Improving The International Supply Chain Through IPEF

How IPEF Builds On Prior Trade Relationships Negotiated By The Biden Administration:

In May 2023, the Biden Administration announced the Indo-Pacific Economic Framework for Prosperity (IPEF), a commitment to improving supply chains between the US, and the Indo-Pacific nations of Australia, Brunei, Fiji, India, Indonesia, Japan, Malaysia , New Zealand, the Philippines, Singapore, South Korea, Thailand, and Vietnam.

The stated goal of the IPEF is “to coordinate actions to mitigate and prevent future supply chain disruptions and secure critical sectors and key products for our manufacturers.”

The IPEF also responds to increasing tensions between the US and China that have impacted the US economy. Following the COVID-19 case surge in China at the end of 2022, a shortage of workers for critical supply-chain sectors in China hindered US production. Additionally, since 2022, the US government has placed sanctions on many large Chinese manufacturers that the US suspects participated in “human rights abuse, intellectual property theft, and threatened national security.”

Therefore, IPEF will prevent future supply-chain issues from hindering future manufacturing while also strengthening ties between the US and the Indo-Pacific parties, as a counterbalance to China.

In addition, the launch of the IPEF also comes five years after the United States’ withdrawal from the Trans-Pacific Partnership (TPP). Without IPEF, the region, led by China, lacks clear rules for supply chain functionality between countries. In contrast, the IPEF sets forth “rules-based approach” for critical supply-chain manufacturers in the region.

The Biden Administration also stated that it will continue to put workers and US businesses first through IPEF by “establishing an early warning system, mapping critical mineral supply chains, improving traceability in key sectors, and coordinating on diversification efforts.”

Finally, the United States sent an interagency delegation team to the Third Indo-Pacific Economic Framework (IPEF) Negotiating Round in Singapore from May 8 through May 15, 2023 to negotiate a new trade agreement. Following the negotiation, the parties formulated an agreement to prioritize supply-chain related issues among all members, which includes provisions for increased communication, transparency, and prioritizing workers.

Provisions

The Biden Administration set out four primary “pillars” for economic engagement focusing on trade, supply chains, clean economic practices, and fair economic practices. In what the White House refers to as the “Resilient Economy” provision, the trade agreement sets out “first-of-their-kind” supply chain commitments, as follows:

  1. Establish Criteria For Critical Sectors And Goods:

Members agree to identify key economic sectors and identify supply chain issues that could materially impact these critical sectors, which include national security, health and safety, and any other sector that could create widespread disruption if interrupted. As part of this commitment, IPEF members have agreed to identify the “raw material inputs, manufacturing, or processing capabilities, logistics facilitation, and storage needs” of any affected supplies.

  1. Increase Resiliency And Investment In Critical Sectors And Goods

Members agree to address manufacturing industries where there is only one source of supply and expand production of the goods in these industries by:

  • identifying areas within critical supply chains in which a sole source comes from one geographical region and developing options in their supply chains through other regions;
  • strengthening industries by investing in critical sectors; and
  • supporting the advancement of new manufacturing techniques for current and potential manufacturers.
  1. Establish An Information-Sharing And Crisis Response Mechanism

Members agree to create a government-to-government information sharing system. Members also seek to identify mitigation measures, best practices, and improvements to policies or processes to prevent potential supply chain crises.

  1. Strengthen Supply Chain Logistics

Members agree to improve supply chain logistics transportation via air, waterway, maritime, shipping, and port infrastructure by:

  • collecting and utilizing relevant data on supply chain logistics while ensuring business confidentiality;
  • investing in infrastructure; and
  • maintaining borders and transport links where supplies are imported and exported.
  1. Enhance The Role Of Workers

Members agree to prioritize the role of workers in manufacturing industries by:

  1. Improve Supply Chain Transparency

Members agree to improve visibility between members into potential supply chain risks by:

What IPEF Means For US Businesses And Workers:

Even though the agreement is international in scope, it entails effects for US businesses. US businesses will be able to anticipate supply chain shortages based on IPEF’s information sharing system, enabling them to mitigate negative effects such as price spikes and disruptions in production.

In addition, US companies that have been identified as producing critical supply chain goods may increase employment to maintain supply chains in the long term.

Ultimately, IPEF will help American manufacturers be more secure in their supply chain expectations and employ more American workers while also enhancing the diplomatic relationships between the US and other members of IPEF.

What Needs To Happen For IPEF To Go Into Force:

A successful conclusion to the IPEF trade agreement will require member states to opt into the provisions in which they wish to participate. Because the IPEF is broad in scope and implies potential geopolitical relationships with China, IPEF members may make their opt-in decisions accordingly. As stated by US Commerce Secretary Gina Raimondo, “We intend for the framework to be flexible and inclusive so that many different countries can participate.”

Practically speaking, the success of the IPEF trade agreement is vested in Indo-Pacific in the members with the largest economies, including “major Southeast Asian economies such as Indonesia, Thailand, and Vietnam.” The success of IPEF will ultimately come down to who is willing to participate and how invested those members are.

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