FROM APEC AND CPTPP TO IPEF – SMALL STEP OR GIANT LEAP?

by | Apr 27, 2022 | Trade Working Blog

The US idea of an Indo Pacific Framework (IPEF) continues to gain traction but is not without complication.

Aotearoa-New Zealand is a great joiner – from the very beginning of the United Nations to the important economic institutions like the WTO, APEC, CPTPP and RCEP.  We naturally want to make things these organisations work and understandably so – poor performing international institutions are no use to a small, trade-oriented economy and we value a seat at the table when others, usually with more economic heft, are making important decisions that could affect us.  It’s hardly surprising therefore that when the United States talks about building a new “Indo Pacific Economic Framework” New Zealand senses opportunity calling, not simply to derive economic benefit, but to encourage the US back to engagement in regional economic governance. 

 

What is IPEF?

Until recently it has not been very clear what “IPEF” is.  Even the definition of “Indo Pacific” is ambiguous. Our own Government, once heavily invested in the term “Asia Pacific”, has now all but abandoned the latter (except when talking about APEC). Indo Pacific seems to be broader in scope than Asia Pacific – it includes the Indian sub-continent and puts Asia into a sort of sub-category. 

What is clear is that IPEF is a US-led initiative. It was first mooted by President Biden at an East Asia Summit last October.  It is now described as the “centrepiece of US economic engagement in the region”.  The IPEF is intended to be an overarching inter-governmental agreement consisting of four pillars sitting underneath it: fair and resilient trade; supply chain resilience; infrastructure, clean energy and decarbonisation; and tax and anti-corruption.   

It is also very clear that IPEF is not a comprehensive free trade agreement such as CPTPP.  The US Administration is simply not interested in re-joining TPP which President Trump abandoned in 2017. It also lacks the necessary Congressional fast track authority to negotiate.  IPEF may contain some of the elements of FTAs, but it will definitely not include any concessions by the US on market access and so can proceed without the same Congressional oversight.  

It is also very clear that IPEF is not a comprehensive free trade agreement such as CPTPP.  The US Administration is simply not interested in re-joining TPP which President Trump abandoned in 2017.

For the time being the US continues to build support for the concept amongst Asian economies especially in South East Asia.  It has been made fairly clear that China will not be asked to join.  India, at least for now, seems not to be interested.

 

What does NZ think ?

During Prime Minister Ardern’s meeting with Japanese Prime Minister Kishida this week, it was noted that the two countries would “continue working together to promote free, open and rules-based trade through economic forums and frameworks such as APEC, CPTPP, RCEP – and now the new regional Indo-Pacific Economic Framework initiative”.  So there you have it – we have joined another club, as is our custom, even though it has not formally been launched.  Doubtless geo-politics would have had a role to play in this calculation but there may well be value to be gained from new dialogues and commitments in areas like digital trade, regulatory coherence and climate co-operation. 

But there are a few fish-hooks in this bold, new enterprise.  First, New Zealand has maintained a long-standing principle to negotiate only ambitious, high quality and comprehensive free trade agreements.  That principle has delivered a raft of advantageous FTAs, though not ones with the US or India.  “Comprehensive” has been the key element, meaning in shorthand “including agricultural trade”.  IPEF is not an FTA and will not include agricultural market access: not one extra tonne of dairy or meat will flow to the US as a result.  Second, while IPEF contains exemplary language on “fair and resilient trade”, the US is currently applying tariffs to NZ exports of steel and aluminium on the completely bogus grounds that they undermine US security.  Surely these absurd tariffs should be removed, as they have been for other partners like the EU and Australia, now that New Zealand is a member of the IPEF club?  

Third, New Zealand has long held to the principle of “open regionalism” – that is to say no economy should be a priori excluded from participating in region-wide integration.  But IPEF excludes China. Not only is China New Zealand’s largest trading partner but what sense does it make to build a regional framework that excludes the engine of growth in the region ? And fourth, what about APEC which New Zealand chaired in 2021 and the US is set to chair in 2023 – how will APEC and IPEF work together ?

 

What about others ?

It is not just New Zealand asking these questions. Take an economy like Viet Nam which made significant concessions to the US in TPP in exchange for improved market access, only to see this withdrawn.  What should its response be to this new US initiative which seems designed to appeal to its own domestic constituency rather than the region’s wider needs?

There is still water to flow under the IPEF bridge and the US is still consulting with partners, but IPEF already raises some big issues even for a habitual joiner like New Zealand.

This post was prepared by Stephen Jacobi, NZIBF Executive Director

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