan. Taiwan is not included in the IPEF, either, so as not to upset Beijing though the exclusion did not please Taiwan.
The TPP originally started as the Trans-Pacific Strategic Economic Partnership, a free-trade zone formed among Chile, New Zealand, Brunei and Singapore. President Barack Obama, with Vice President Joe Biden, took the pain to expand it in his second term. After an agreement was reached in early 2016, the TPP needed to be ratified by the Senate. The Republican-controlled Senate did not move fast enough, not in time for President Obama’s departure in January 2017. As soon as Donald Trump won the 2016 election, he made it clear that the first thing he would do as the President of the United States was to pull the country out of the TPP, and he did. Trump was elected on an isolationist and protectionist agenda that won rural votes. Dropping out of a free trade agreement that lowers tariffs was the easiest move to fulfill his protectionist promise to his base.
With the U.S. out of it, Japan’s Prime Minister Shinzo Abe with his economic and trade minister Akira Amari brought the TPP to the finish line, to create the Comprehensive and Progressive Trans-Pacifc Partnership (CPTPP). Without the U.S. it is still a major trade agreement. The CPTPP wooed the U.S. back after Joe Biden won the 2020 election. President Biden, however, has been unable to decide on coming back. Genie cannot be put back into a bottle. Protectionist-leaning policies continue to receive wide support not only among those who voted for Donald Trump but also in the liberal wing in the Democratic Party represented by Senator Bernie Sanders. Since the last election, globalization is suffering a noticeable setback. Cold War 2.0 is forcing multi-national corporations to restructure their supply chains, as their priority has shifted from lowest cost to secure procurement. Such a new development has culminated in disruptions caused by the Russo-Ukraine war.
So here comes the IPEF where ever-lower tariffs don’t have a place. The framework rather focuses on strengthening supply chain, intellectual properties rights protection, de-carbonization and clean energy, taxation, anti-corruption, etc. Without tariffs negotiations, the IPEF does not require ratification by lawmakers. Without ratification, on the other hand, it lacks a legally-binding power.
The IPEF’s real significance lies in India’s presence. This is the first trade agreement in which India has participated. At the beginning of 2022, the Regional Comprehensive Economic Agreement Program (RCEP) has taken effect among 15 countries in the Asia/ Pacific region, including China, Japan, South Korea, Australia and New Zealand. With China in and even without India, the RCEP is the largest trading agreement that exceeds the EU, though standards set by the program are not as high as those of the CPTPP. India originally participated in the RCEP negotiation process, but dropped out of it in 2019 citing agricultural import threats from Australia and New Zealand. India has never been known as an aggressive free trader. The IPEF relieves India from such concerns and allow the country to be embraced in it.
An absence of improved access to large developed economies’ markets makes one wonder “where is the beef?” Nonetheless, the IPEF may be a sign of the times, promoting a broader economic cooperation on a variety of fronts while not fiercely focusing on lowering prices. It provides developing countries with a sense of security that comes with membership protection instead of visible economic benefits. This may be what the post “end of history” world is.
In the meantime, the CPTPP is moving on. The U.K., now out of the EU, is looking to participate in the CPTPP on its global Britain agenda. Both China and Taiwan have made an application to join it, and being admitted to the club looks like an uphill battle for both of them.
About the author: Mr. Suzuki is a retired banking executive based in Tokyo, Japan.
