Some thoughts on the "Indo Pacific Economic Framework"
Cui Fan, Professor and doctoral tutor of the University of international business and economics, focuses on the field of international economy and trade
https://mp.weixin.qq.com/s/2v-fhQPObUADo_rAcp9-NA
1. Why did the United States launch the Indo Pacific Economic Framework (IPEF)?
As an important trading partner in the Asia Pacific region, the United States has an important influence on the value chain in the Asia Pacific region. It should have played an important role in the liberalization and facilitation of trade and investment in the Asia Pacific region. Since the beginning of this century, successive US administrations have been hesitant in promoting major trade negotiation plans, and have been caught up in bipartisan disputes, with no success. The WTO Doha Round negotiations led by the Bush administration, the TPP (Trans Pacific Partnership Agreement) negotiations led by the Obama administration, the TTIP (Trans Atlantic Trade and Investment Partnership agreement) negotiations, and the TiSA (plurilateral agreement on trade in services) negotiations either ran aground or had to be abandoned after they were concluded. The goal of the APEC (Asia Pacific Economic Cooperation) non binding Bogor declaration reached under the leadership of the United States (developed countries to achieve trade and investment liberalization in 2010 and developing countries to achieve trade and investment liberalization in 2020) was also abandoned by the United States after the 2008 financial crisis. The Trump administration promotes a trade war with China and imposes high tariffs. When the Biden administration took over, the negative effects of high tariffs on the American economy gradually emerged.
Since Biden was elected and took office, the RCEP (Regional Comprehensive Economic Partnership agreement), an important member of China, has successfully completed the negotiations and entered into force, forming the world's largest free trade area. China has also applied to join the CPTPP (Comprehensive and Progressive Agreement for Trans Pacific Partnership) and DEPA (Digital Economy Partnership Agreement), and has made active preparations for them. Against this background, various circles in the United States have constantly urged the Biden administration to come up with a clear trade policy system for China and a trade strategy in the Asia Pacific region. In the face of domestic pressure and the needs of the mid-term elections, the Biden government had to hand in an assignment, so it brought out a pot of half-cooked rice like IPEF.
2. What are the main contents of IPEF?
At present, the content published by IPEF is divided into four pillars, and it is not ruled out that its content will change in the future. There have been many articles about the contents of these four pillars. Here we provide our understanding. You can learn about them in combination with other articles. Some of the contents of the four pillars overlap, but they may be managed from different angles and by different means.
The first pillar is trade issues, which are the responsibility of the office of the U.S. trade negotiator. The first part of this pillar is the rules of digital economy, including not only the free flow of digital and non-localization requirements of computing facilities, but also the rules in the field of artificial intelligence. In the United States, there have been discussions about the digital economy as a separate pillar, but it is now combined with other trade issues. In addition, environmental standards, labor standards, emerging technologies, trade facilitation, transparency and good regulatory practices are all within the scope of trade issues.
The second pillar is the flexible supply chain. This pillar, together with the third and fourth pillars, is the responsibility of the US Department of Commerce. The United States plans to promote the establishment of a supply chain early warning system to ensure sustainable access to key raw materials, semiconductors, key minerals and clean energy technologies, improve traceability in key areas and promote coordination in "diversification". For the traceability mentioned by the US side, we understand that it refers to the adoption of domestic laws similar to those existing or being established in Europe and the United States to ensure that the intermediate inputs of goods comply with relevant environmental, labor and other standards during production. Diversification refers to China diversification, or de-Sinicization. This pillar is most likely to break through the traditional trade agreement model. It is worth further observation whether non market means will be used to directly arrange backbone enterprises for supply chain docking, and whether subsidies will be used to directly distort the supply chain.
The third pillar is clean energy, decarbonization and infrastructure. Members will cooperate in renewable energy, decarbonization, coordination of energy efficiency standards, and new measures to limit methane emissions, at the same time, promote infrastructure construction for sustainable development. In these ways, the United States may, through cooperation with Japan and other developed countries, jointly promote regional infrastructure construction cooperation and connect with its plan to "Build Back Better ".
