Can US-led IPEF outshine RCEP or CPTPP?

On the eve of the fourth Quad Leaders Summit in Tokyo this past Monday, US President Joe Biden, along with the other three members of the Quadrilateral Security Dialogue, launched his much-hyped Indo-Pacific Economic Framework (IPEF). This also presented the novel outline of a “Quad Plus” paradigm, as the online launch was attended virtually by leaders from South Korea and New Zealand plus seven of the 10 ASEAN members, namely Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. The unique selling point of IPEF so far seems to be to counter the so-called China challenge by reviving US economic leadership in the Indo-Pacific region, though it is presented in terms of evolving shared novel processes and standards to socialize (read tame) China into respective international codes of conduct. But as countries now begin negotiating various proposed IPEF modules by building consensus on their evolving contours, this has come to be interpreted as one more reincarnation of extant initiatives such as former US president Donald Trump’s 2019 Blue Dot Network, the 2021 G7 Build Back Better World, or the European Union’s Global Gateway scheme announced this year. What is more, many have been and continue to be reluctant as they see IPEF as far too US-centric to their comfort in certain sectors. Reviving US leadership The US of course is at the forefront of this novel IPEF experiment. Last October, President Biden first presented his vision of IPEF at the online East Asian Summit chaired by Brunei, listing a broad range of sectors where he wished to redefine the processes and standards of international economic transactions. Since then, senior US officials have been proactively building consensus among America’s Asian allies, though some of them even now appear to be reluctant partners, being unsure and uncertain about several subsets of this rather broad outline of a framework. Large economies like India that remain hugely dependent on China could be conscious of extant trade deficits or the digital economy leading to cross-border data flows. The Association of Southeast Asian Nations also remains closely intertwined with China. Experts also see this initiative as guided by domestic politics of the US. They see IPEF as nothing more than Biden reviving former president Barack Obama’s legacy given that in 2009, as part of his “pivot” to Asia, the latter had also visualized “writing the rules of the road” through the Trans-Pacific Partnership. Second, there are also pressures from the US Congress. The US Congressional Research Service paper on IPEF this February, for instance, underlines how since Trump’s withdrawal from the TPP in 2017 the United States “lacks an economic and trade strategy sufficient to counter China’s increasing economic influence in the Indo-Pacific” and how “the US may remain on the sidelines, potentially imparting the administration’s ability to promote its vision of a ‘free and open Indo-Pacific.’” In Biden’s Indo-Pacific Strategy launched in February, a whole paragraph is devoted to IPEF, calling it “a multilateral partnership for the 21st century” and presenting it as the missing economic link in US geo-strategic leadership in Indo-Pacific region. While the Biden administration has removed several of Trump’s tariffs against China and several other Asian allies, it has also made clear that it will not return to the now Japan-led Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which it sees as a “very 20th-century” paradigm. The US has also remained outside world’s largest trade pact, the Regional Comprehensive Economic Partnership, which includes all the other members of IPEF. This makes the China-led RCEP and US-led IPEF opposing propositions: the former offering trillion-dollar-plus investments by their largest trading partner while the latter proposes to create a shared facilitation mechanism for mutually complementary transactions. Countering China In proposing IPEF, the US therefore is fundamentally proposing to counter China by reviving its economic engagement in the Indo-Pacific, a region that accounts for 60% of the world population and is seen increasingly as the engine of post-pandemic resilience. But hasn’t China been the leader in making this region such a growth engine? Indeed, the China link of the Indo-Pacific resilience has become especially noticeable during the difficult years of the Covid-19 pandemic that saw China being the only major economy to achieve positive growth (though experts now project possibilities of 2022 seeing the US – for the first time since 1976 – growing faster than China). Even that prospect cannot exclude the critical role of China in driving regional growth and development. To cite US national security adviser Jake Sullivan, the Indo-Pacific is what increasingly undergirds this expected US economic resilience; it supports more than 3 million America

Can US-led IPEF outshine RCEP or CPTPP?

On the eve of the fourth Quad Leaders Summit in Tokyo this past Monday, US President Joe Biden, along with the other three members of the Quadrilateral Security Dialogue, launched his much-hyped Indo-Pacific Economic Framework (IPEF).

