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ASIA TRADE: US Congress red lines shaping Indo-Pacific Economic Framework outcomes

The fourteen members of the Indo-Pacific Economic Framework meeting in Australia this weekend for its first full negotiating round will need to think very carefully about the critical red lines that are behind the positions of a United States acting without Trade Promotion Authority.

IPEF is different.  While often described as a free trade agreement, IPEF does not match existing FTA practices.

This is, supporters argue, exactly the point.

IPEF allows its members Australia, Brunei, Fiji, India, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, Vietnam, and the United States to think differently about important trade-related topics without being wedded to traditional negotiating structures and commitments.

IPEF has four pillars of activity that are loosely connected.

Three pillars on supply chains, green infrastructure, and tax and anti-corruption, are likely to provide significant flexibility for participating members.

The final pillar, on trade, is currently structured so that members will have to accept all the elements embedded within including digital, environment, labour, and competition.

The United States, as the primary proponent of the IPEF, claims two reasons for pursuing this structure.

First, traditional FTAs have consistently failed to deliver favourable results so there is no point in replicating past problems in a new agreement.

Second, the United States is not interested in providing new “market access.”

These two points have obscured two additional American negotiating challenges that are likely to be quite problematic for some IPEF members.

“No market access” means no market access

When the United States says “no market access,” most people immediately think this means no tariff cuts will be on offer in IPEF.  This is true, but it is also a narrow understanding of the issue.

There are all kinds of market access issues that go beyond tariffs.   This includes, for example, a wide range of services restrictions, licensing and qualification rules, temporary entry regulations, customs procedures, product standards, data or privacy rules, and so forth.

Not all of these are automatically market access issues, but many could be used to prevent or slow access.  Nor are all problematic in the United States.

Taken as a group, an alternative approach to tackling trade might examine some of these challenges.  After all, traditional FTAs often struggle to address these types of issues, making IPEF a potentially interesting alternative.

However, this gets to the real “red line” for the United States—most of these latter obstacles to trade are laws, regulations, and rules.  At the federal level, many of these laws are set or approved by Congress.  Regulations may also be subject to Congressional oversight.

The United States does not currently have approval from Congress to negotiate IPEF or any other type of trade agreement.  This automatically precludes adjustments to tariffs or many other customs procedures, as these clearly fall within Congressional purview under the US Constitution.

But Congress’s role could be seen to go beyond just tariff adjustments.  If IPEF asks members to make any adjustments that require changes in US laws, it could be rejected.  Even regulatory changes could be problematic.

The limits to president’s executive powers

To avoid this problem, traditionally, the United States Executive Branch asks Congress for permission to negotiate under what is now called Trade Promotion Authority.

Congress outlines its overall trade objectives and the Executive Branch tries to come back with an agreement that meets the parameters.  Then Congress agrees to either accept or reject the whole package without amendment.

However, TPA expired in 2021 and the Biden White House has shown no interest in renewing it.

Without TPA, the executive branch will have to stick to an IPEF agreement that can be implemented through an executive order alone.

While the White House will argue for significant flexibility in whatever final deal gets concluded, if the final text requires any changes in law or regulations, Congress might ask to review the document and vote on it.

The lack of TPA and clear expressions of support from Congress for IPEF means that a whole range of topics and possible outcomes are simply off the table from the outset.

This goes beyond just tariff reductions and makes it quite difficult to find IPEF commitments that would work for the United States.

Basically, when the US says that market access is off the table, this means that the US cannot and will not make adjustments to more than just tariffs, but to a wide range of existing policies.

It is surprisingly easy to run into obstacles related to this stance.

For example, an idea to expand trade in recycled and remanufactured products could quickly lead to challenges.  Circular economy trade may require adjustments to tariff classification or customs procedures.  These changes are not possible purely by executive order.

Hence, this red line of “no market access” is actually a much deeper and broader challenge to IPEF than current partners may appreciate.   It is certainly not just about tariff cuts.  It is also a lot easier to overturn actions by executive order in the future.

The money question

There is a second American red line that is currently hidden from view.  Because Congress is not involved in IPEF at this point, there is also no new money coming for IPEF outputs.

Many IPEF members appear to be willing to go along with the negotiating process based on an understanding that the Americans will be stumping up considerably more development and aid funding.

Particularly if the IPEF asks members other than the United States to make changes in laws, regulations and practices, it may be reasonable for developing country members to request financial assistance.

Some changes could be costly to implement or involve significant capacity building to be able to deliver.

But it is not the executive branch that controls spending.

Any significant new allocation of funding will have to go through Congress.  Again, absent TPA approval, it is not clear whether Congress will go along with a funding request.  It might, as Congress might see benefits of engaging with IPEF members, but congressional members might also choose to reject new funding requests.

Of course, it is possible that the White House negotiates such an outstanding IPEF that members of Congress voice no objections to the content and quickly pass a financial assistance package that would effectively support implementation in IPEF member countries.

The track record up until now does not suggest that such an outcome is likely though.

Hence, IPEF members will need to think very carefully about the unexpressed but critical red lines that are behind the positions of the United States.

TPA exists for good reasons—without alignment between the executive branch and Congress, it can be very easy to see hard won negotiating outcomes collapse at the finish line.

Even having TPA in place is does not guarantee success, but not having TPA in place is a poor way to start.

 

Deborah Elms is founder and executive director of the Asian Trade Centre in Singapore.

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