Pakistan’s policymakers and media have mostly overlooked developments around the new US-led Indo-Pacific Economic Framework (IPEF) initiative.
This indifference appears to have stemmed from the fact that Islamabad is not part of the 14-nation pact announced last year in Tokyo in spite of Pakistan being one of the 40 economies falling in the Indo-Pacific region. Another possible explanation, as elaborated by Manzoor Ahmed, who has served as Pakistan’s ambassador to the World Trade Organisation in Geneva, relates to Islamabad’s utter lack of enthusiasm to join any major, meaningful multilateral trade and economic alliance.
Most commentators from IPEF countries believe that the initiative is part of American efforts to reclaim its influence in the fast-growing Pacific and Southeast Asian regions and ‘decouple’ China from these economies.
IPEF comes five years after Washington ditched the much wider Trans-Pacific Partnership (TPP), now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), out of concern that the free trade deal would lead to an influx of cheaper goods and hurt American businesses and jobs.
The US has invited only those countries to join it which Washington wants to pull away from Beijing
Between them, the IPEF participating countries represent 40 per cent of the global GDP. Some are close to China, and the expectations of each member from this arrangement vary.
“IPEF is very political. The US has invited only those countries to join it, which Washington wants to decouple from China or pull away from Beijing,” Mr Ahmed observes.
“But the US wouldn’t succeed in achieving this goal because China has a very big investment in the region and is a major trade partner with these economies. IPEF will make little difference, if any, to China’s economic position in the Asia-Pacific region,” he argues.
A fact sheet distributed by the White House in February described the framework as part of a wider push to “restore American leadership” in the region by “engaging” with partners there to “meet urgent challenges” — from competition with China to climate change to the pandemic.
IPEF’s objective is to establish a framework based on four key pillars: connectivity and digital trade, resilient supply chains, clean energy and corruption-free fair trade. It is designed as a ‘flexible and open arrangement’, allowing partner countries to join any of the four pillars without having to commit to all four. India, the only South Asia nation invited to the alliance, has joined all pillars except trade.
Shahida Wizarat, Dean of the College of Economics and Social Development, Institute of Business Management, in Karachi, considers IPEF an American response to China’s Belt & Road Initiative (BRI).
“The initiative is explicitly aimed at countering China’s growing economic influence in the region and reasserting Washington’s influence in a region of pivotal economic and security importance,” she notes. “But no country in Southeast Asia wants to ditch or offend China, which has become the largest trading partner of almost all members of the Association of Southeast Asian Nations,” she adds.
America doesn’t offer increased market access to the participating economies for fear of backlash from domestic labour and environmental groups
The fourth round of IPEF negotiations that ended on July 15 in the South Korean city of Busan without so much as a whimper shows that scepticism over tangible benefits to the member countries and the durability of the initiative persists. The participating nations were light on details about the outcome of the negotiations as the US trade authorities said they continued to “make progress” without going into detail on the status of the discussions.
The basic flaw facing IPEF is that the US doesn’t offer increased market access to the participating economies for fear of backlash from domestic labour and environmental groups, which have vocally opposed previous trade deals such as the CPTPP. It just offers a partnership for promoting common economic standards.
This puts the deal at a disadvantage to other trade pacts in the region, including the China-led Regional Comprehensive Economic Partnership (RCEP), and reduces the credibility of the framework as it offers little incentive for partner countries to make big commitments themselves.
South Korea is frustrated about being potentially shut out of the US plans on renewable energy. Indonesia, the largest Southeast Asian economy and a key nickel producer, apparently feels slighted by tepid US interest in a proposal for a bilateral agreement on free trade in critical minerals.
The participating nations are concerned that there is no guarantee that this agreement won’t simply be trashed in case of a change in the US administration after the presidential election next year. After all, President Donald Trump withdrew from CPTPP on his first day in office. Thus, the durability of the framework remains a big challenge. President Joe Biden may promote his framework, but there is no guarantee the next president will.
Many find the pact divisive and discriminatory as the selection of partners for IPEF was arbitrary, and the majority of the countries from the region, along with China, weren’t invited to join it, which runs counter to the principle of multilateralism. Such thinking is feared to lead to a closed, exclusive and confrontational arrangement within the region.
The pact has come under criticism from outside the US and within. Questions have been raised over Washington’s reluctance to seek better access to the markets of IPEF nations for American exporters. Support from key US business groups is wavering. A range of US business organisations have complained there isn’t enough in it for them.
The framework flaws aside, it is still useful for the participating nations to have a venue to speak regularly to the US, especially for leaders of smaller countries that lack such opportunities, even if IPEF doesn’t transform into a trade deal. No country wants to send America a signal that they are not interested in talking to Washington, many have argued.
Besides, the very vagueness of the framework is also appealing. With vague goals, some think it is easier to show enthusiasm. The initiative may also produce some tangible benefits for businesses through increased transparency and reduced non-tariff barriers, which can be an indirect form of market access.
Overall, IPEF is an ambitious arrangement. A recent Financial Times article said IPEF produces a lot of words but few commercial rewards.
The real business of building trade alliances will go on elsewhere. “Without a trade deal, the chances of the framework’s success don’t seem very bright,” concludes Mr Ahmed.
Published in Dawn, The Business and Finance Weekly, July 24th, 2023