This also presented the novel outline of a “Quad Plus” paradigm, as the online launch was attended virtually by leaders from South Korea and New Zealand plus seven of the 10 ASEAN members, namely Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

The unique selling point of IPEF so far seems to be to counter the so-called China challenge by reviving US economic leadership in the Indo-Pacific region, though it is presented in terms of evolving shared novel processes and standards to socialize (read tame) China into respective international codes of conduct.

But as countries now begin negotiating various proposed IPEF modules by building consensus on their evolving contours, this has come to be interpreted as one more reincarnation of extant initiatives such as former US president Donald Trump’s 2019 Blue Dot Network, the 2021 G7 Build Back Better World, or the European Union’s Global Gateway scheme announced this year.

What is more, many have been and continue to be reluctant as they see IPEF as far too US-centric to their comfort in certain sectors.

Reviving US leadership

The US of course is at the forefront of this novel IPEF experiment. Last October, President Biden first presented his vision of IPEF at the online East Asian Summit chaired by Brunei, listing a broad range of sectors where he wished to redefine the processes and standards of international economic transactions.

Since then, senior US officials have been proactively building consensus among America’s Asian allies, though some of them even now appear to be reluctant partners, being unsure and uncertain about several subsets of this rather broad outline of a framework.

Large economies like India that remain hugely dependent on China could be conscious of extant trade deficits or the digital economy leading to cross-border data flows. The Association of Southeast Asian Nations also remains closely intertwined with China.

Experts also see this initiative as guided by domestic politics of the US. They see IPEF as nothing more than Biden reviving former president Barack Obama’s legacy given that in 2009, as part of his “pivot” to Asia, the latter had also visualized “writing the rules of the road” through the Trans-Pacific Partnership.

Second, there are also pressures from the US Congress. The US Congressional Research Service paper on IPEF this February, for instance, underlines how since Trump’s withdrawal from the TPP in 2017 the United States “lacks an economic and trade strategy sufficient to counter China’s increasing economic influence in the Indo-Pacific” and how “the US may remain on the sidelines, potentially imparting the administration’s ability to promote its vision of a ‘free and open Indo-Pacific.’”

In Biden’s Indo-Pacific Strategy launched in February, a whole paragraph is devoted to IPEF, calling it “a multilateral partnership for the 21st century” and presenting it as the missing economic link in US geo-strategic leadership in Indo-Pacific region.

While the Biden administration has removed several of Trump’s tariffs against China and several other Asian allies, it has also made clear that it will not return to the now Japan-led Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which it sees as a “very 20th-century” paradigm.

The US has also remained outside world’s largest trade pact, the Regional Comprehensive Economic Partnership, which includes all the other members of IPEF. This makes the China-led RCEP and US-led IPEF opposing propositions: the former offering trillion-dollar-plus investments by their largest trading partner while the latter proposes to create a shared facilitation mechanism for mutually complementary transactions.

Countering China

In proposing IPEF, the US therefore is fundamentally proposing to counter China by reviving its economic engagement in the Indo-Pacific, a region that accounts for 60% of the world population and is seen increasingly as the engine of post-pandemic resilience.

But hasn’t China been the leader in making this region such a growth engine? Indeed, the China link of the Indo-Pacific resilience has become especially noticeable during the difficult years of the Covid-19 pandemic that saw China being the only major economy to achieve positive growth (though experts now project possibilities of 2022 seeing the US – for the first time since 1976 – growing faster than China).

Even that prospect cannot exclude the critical role of China in driving regional growth and development.

To cite US national security adviser Jake Sullivan, the Indo-Pacific is what increasingly undergirds this expected US economic resilience; it supports more than 3 million American jobs and is the source of nearly $900 billion of foreign direct investment into the United States.

But isn’t China part of that Indo-Pacific region that promises to underwrite US economic resilience? The fact that the US vision excludes China – which remains its strongest trade and investment partner and one that invested $38 billion in the US even in the worst pandemic year of 2020 – makes IPEF far too tinted by US geopolitics, where China is seen as its main competitor and less considerate of the regional economic dynamics where China remains far too deeply entrenched. 

Also, unlike China, which since the January 2017 Davos speech by President Xi Jinping has appeared to be the flag-bearer of free trade and investment, the US-led IPEF seems aimed to ensure the US does not get impacted by the downsides of trade liberalization.