The fourth pillar is taxation and anti-corruption. By advocating the development and implementation of an effective and stable tax system, members will prevent bottom-by-bottom competition in taxation among countries, and cooperate in anti money-laundering and anti-corruption.
In general, the four pillars involve many topics and the situation is complex. Some contents reflect the requirements of high standard economic and trade rules and are reasonable. However, most of these contents are closely related to the interest demands of the United States. It is doubtful to what extent India and other developing countries will be able to break away from their economic development stage and accept the high standard environment, labor, digital economy and other requirements put forward by the United States. There are also some contents in the four pillars, which deliberately distort the supply chain on the grounds of security factors, which may damage the supply chain security of other countries while improving their own supply chain flexibility.
3. Why does the United States not choose to return to the TPP (CPTPP)?
Japan, which dominates the CPTPP, clearly expressed its hope that the United States would return to the CPTPP. However, at the press conference on IPEF on May 23, in response to the New York Times reporter's question on this issue, US trade negotiator Katherine Tai clearly replied that the return to the TPP (CPTPP) lacked domestic support. Another point she did not point out is that returning to the TPP (CPTPP) is unfavorable to the election of the democratic government.
Take the US Japan trade relationship as an example. The Trump administration once pressured Japan to accept the first phase of the US Japan trade agreement. In this agreement, the tariff imposed by Japan on American agricultural products and food fell to the level of TPP (CPTPP), while the tariff imposed by the United States on Japanese cars and auto parts as an exceptional area did not fall. If the United States returns to the TPP (CPTPP), the United States will have limited further benefits from Japan, but will face the pressure to reduce automobile tariffs. This may cause the Democratic Party to lose the support of important industrial capital such as automobiles.
In 2016, Sundaram of Tufts University launched the tufts model, which believed that the TPP would reduce the GDP growth of the United States by 0.54% and lose 448000 jobs due to the decline of textile tariffs (from about 10% to 0). The economic growth of Southeast Asian members such as Brunei, Malaysia, Singapore and Vietnam will increase by 2.18%, and that of Latin American members Chile and Peru will increase by 2.84%. Although these estimates are controversial, they have had a great impact on American politics. In the case that Trump withdrew from the TPP, Biden's return to the TPP (CPTPP) is bound to give the Republican party a handle to attack the Democratic Party's trade policy. The "worker centered" trade policy is an important proposition of the Democratic Party government, and the return of employment and manufacturing is an important goal of the U.S. trade policy. Therefore, when the U.S. business community proposed to the Democratic Party that it would like to return to the TPP (CPTPP), the Biden administration has clearly rejected it since taking office.
4. What is the difference between TPP (CPTPP) and IPEF?
First of all, the TPP and IPEF launched by the United States have certain intentions aimed at China, but IPEF is more targeted. The TPP did not allow China to participate in the negotiations at the initial stage, but US trade officials also said that after the initial negotiations were completed and the rules were determined, China would be allowed to participate and had to accept the relevant rules. They hoped that China would be bound by the reconstruction rules. However, some content in IPEF is too targeted to China, such as some content of flexible supply chain, which is actually impossible for China to participate.
Secondly, TPP involves tariff concessions, and more than 99% of tax lines achieve zero tariff. IPEF does not include tariff concessions.
Third, the TPP is a free trade agreement. If the United States participates, it cannot bypass the approval process of Congress. So far, the US government has indicated that it will communicate more with members of Congress about IPEF, but its nature is an administrative agreement and it does not intend to submit it to Congress for voting.
Fourth, if the TPP joins, it needs to accept all the rules in a package. The four pillars of IPEF can choose to participate.
The last three differences between IPEF and TPP actually reduce the possibility of complete abortion of IPEF. Perhaps, some of the content of IPEF will eventually take effect in all members or some members.
