Former Democratic Progressive Party (DPP) legislator Julian Kuo (郭正亮) recently appeared on a political talk show in which he said that no country in the world has an inkling of how the Indo-Pacific Economic Framework for Prosperity (IPEF) works. If the goal is not to provide market access or tariff reductions, Asian countries would have no incentive to conduct business with the US, he said.
Kuo’s conclusion was that most East Asian countries might be humoring the US, and that the IPEF would end up as “all talk and no action.”
The IPEF has been on the table for some time. In October last year, US President Joe Biden announced that the US would launch the IPEF with close allies. Two months later, US Secretary of Commerce Gina Raimondo said that the framework was envisioned as a “21st-century economy arrangement” that excludes China, is positioned within the Indo-Pacific strategy and aims to decouple from the Chinese economy, cohere with current standards and be in line with US interests.
In the initial stage, the US is focusing on establishing the open platform and might put in more resources in due course. What the US is not saying out loud is that the IPEF aims to counter China’s Belt and Road Initiative and undermine the interests of ASEAN member states joining the Regional Comprehensive Economic Partnership (RCEP).
The IPEF’s framework of four pillars — a connected economy, a resilient economy, a clean economy and a fair economy — shows that it is a sizeable deal.
Commentators could not have been more wrong when they said that the framework would not work without tariff reductions, for members gain advantages, such as simplifying and improving import and export procedures, access to shared information, assisting enterprises with e-commerce and digitization — a forte of the US — and getting easier access to trade finance.
Regarding the bolstering of supply chains, the US might come up with a proposal to secure strategic supplies and share the cost with allies. This might also ensure that crucial strategic supplies — such as metals — are being invested in and secured. As for infrastructure, there is a lot of room for planning.
As every country has different requirements and resources, the IPEF allows members to contribute to particular “pillars,” or the US can invite members to do so. If Taiwan were to participate, the US would certainly be looking to deepen its economic relationship with Taipei, particularly on semiconductors and supply chains, whereas Indonesia would play a key role in producing nickel-related items for the lithium batteries needed in electric vehicles.
Among RCEP participants, countries that are close to China — namely Cambodia, Laos and Myanmar — have not yet joined the IPEF. Eleven other countries — Japan, South Korea and seven ASEAN members — attended IPEF events in Tokyo on Monday last week, together with the US and India.
India is an interesting case. It considers itself weak in manufacturing and competition, and having registered trade deficits with 11 RCEP members, India was originally expected to overturn the deficits with services — such as IT resources — and free labor movement, but negotiations broke down and India bowed out of the RCEP before the framework could take effect.
India has so far shown no interest in joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which is a treaty with higher standards and tariff reductions. The IPEF, which the US designed with no tariff reductions, is tailor-made for India. By setting aside the zero-sum game of tariff reductions and focusing on the four interrelated pillars, the US has enabled the treaty to have greater flexibility and inclusion.
Taiwan’s bid to join as a member in the second round is a wise choice.
Wu Hai-ruei is a manager at a listed company.
Translated by Rita Wang
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