On May 23rd,President Biden, accompanied by Japanese Prime Minister Kishida and Indian Prime Minister Narendra Modi, formally unveiled the Indo-Pacific Economic Framework for Prosperity (IPEF). The agreement is significant as the participating economies represent over 40% of global gross domestic product, and include five countries not included in the original Trans-Pacific Partnership negotiations. They also include seven of the ten ASEAN member countries representing significant U.S. engagement in the region.
Negotiations are expected to advance through the next 12-18 months on each of the IPEF’s four pillars. The trade elements represent the most significant U.S. economic engagement in Asia since its withdrawal from the Trans-Pacific Partnership, and the framework will seek to lay the basis for numerous areas of economic standardization and integration.
On Monday, May 23rd, the centerpiece of the U.S.’ economic strategy in the Indo-Pacific region was announced as the President announced the launch of the Indo-Pacific Economic Framework for Prosperity (or IPEF). The announcement was accompanied by a formal list of participants, including India, Vietnam, Indonesia, Thailand, Brunei, the Philippines, Japan, South Korea, Australia, New Zealand, Singapore, and Malaysia, and a joint statement.
While the Administration initially hoped for all participants to agree to increasing minimum levels of standards, this requirement was tempered in order to ensure the participation of a wider range of countries, particularly India and Indonesia. However, there is enthusiasm for the agreement and for robust standards to be set in a number of issue areas, such as cross-border data flows and artificial intelligence as well as cooperation on supply chains, and green infrastructure investment.
Negotiations on the provisions contained within the four pillars of the IPEF began immediately. As covered in the previous Crowell IPEF client alert, the IPEF consists of four main pillars: a trade pillar headed up by the Office of the U.S. Trade Representative (USTR), and pillars on supply chain resilience, the green infrastructure and energy, and on tax and anticorruption to be led by the Commerce Department. Participants may join any number of the four pillars, but are expected to join all provisions of the pillars they do join.
Countries are expected to select which pillars they want to join in the next few months, and the negotiators are seeking to meet by mid-summer to assess progress. Within twelve to eighteen months, they hope to have negotiations concluded. The APEC Leaders’ Meeting in November 2023 is seen as the informal deadline.
Building off of Crowell’s previous client alert, updates regarding what is known about the four pillars are below:
1. Connected Economy (formerly the Trade Pillar)
This pillar will focus on the digital economy, AI, labor and environmental standards, and corporate accountability among other issues. However, digital issues are expected to dominate this pillar with the White House stating that “We will pursue high-standard rules of the road in the digital economy, including standards on cross-border data flows and data localization. We will work with our partners…to address issues such as online privacy and discriminatory and unethical use of Artificial Intelligence.”
The digital economy provisions of IPEF may be the most lasting impact of the agreement: despite having over 440 million online individuals and a digital economy expected to surpass $1 trillion soon, the Indo-Pacific region is a patchwork of different cyber regulations and regimes harming economic growth, regional integration, and foreign investment. There is strong appetite from leaders in the region to reach standardized rules for cross-border data flows and data localization, and the inclusion of eleven APEC economies likely indicates that the APEC Cross-Border Privacy Rules (CBPRs) will feature prominently in negotiations for this trade pillar.
Despite calls by some, the administration has decided against making the digital economy its own pillar, possibly seeing the issue as a carrot to convince countries to join the trade pillar.
2. Resilient Economy (formerly the Supply Chains Pillar)
This pillar prioritizes supply chain commitments to better foresee and prevent issues in supply chains for vital goods. It will attempt to do this via improved collaboration with critical mineral supply chains, an early warning system, and diversification of sourcing.
This pillar is one of the central areas of interest for India, with Commerce Minister Piyush Goyal stated that India is eager to contribute and collaborate on supply chain resilience and sourcing.
3. Clean Economy (formerly the Clean Energy, Decarbonization, and Infrastructure Pillar)
This pillar will prioritize on setting commitments for clean energy and decarbonization in the region. It will also prioritize the adoption of renewable energy, carbon removal, energy efficiency standards, and methane emissions reductions, by deepening cooperation on green technologies, mobilizing finance for their adoption, and providing technical assistance for the adoption of green infrastructure.
4. Fair Economy (formerly the Tax and Anti-Corruption Pillar)
This pillar is oriented around promoting fair competition via the enactment and enforcement of effective and robust tax, anti-money laundering, and anti-bribery regimes to curb tax evasion and corruption in the region. Expertise and cooperation will be provided on building capacity to do so, such as the exchange of tax information, the implementation of beneficial ownership recommendations, and other reforms to crack down on corruption.
For further information, please contact:
Robert Holleyman, Partner and C&M International President & CEO, Crowell & Moring