IPEF’s Supply Chain Agreement: Much Ado?

By Celine Lange

Published on 16 August 2023

In May 2023, exactly one year after its official launch in Tokyo, the Indo-Pacific Economic Framework (IPEF or Framework) reached a significant milestone as US authorities released a press statement announcing the substantial conclusion of the negotiations on supply chains under IPEF Pillar II [the IPEF comprises three other pillars: Pillar I (Trade); Pillar III (Clean Economy); and Pillar IV (Fair Economy)]. While concluding these negotiations within a year represents in itself an achievement, tangible outcomes are yet to be seen as the Supply Chain Agreement will be finalised after ‘further domestic consultations and a legal review’ by the IPEF partners. As the mantra goes ‘nothing is agreed until everything is agreed.’

This post is Part 3 of a blog series on the IPEF. Parts 1 and 2 examined the United States’ policy rationale behind the IPEF, the Framework’s salient features and its potential benefits for the Indo-Pacific signatories. This part examines the proposed outline of the future Supply Chain Agreement. It is argued that, while the conclusion of Pillar II negotiations demonstrates the advertised built-in flexibility of the Framework, questions can be raised about the IPEF’s negotiating methodology and its capacity to operate as a trade facilitation framework.

Making the IPEF’s case?

One of the IPEF’s implementation difficulties previously identified in this blog series has been the uncertain capacity of the United States to follow up with the IPEF partners after the negotiation objectives were announced in September 2022. Nevertheless, within one year of that announcement, five rounds of in-person negotiations were held, showcasing, as claimed by the United States, an ‘aggressive negotiation agenda’. Several virtual intersessional and bilateral meetings were also held during this period.

The first negotiating round was held in December 2022 in Australia, the second in March 2023 in Indonesia, the third in Singapore in May 2023 and the fourth in South Korea in July 2023. During each of these meetings, the four IPEF pillars were discussed and a special negotiating round, which took place in India in February 2023, specifically dealt with Pillars II to IV.

Although India decided to not participate in IPEF Pillar I (Trade) after the first Ministerial Meeting in September 2022, its active participation in Pillar II discussions as well as the early conclusion of the negotiations on supply chains serve as a concrete demonstration of IPEF’s inherent flexibility. The structure of the Framework allows for parallel negotiations on different topics with possible ‘early harvests’, as well as a ‘pick and choose’ approach for the IPEF partners. However, this pick and choose option might be more readily available to a major player, like India, than to smaller IPEF states. In addition, IPEF ‘low hanging fruits’ allowing for ‘early harvests’ might be in limited numbers.

Brisk pace at the cost of deep and informed negotiations?

The United States exhibited an appetite for early harvests from the outset, with negotiating texts on Pillars I, II and IV shared with IPEF partners just three months after the negotiating objectives were released. However, after the Singapore round in May 2023, it appeared that IPEF partners had not reached the stage of discussing specific provisions for the future agreement. The agenda for the following IPEF Ministerial Meeting in Detroit a few weeks later was thus for the ministers to ‘provide direction to negotiators.’

It was therefore rather unexpectedly that the US authorities announced on 27 May 2023 the substantial conclusion of the Supply Chain Agreement negotiations. This negotiating timeline raises questions as to the opportunity actually afforded to each IPEF partner’s delegation for a thorough review of the substance agreed during the discussions and for raising any concerns effectively. In addition, while ‘listening sessions’ with civil society, the business community and academics have been integrated into the IPEF methodology, their practical usefulness heavily depends on whether negotiators are given enough time to consider the inputs provided by these various stakeholders. Critics argue that IPEF partners were ‘pushed to deliver results in record time’ on supply chains after the initial focus on sharing best practices.

A US-led agenda and a missed opportunity

Despite the United States’ acknowledgement that the Supply Chain Agreement had to ‘recognis[e] the different economic and geographic characteristics of the partners’, it remains evident that IPEF discussions revolve around the goals of the US agenda. The Framework’s fundamental objective to counterbalance China’s influence in the Asia-Pacific is manifest in Pillar II, which clearly seeks to reshape supply chains outside of Chinese influence. Whether it actually succeeds in doing so, however, may still be a matter of debate.