No country today has deep pockets like China to continue with one-sided investments and exports that the myopic national regimes find invariably attractive. 

The 2016 US presidential election saw Trump unleash a popular sentiment on how the rest of the world was taking advantage of America and walk out of multiple international arrangements while shifting US focus to launching the Five Eyes, Quad and AUKUS security mechanisms.

That shift clearly missed this essential economic link that has brought global focus to the Asia-Pacific region, and more recently to its maritime imaginations, the Indo-Pacific region.

What IPEF is not

Underlying the dilemma is that just like the larger US-led Indo-Pacific narratives, the driver of this regional transformation, China, has remained not just an outlier but the target of US initiatives in engaging the Indo-Pacific minus China.

This is being done in spite of China now being a $16 trillion economy – bigger than IPEF minus the US combined – as well as the largest trading and investment partner of the US. 

Prima facie, the 13 countries of IPEF – representing 2.5 billion people, that is, 32.3% of the world population as of 2020 and a combined gross domestic product of $34.6 trillion, that is, 40.9% of the total – make it a bigger economic grouping than both the 15-member RCEP and the 11-nation CPTPP, where China’s application for membership remains pending.

The CPTPP – involving Australia, Canada, Japan, Mexico, New Zealand, Singapore and Vietnam – currently represents 510 million people with $10.8 trillion of GDP. But the CPTPP could become much bigger than IPEF, and potentially even China-led, once the applications of South Korea and China to join it are accepted.

Second, unlike the CPTPP or RCEP – the two biggest trade blocs in Asia – the IPEF negotiations have just begun.

Third, unlike the CPTPP or RCEP, IPEF does not aim at lowering tariffs or expanding market access, not even gradually over a long- or short-term future.

Fourth, it also does not as yet have any dispute settlement mechanisms, which are central to most economic arrangements, including RCEP and CPTPP. 

In all, this makes IPEF rather distinct from free-trade agreements (FTAs) that usually take decades to negotiate, go through a ratification process, and have sacrosanct membership.

Indeed, in proposing IPEF, the Biden administration perhaps wished to avoid the process of ratification, which would require congressional approval and by extension addressing the popular anti-globalization mood of Americans that was most effectively articulated during the 2016 presidential election and reinforced during Trump’s four years in office.

Experts believe that the US could not join the CPTPP or RCEP as Congress increasingly sees giving trade concessions in an unfavorable light. Second, the novel experiment of IPEF could face RCEP-like challenges such asa decade of grueling negotiations, which in that case saw the third-largest economy, India, opting out at the very last hour. 

Or worse, it could face a repeat of the US-led TPP negotiations that saw a successor president withdrawing from the agreement in 2017, though it has since been revived by Japan as CPTPP, which was rafted in 2018.

As of now, there exists no precedent of creating such a loosely knitted economic framework, definitely not one of capable of becoming an inflection point of systemic transformation. Skeptics suggest that IPEF imposes obligations without providing incentives, such as providing market access or lowering tariffs, and at best marks only the beginning of a process. 

What makes IPEF especially an uphill task is its aim of decoupling its members from China-centric global commerce, which seems ambitious given that all its members already have China as their largest trading partner and are tied to China in their RCEP FTA.

A reality check

Finally, the US seeks to build IPEF to reconnect with the Indo-Pacific region while excluding not just China but several important players. Thus the very announcement of IPEF has made Beijing its ardent opponent.

Responding to the IPEF announcement, Chinese Foreign Ministry spokesman Wang Wenbin on Wednesday criticized the US, saying that in the name of cooperation, it was excluding certain countries.

He cited US Secretary of Commerce Gina Raimondo describing IPEF as “an alternative to China’s approach” while underlining how “many countries in the region are worried about the huge cost of ‘decoupling’ with China.”

Other than China, IPEF also excludes the three ASEAN nations, namely Laos, Cambodia and Myanmar, that are regarded as close allies of Beijing. At the same time, pandering to China’s sensitivities, Taiwan – a close US ally and initially expected to join – was also not included.

However, given the nature of IPEF, the door for their future induction remains at least theoretically open, which makes their exclusions more like an uncertain knee-jerk reaction and therefore open to interpretations.

Follow Swaran Singh @SwaranSinghJNU.