Asia Trade column, Commentary - all, Indo-Pacific, Latest news

ASIA TRADE – IPEF Supply Chain Agreement: a limp new trade approach

The Indo-Pacific Economic Framework’s supply chain agreement has lofty intentions. But it will require sustained involvement of firms to produce results.

It is perhaps fitting that the first text for the Indo-Pacific Economic Framework also known as IPEF on supply chains was released at the same time as the G20 and ASEAN summits.  All three were long on aspirational statements, short on actual deliverables, and unlikely to provide commercially meaningful outcomes.

IPEF has consumed significant resources from the 14 member countries over the past months, with near non-stop meetings to get the agreement done.  The end result of the supply chain pillar is a limp new model for managing a critically important aspect of global trade.

An innovative approach

The original intention for IPEF was to highlight how traditional approaches, centered around comprehensive legally binding free trade agreements, were no longer fit for purpose.

Instead, IPEF would show how new topics, like supply chains, could be better managed by a more inclusive and collaborative framework.  The new model would free up officials to work in innovative ways to support complex outcomes.

Even the structure of IPEF is different, with four “pillars” or workstreams and membership that could vary between pillars.

Three pillars are set to have up to 14 signatories: Australia, Brunei, Fiji, India, Indonesia, Korea, Japan, Malaysia, New Zealand, Philippines, Singapore, Thailand, United States and Vietnam. The final pillar is expected to have 13 signatories as India remains out of the ‘trade’ pillar.

The IPEF innovations did not stop there.  This agreement, driven by domestic US considerations, would not include any commitments that involved market access.

This meant that traditional trade negotiations centered around reductions or elimination of tariffs was off the table, as well as changes to services or investment regulations or anything else that might require domestic legal adjustments – and therefore need congressional approval within the United States.

The timelines were short.  IPEF, conceived by the Americans, would be managed as a US Executive Order and, as a result, needed to be wrapped up no later than the end of 2023 to ensure completion ahead of a likely messy election season.

As host of the APEC meetings, the US also wanted to be able to announce conclusion of the Framework by the time of the Leader’s Summit in November.

The early results of this flurry of activity are now available for all to see with the publication of the supply chain pillar text which was concluded in May.

Plenty of good intentions

There are at least two striking aspects to this agreement.

First, there is no problem, issue, or consideration that might possibly be relevant to supply chains that is unmentioned or ignored in the text.

Second, there is going to be an awful lot of work ahead to try to figure out how to turn this lofty set of promises into anything concrete and actionable.

The supply chain text is a veritable festival of commas—590 inside 25 pages.  The use of so many commas highlights the wide range of issues that are jammed into most sentences.  For instance, the opening of Article 2 reads:

“The Parties intend to undertake cooperative activities to increase the resilience, efficiency, productivity, sustainability, transparency, diversity, security, fairness, and inclusivity of IPEF supply chains, taking into account the different economic and geographical characteristics and capacity constraints of each Party as well as the individual characteristics of different sectors and goods.”

This sentence alone, with 9 commas, can be seen as a framework for understanding the entire exercise.  It starts with the phrase “intend to.”

For anyone used to reading traditional trade agreements, the phrase is unusual.  While it is true that parties in a traditional deal intend to do a lot of things, even ASEAN rarely inserts the phrase in formal documents.  IPEF, by contrast, uses this phrase 39 times, including in every paragraph that sets out the parameters of the collaboration.

The sentence goes on to note a wide range of objectives, none of which is likely to be terribly objectionable.  Did anyone, anywhere, ever publicly ask for brittle, inefficient supply chains?  The key problem, as the Covid-19 pandemic highlighted, is HOW to achieve these objectives.

But, on this score, do not worry.  IPEF members will deliver by taking into account a wide range of obstacles within members, within sectors and even within specific goods.

In short, the IPEF framework promises to deliver everything imaginable across a substantial range of unobjectionable objectives while being mindful of all the potential obstacles and constraints that make actually managing resilient, efficient, productive and so forth supply chains difficult.

IPEF councils

So how to get there?  The core of the framework is to set up three different Councils: a Supply Chain Council; a Supply Chain Resource Network; and a Labor Rights Advisory Board.

These committees have language to indicate what they are meant to do and concrete timelines for getting these groups set up, basically within 120 days of entry into force of the agreement.

There are some specific promises in IPEF that could be useful.  For example, Article 3.3 says that parties should (i.e. “intend to”) adopt or maintain procedures to release perishable goods in a timely manner.  Article 3.5 says that parties will (i.e. “intend to”) facilitate authorized worker access to land, sea, and air ports of entry and related facilities.

Promises to increase transparency, including the publication of laws and regulations related to IPEF – “to the extent practicable” – is probably helpful.

Labour rights focus

Much of the early analysis has focused on the role of the Labor Rights Advisory Board.  This is the element of the framework meant to support inclusive and fair supply chains.

A key requirement is the development of electronic reporting mechanisms in participating IPEF parties to receive reports of labor rights inconsistencies at facilities in other IPEF parties.

A report is meant to trigger an investigation and, if necessary, a dialogue in good faith to resolve the issue.  If not sorted, the matter is escalated to a subcommittee and could be addressed by parties to the agreement or even the International Labor Organisation.

It will be necessary to watch exactly how members intend to implement these commitments and then monitor what actually happens.

Where is business?

Another issue that took significant time for officials during the negotiations was the problem of disruptions in critical supplies.

Members have agreed to develop a list of critical supplies within 120 days and set up a mechanism for sharing the lists.  They also agreed to have a process in place for times of emergency to allow better transparency and cooperation.

Supply chains are not, however, managed by governments.  They are run by companies.

Many participating firms may not even see themselves as supplying goods or services into a supply chain.  Hence, the real issues in sorting out potential supply chain disruptions and ensuring resilient, efficient, productive, etc. supply chains is less what governments intend to cooperate about and more about what governments actually do on the ground.

While IPEF does make repeated references to encouraging the role of the private sector and includes some seats on councils explicitly for companies, it remains to be seen how effective the attempts at cooperation between the public and private sector related to IPEF will be in practice.

Absent sustained involvement of firms, it may be that all the good intentions in the world by IPEF governments will fail to produce the desired results.

 

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

Leave a Comment

Your email address will not be published. Required fields are marked *

*

This site uses Akismet to reduce spam. Learn how your comment data is processed.