5. What are the prospects and impacts of IPEF?
The United States has preliminarily designed the four pillars of IPEF, but its further negotiation scope has yet to be discussed and agreed by all participants. CSIS, a U.S. think tank, expects that in the middle of this summer, all parties involved in IPEF will hold a ministerial meeting to further clarify the contents of the negotiations. After that, the group negotiations on the major pillar issues will begin, and finally the negotiations will be completed before the informal APEC leaders' meeting held in the United States in November 2023.
The United States is an important market for many economies in the region. Most countries in the region are willing to participate in the discussion and negotiation after receiving the invitation for fear of losing the U.S. market and desire to obtain U.S. investment and technology, or desire to obtain part of the industrial transfer from China. Once the negotiations are launched, many developing countries may hesitate and withdraw if they are unable to obtain more market access, accept the high standard requirements put forward by the United States, and respect the United States' intentions in the supply chain arrangement. The uncertainty of the results of the US mid-term election and the 2024 presidential election makes it more difficult to predict the future of IPEF.
However, the United States has taken some measures to maximize the survival probability of IPEF. The United States invited all RCEP negotiators except China and the three least developed countries to participate in IPEF (India is not a RCEP party but one of the 16 original RCEP negotiators). The reason for not inviting the three least developed countries (Myanmar, Cambodia and Laos) may be that in addition to the political factors in Myanmar, the main reason is that it is difficult for the least developed countries to accept the rules of high standard labor, environment and digital economy. In addition, each participant is allowed to choose different pillars to participate in the negotiations. Therefore, it is possible that IPEF will not completely abort as in previous negotiations, and it is possible that some contents will finally be implemented. The most noteworthy areas include digital economy rules and flexible supply chain. In addition, it is not excluded that the United States will promote the formation of a new technology control mechanism in the region to prevent the leakage of new energy and other technologies to China.
China is the largest trading partner of most countries in the region. While paying attention to and following up on the possible impact of IPEF on international economic and trade rules and regional value chains, we should also see that China's position as the center of the Asian value chain is difficult to shake. The ultimate impact of IPEF on China depends on how China responds.
6、 What should China do?
Our top priority is to resume production as soon as possible. It is necessary to smooth the domestic and international circulation, especially to promote the formation of a national unified big market. Through continuous supply and structural reform, we should break through the obstacles of the domestic big circulation, consolidate the advantages of the big market, expand opening to the outside world, and improve the stickiness of the Chinese market to neighboring countries.
Secondly, we should actively promote the full implementation and upgrading of RCEP, actively promote the work of joining CPTPP and DEPA, start the construction of China-ASEAN Free Trade Area 3.0 as soon as possible, and further improve the zero tariff ratio of China-ASEAN Free Trade Area. Promoting the early resumption and completion of negotiations on the China-Japan-ROK free trade area, and strengthening economic and trade ties with Pacific island countries are also important, as well as promoting the construction of the "Belt and Road Initiative". We will improve, consolidate and expand the BRICs cooperation mechanism, close economic and trade cooperation between China and central and Eastern European countries and Latin American countries. We are firmly committed to achieving a comprehensive and high-level Asia Pacific Free Trade Area, including all APEC members.
The third is to further strengthen research on digital economy, subsidies, state-owned enterprises, labor, environment and other issues, and actively engage in dialogue and negotiation with countries around the world. We should try our best to support various economic and trade cooperation mechanisms that conform to WTO rules and oppose discriminatory trade arrangements that violate the non-discrimination principles of the WTO and the relevant rules of the free trade zone. We should promote and practice the common values of all mankind, such as peace, development, democracy, freedom and respect for human rights, and strengthen exchanges, cooperation and dialogue with countries around the world, especially developing countries, in the field of values. We can take the "Belt and Road" initiative and the global development initiative as the starting point to promote the construction of a community with a shared future for mankind.