For instance, while US officials have domestically advertised that the agreement will ‘drive investment in American companies’ and ‘bolster American jobs’, the American business community has expressed scepticism, with the US Chamber of Commerce signing a multi-association industry letter in May 2023 on the proposed direction in the IPEF. The 36 signatories ‘strongly urge[d] the administration to change course and use the IPEF to deliver outcomes that advance the interests of American workers, farmers, and companies.’ They argue that the absence of IPEF commitments on non-tariff barriers—including technical barriers, inadequate intellectual property protections, sector-specific regulatory barriers— undermines the very supply chain resiliency sought by the IPEF. The absence of such non-tariff provisions in IPEF Pillar II could be seen as a missed opportunity for the United States to compensate for the criticised non-inclusion of any market access commitments in the IPEF.

Concrete outcomes of the supply chains’ negotiations

Looking at the concrete outcomes of the negotiations, some topics presented under Pilar II in September 2022 seem to have disappeared from the proposed agreement. For instance, the ‘promotion of labour rights based on the ILO declaration [on Fundamental Principles and Rights at Work]’, which had the potential to set standards across the region, may have encountered resistance among certain IPEF partners during the negotiations. It remains to be seen whether the mechanism to address forced labour in supply chains contemplated in April 2023 under Pilar I (Trade) will see the light of day at a later stage. Moreover, the probable absence of remedies to non-enforcement in the agreement raises concerns about the practical means to catalyse the supply chain changes sought by the IPEF.

Nevertheless, a concrete outcome emerged with the announcement that three Supply Chain bodies will be created: the IPEF Supply Chain Council, for collaborative work on sector-specific action plans for critical sectors and key goods; the IPEF Supply Chain Crisis Response Network—-an emergency communications channel—and the tripartite IPEF Labour Rights Advisory Board (composed of worker and employer representatives), to support the promotion of labour rights-compliant supply chains and sustainable trade and investment. Many unanswered questions however remain on the constitution and operations of these coordination bodies, which are expected to be addressed in the future agreement. However, the latter might not be finalised so soon as the current status of domestic consultations and legal reviews is unclear. After the latest negotiating round in South Korea (9-15 July 2023), US authorities simply reported that ‘officials advanced the legal review of the proposed IPEF Supply Chain Agreement.’

IPEF initiatives’ early deployment as binding benefits?

In the interim, it is possible for some initiatives announced in May 2023 in support of the agreement to be deployed early, before the text of the agreement is fully finalised and open for signature. Such initiatives include trade missions to IPEF markets and ‘reverse trade missions’ to the United States, capacity building programmes (e.g., IPEF STEM Exchange), and the organisation of trainings on supply chain monitoring and operations.

More generally, technical assistance and capacity building seem to offer efficient incentives for IPEF partners to fulfil their end of the bargain. US authorities reiterated in July 2023 their importance to support the implementation of the IPEF. Singapore’s commitment to provide capacity building programmes, with the support of Japan, across the four IPEF pillars announced in May 2023 marks the first initiative by an IPEF partner in this regard. It remains to be seen whether other participants will follow suit. On the US side, the incentives envisioned so far seem to focus on the financing of specific projects undertaken by IPEF partners, such as the $300 million announced during a virtual ministerial meeting in June 2023 for sustainable infrastructure projects, including in eligible IPEF member countries that become a party to the future IPEF clean economy agreement.

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Moving forward, US officials are expected to build on the momentum from the Pillar II negotiations to conclude as many IPEF negotiations as possible before the end of 2023, as previously announced, in time for the Asia Pacific Economic Cooperation summit in San Fransisco in November. With this ambitious schedule, questions on the IPEF negotiating methodology remain particularly relevant.

Furthermore, while Pillar II discussions were driven by a shared will among participants to prevent Covid 19-types of supply chains disruptions, negotiations on other topics might lack such a driving force.  For instance, negotiations on Trade Pillar I garner significant attention, especially on digital trade. But, it remains to be seen whether the Framework’s flexibility will enable the insulation of digital trade discussions from other sensitive topics under this pillar such as agriculture, labour and environment. The practical relevance of a digital trade agreement without the participation of India is also uncertain, as is the IPEF partners’ interest, as three of them have now joined the Digital Economy Partnership Agreement (DEPA).

The IPEF’s model is obviously still in the process of shaping itself. Its outcome on supply chains is a pertinent platform for collaboration but negotiations on other topics will tell whether the Framework has the potential to go beyond economic cooperation and provide trade facilitation. It also remains unclear whether the IPEF menu will be sufficient for the partners to abide by their commitments and for the United States to forge durable alliances, similar to those under trade agreements.

Read Part 1 of Celine Lange’s IPEF series here.
Read Part 2 of Celine Lange’s IPEF series here.