By Amitendu Palit, Research Fellow & Research Lead (Trade & Economic Policy), Institute of South Asian Studies, National University of Singapore
The Indo-Pacific Economic Framework (IPEF) was launched by President Biden on 23 May 2022. It includes Australia, Brunei, India, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand and Vietnam. Fiji joined the group soon after.
Comprising two-fifth of the global GDP, the IPEF is a formidable economic bloc. It has four of the world’s top ten economies – the US, Japan, India and Korea. Barring India, the other three are OECD economies, as are Australia and New Zealand. Singapore and Brunei are non-OECD high-income country members. The long-term economic potential and prospects of the IPEF are enhanced by presence of major emerging market economies – India, Indonesia, Malaysia, Philippines, Thailand and Vietnam.
The geographical identity of the IPEF is distinctly Indo-Pacific with it including major economic actors for the Indian and Pacific oceans. The ‘bridge building’ between the economic actors of the two oceans will be facilitated by Southeast Asia.
All ASEAN economies, except Cambodia, Laos, and Myanmar, are in the IPEF. The wholesome participation from ASEAN has surprised those who felt ASEAN might stay away from an Indo-Pacific initiative for avoiding an anti-China posture. But major ASEAN economies clearly see long-term economic and strategic benefits in joining IPEF.
What will the IPEF do? It is not proposed as a conventional FTA. But it is tasked to make rules on issues impacting regional trade and investment, such as supply chain resilience, digital economy, cross-border data standards, decarbonization and energy efficiency.
Except the US, India, and Fiji, all IPEF members are in the Regional Comprehensive Economic Partnership (RCEP). Several members (e.g., Australia, Brunei, Japan, Malaysia, New Zealand, Singapore and Vietnam) are in the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) as well.
Unlike the RCEP and CPTPP, IPEF is not trading off reciprocal market access among members through deep tariff cuts. It will work on establishing common enforceable rules and operable standards in running secure supply chains, robust digital connectivity, fair business and clean energy practices. The US would lead the rule-making efforts. This marks its return to the region as a ‘rule-setter’ – a role it had relinquished after exiting the Trans-Pacific Partnership (TPP).
The IPEF has set off as a Quad-plus entity. This demonstrates the diplomatic maturity of the Quad members – US, India, Japan and Australia – by inviting more countries and living up to the notion of a ‘free’, ‘open’ and ‘inclusive’ Indo-Pacific (FOIP). The IPEF’s large membership from non-Quad countries shows that the Quad group has gained traction in working with a large regional community for setting standards.
With more countries joining in future, the IPEF’s market size will enlarge, as will the reach of its standards. The latter would grow into future global standards in their domains.
For regional businesses and investors, connecting to the IPEF will bring benefits from the learning of the shaping of upcoming rules, and engaging in the business processes they fashion. The benefits are sizable for businesses engaged in the IPEF’s core areas: digital connectivity, clean energy and strategic supply chains.