My Say: Indo-Pacific Economic Framework fraught with challenges

The Indo-Pacific Economic Framework (IPEF), spearheaded by the US, stands as a testament to renewed efforts to bolster economic cooperation in the Indo-Pacific region. Aimed at fostering economic growth, enhancing supply chain resilience, promoting fair trade practices and supporting sustainable development, IPEF’s ambitious goals are underscored by its strategic intent to counterbalance China’s growing influence in the region.

The framework reflects the geopolitical rivalry between the US and China, with the former attempting to position IPEF as an alternative to the latter’s Belt and Road Initiative. However, IPEF faces significant challenges, criticism and unanswered questions about its true potential and effectiveness. Adding to these concerns is the looming possibility of the US withdrawing from IPEF, especially with the prospect of a Donald Trump presidency, which could significantly alter the dynamics and commitment levels of the framework, further complicating the regional geopolitical and economic landscape.

IPEF consists of four key pillars: trade, supply chain resilience, clean economy and fair economy. Of these, the latter three have been concluded, with rather disappointing outcomes.

One of the most significant challenges in the concluded pillars of the IPEF is the reliance on voluntary commitments rather than legally binding disciplines. The provisions across these pillars largely reflect vague intentions, with parties “intending to”, “recognising” or “acknowledging” various matters — none of which translate into tangible outcomes. This reliance weakens both enforceability and accountability as without binding commitments, these pillars risk becoming more aspirational than practical, resulting in varied levels of engagement and implementation among member states.

Additionally, there is ambiguity regarding the role and authority of the pillars’ institutional mechanisms. While several specialised bodies have been established under all three pillars, such as the Supply Chain Council, the Supply Chain Crisis Response Network, the Labour Rights Advisory Board, the Clean Economy Committee and the Technical Assistance and Capacity Building Coordination Group, their deliberations, findings and recommendations are not legally binding on IPEF member states. Moreover, as the three pillars emphasise cooperation and mutual assistance rather than mandatory commitments, recommendations from these bodies, while potentially valuable, may not be uniformly enforced across member states. The lack of legal consequences for non-implementation, due to the absence of a dispute settlement mechanism, also makes adherence to these recommendations heavily dependent upon political will and mutual interest.

IPEF underscores that the discussions within these bodies should aim to enhance collaboration, share best practices and develop action plans for the benefit of all member states. However, the depth and specificity of these discussions, as well as the ability of member states to tackle sensitive issues such as labour rights, remain uncertain. As such, the effectiveness of these bodies, which depend heavily on the willingness of member states to share sensitive information and collaborate closely, cannot be guaranteed under a voluntary framework such as IPEF.

For example, recent developments reported by Nikkei Asia reveal that the Supply Chain Crisis Response Network, led by South Korea and vice-chaired by Japan, is planning significant measures to bolster the resilience of supply chains in the Indo-Pacific region. While the leadership roles assumed by South Korea and Japan are commendable, they do not eliminate the necessity for IPEF to establish more robust, enforceable frameworks to effectively support and integrate such efforts across member states. Certainly, the initiative aligns with the objectives of the IPEF’s supply chain resilience pillar, but it also underscores the essential need for binding commitments and coordinated strategies, as voluntary measures often fall short of addressing complex issues.

Lastly, the absence of a centralised governance structure, such as an overarching IPEF Committee to which all pillar-level bodies report, means that deliberations at each pillar are likely conducted in isolation, which could lead to disjointed efforts and reduced efficiency. This institutional fragmentation undermines the coherence of the pillars’ implementation, as there is no singular authority to coordinate and streamline the actions of these diverse bodies.

The problematic trade pillar: Economic growth without market access?

The Trump factor: Potential withdrawal and its implications

A voluntary framework, like the IPEF, reduces compliance burdens but risks low participation and limited impact. To enhance the IPEF’s effectiveness, a phased approach towards mandatory participation could be considered. This might involve starting with key sectors, such as supply chain and clean economy, before expanding to other areas. Lessons can be drawn from other frameworks, such as Singapore’s Progressive Wage Model, which initially operated on a voluntary basis before transitioning to mandatory compliance, resulting in increased participation and effectiveness.

Second, in order to address the institutional fragmentation within IPEF and enhance its overall effectiveness, establishing a centralised IPEF Committee is crucial. This committee would serve as the primary coordinating body, overseeing and integrating the efforts of all specialised entities, such as the Supply Chain Council, the Labour Rights Advisory Board and the Clean Economy Committee. Additionally, it would streamline communication channels, facilitating better information sharing and cooperation among member states. The committee could also establish a comprehensive system for monitoring and evaluation, enabling timely interventions and adjustments as needed. This centralised governance structure would not only reduce inefficiencies and prevent isolated efforts but also foster a stronger collective commitment to the IPEF’s objectives, thereby enhancing the framework’s ability to achieve its ambitious goals for economic cooperation and development in the Indo-Pacific region.

Thirdly, during the transition of the IPEF from a voluntary framework to a mandatory one, the introduction of a peer review mechanism, similar to that practised in the Asia-Pacific Economic Cooperation (Apec) forum, could significantly enhance enforceability and accountability. This mechanism would involve member states reviewing each other’s compliance with agreed standards and practices, fostering transparency and mutual accountability. Such a system would encourage member states to adhere to their commitments, thereby strengthening the overall integrity and effectiveness of the IPEF.

IPEF presents a significant opportunity to enhance economic cooperation and resilience in the Indo-Pacific region. However, its success hinges on addressing critical design and implementation challenges. The framework’s reliance on voluntary commitments, coupled with the absence of legally binding disciplines and enforceable mechanisms, raises concerns about IPEF’s long-term effectiveness and sustainability.

As the regional economic landscape evolves, it is crucial for IPEF to adapt accordingly. A practical starting point could be the introduction of an Apec-like peer review mechanism to ensure greater accountability and compliance among member states. Additionally, the framework should explore the possibility of transitioning towards a more mandatory structure, incorporating binding commitments to strengthen enforcement.

Establishing a centralised IPEF Committee would also enhance coordination and coherence across the framework’s diverse bodies, facilitating more effective implementation of its ambitious goals. Moreover, the potential risk of the US withdrawing from IPEF under a Trump presidency highlights the need for the framework to build resilience and adaptability into its structure, ensuring that it remains robust and functional despite political uncertainties.