Tue. Apr 16th, 2024

The White House said Monday that it had reached an agreement with a dozen Indo-Pacific nations to participate in negotiations on President Joe Biden’s signature economic initiative in the region after scrambling to sell trading partners on the proposal.

Biden formally launched the Indo-Pacific Economic Framework on Monday during his visit to Tokyo. The unconventional trade arrangement is a cornerstone of his strategy for deepening U.S. ties in Asia, a region that administration officials consider critical to countering China as an economic and national security rival.

India, Vietnam, Indonesia, Thailand, Brunei and the Philippines have agreed to take part in the framework negotiations after expressing some hesitation. They will join Japan, South Korea, Australia, New Zealand, Singapore and Malaysia, which were among the first countries the Biden administration started engaging last year.

Trade observers say luring so many countries to the negotiating table required the administration to water down the initial commitment it was seeking from prospective participants and, as the Financial Times reported, make last-minute changes to a shared statement.

Pledging to raise certain standards upfront was a “high bar for a lot of countries” and the administration chose to “lower the bar for initial entry into the IPEF so that they can pull as many countries in as possible,” said Matthew Goodman, senior vice president of economics at the Center for Strategic and International Studies.

“In recent weeks, the push to attract more participants has become the major focus of the administration and in order to do so, they have been willing to scale back on what they’re actually asking these countries to do,” added Wendy Cutler, the vice president at the Asia Society Policy Institute and a former negotiator in the Office of the U.S. Trade Representative.

Top trade officials have long said they aimed to launch the framework with backing from a broad array of countries, but administration officials refuted reports that the framework and its launch were diluted in order to do so.

“There are free trade traditionalists who have raised questions about” the framework, said Jake Sullivan, Biden’s national security adviser. “Our fundamental view is that the new landscape and the new challenges we face need a new approach, and we will shape the substance of this effort together with our partners.”

What comes next: The 12 participants announced Monday are essentially pledging to continue the conversation, signing onto a declaration to move forward with negotiations in the four areas that the Indo-Pacific Economic Framework is designed to address: digital trade and trade facilitation, clean energy and decarbonization, supply chain resilience, and anti-corruption and taxes.

The countries are not yet declaring which of those four “pillars” they intend to participate in. Those decisions will be made over the next several weeks, administration officials said. They are also not yet agreeing to adopt new rules or meet minimum standards in thorny areas like labor, the environment or tech regulation.

The Indo-Pacific Economic Framework will not lower tariffs or contain the other market access provisions typically found in a free trade agreement, which has caused some industry groups and free trade advocates to doubt whether it will motivate countries to agree to regulatory changes.

“I haven’t yet been able to answer the question: What are some of the developing countries getting out of it?” said Charles Freeman, the senior vice president for Asia at the U.S. Chamber of Commerce. “And so, it remains to be seen how far they can take this without a whole lot of carrots.”

But administration officials say the framework is intentionally designed to look beyond the typical parameters of a trade agreement and address other barriers that drive up costs, such as fractured supply chains and outdated infrastructure, as well as emerging economic challenges, such as the transition to a digital and clean energy economy.

“This has never been done before in terms of the ambition and inclusivity across a broad range of regional partners, and I’m confident that there will be benefits for U.S. businesses,” said Commerce Secretary Gina Raimondo. “And I would say, especially as businesses are beginning to increasingly look for alternatives to China, the countries in the Indo-Pacific framework will be more reliable partners for U.S. businesses.”

Still, some trading partners want the U.S. to eventually address market access.

“Even though [IPEF] does not contain a lot of things we’d like to see, we are going to try and do everything that we can to make this a success,” said one foreign diplomat, who declined to be named to speak candidly. “And hopefully it can be a stepping stone to something else.”

Who’s in, who’s out: The foreign diplomat described the mix of countries as “head turning” and credited the Biden administration’s hustle in pressing countries to join the talks. Indeed, the relatively long list of participants should quiet some doubts that the White House would be unable to get countries interested in a pact that does not contain market access provisions.

“The United States is going to be a partner of choice on all of the elements of this framework, even setting aside the question of traditional tariff liberalization,” Sullivan said. “And so we think we bring a huge amount to the table. And we think that proposition has been validated by the fact that we’ve gotten such an overwhelming and broad-scale response.”

Another senior administration official, who spoke anonymously to reporters, said “there’s just an enormous appetite in the region … to partner more closely with the United States around an economic framework that presents an alternative to the approach that China is taking in the region.”

Notably missing from the list of participants is Taiwan, which has made clear for months that it wants to be a “full member” of the framework. But including Taiwan in the framework would have angered China, which considers the self-governing island part of the mainland, and potentially spooked countries more sensitive to Beijing.

Nevertheless, Taipei’s exclusion means one of the U.S.’s top trading partners in Asia, and a key source of much-needed semiconductors, will not be part of the initial discussions.

“We intend to pursue a deeper bilateral engagement with Taiwan on trade and economic matters in the coming days and weeks,” Sullivan said. “And we think that that track can help strengthen both of our economies, while we’re also pursuing IPEF with the countries that we listed.”

Still, a number of U.S. lawmakers will be displeased with Taiwan’s exclusion. In a letter to Biden last week, more than half the Senate argued that adding Taiwan to the framework was in the U.S.’s economic interests and would make clear to China that the world will engage directly with Taipei.

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