Understanding the IPEF and how it thwarts China’s influence: QuickTake

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First, the United States withdrew in 2017 from a pan-Pacific trade agreement known as the TPP, which moved forward without it under the new moniker CPTPP. Then the United States stood aside as another regional grouping led by China, called RCEP, came into effect this year. Now, China is watching the United States warily as it seeks to form its own regional club, dubbed the Indo-Pacific Economic Framework. Questions remain about what the IPEF would actually do and how it and the trade deals will impact U.S. and Chinese efforts to boost their influence — and their business — across Asia.

This is key to US President Joe Biden’s efforts to counter China’s influence in Asia in the economic sphere by partnering with other countries. (Other regional groups to which the United States belongs, such as the Quad, focus on security.) IPEF is built on four pillars: supply chain resilience; clean energy, decarbonization and infrastructure; taxation and the fight against corruption; and fair and resilient trade. The Biden administration has also worked to include digital issues such as location and cross-border data flows. But the details are hazy, and the administration has stressed it won’t include lower fares or better access to U.S. markets. “Through this initiative, we aim to contribute to cooperation, stability, prosperity, development and peace in the region,” the countries said in a joint statement announcing the IPEF.

In addition to the United States, the “initial partners” are Australia, Brunei, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand and Vietnam. US National Security Advisor Jake Sullivan said on May 22 that Taiwan “will not be part of the launch.” The Taiwanese Foreign Ministry expressed regret over the comment. (China considers the democratically-run island part of its territory.) China is also not a party to the new grouping.

3. Does Biden have domestic support?

Some members of Congress have criticized the IPEF as lacking in substance, with senators from both parties slamming Biden’s trade agenda during a hearing in March and questioning U.S. Trade Representative Katherine Tai over a lack of ambition to negotiate new agreements. The head of the U.S. Chamber of Commerce, the largest U.S. lobbying group, also issued a scathing critique of Biden’s trade policy in May, saying the administration was “devoured by caution and internal reviews.”

4. How did China react?

Chinese Foreign Minister Wang Yi called the US effort “doomed to fail”. In a May 22 statement, the ministry said that the strategy “comes under the banner of ‘freedom and openness,’ but it is keen to unite and create ‘small circles'” to attempt to contain China.

5. What happened to RCEP?

What began in 2012 as a routine harmonization of agreements between members of the Association of Southeast Asian Nations, or ASEAN, is now – with the inclusion of China – the largest bloc of world free trade. The Regional Comprehensive Economic Partnership, to give its full name, came into effect on January 1. Broadly speaking, it aims to reduce tariffs and other barriers to trade in goods between the 16 countries that were or had trade agreements with ASEAN. That figure fell to 15 after India pulled out in 2019, saying it wanted to protect service workers and farmers. There were also fears that the country could be flooded with cheaper products from China. The United States was not deliberately excluded from RCEP; it would first have to conclude a free trade agreement with ASEAN, and then apply to join it. Meanwhile, the deal firmly underlines China’s dominance in trade in the region. China has sought to integrate more with its neighbors as former US President Donald Trump urged them to avoid Chinese infrastructure loans and 5G technology.

6. How does RCEP compare to TPP or IPEF?

Unlike the TPP, or Trans-Pacific Partnership, and other U.S.-led trade agreements, RCEP does not require its members to take steps to liberalize their economies and protect labor rights, labor standards environmental and intellectual property. Wilbur Ross, who was Trump’s Commerce Secretary, called RCEP a “very low-level treaty” that lacks the reach of the TPP. But the implementation of RCEP illustrates America’s diminished influence and could make it more difficult for American companies to compete in the vast region. We don’t yet know enough about IPEF to judge how it will ultimately compare.

7. What happened to the TPP?

It became the CPTPP, or Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Signed in March 2018, by the end of last year it had entered into force for eight of the 11 signatories. They decided to continue after Trump pulled out, saying he wanted better bilateral deals. The UK applied for membership last year, as did China and Taiwan.

More stories like this are available at bloomberg.com

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