INDO-PACIFIC ECONOMIC FRAMEWORK FOR PROSPERITY – IS VIETNAM IN?
On May 23rd 2022, on his visit to Japan, US President Joe Biden launched discussions on a new economic cooperation initiative, named the Indo-Pacific Economic Framework for Prosperity (“IPEF”). The formal rollout of the IPEF was held in a hybrid format in Tokyo. Subsequently, Fiji expressed their wish to join this framework, bringing total membership to 14. This is considered the US plan to ensure and increase its influence in the Indo-Pacific region after the US withdrew from the Trans-Pacific Partnership (or CPTPP) at the beginning of 2017. With this new economic framework, Vietnam and other countries hope to strengthen and develop the digital economy, improve competitiveness, and adapt sustainably to bring prosperity to the country and the region.
1. What is IPEF?
IPEF is a U.S.-led framework for participating countries to solidify their relationships, engage in crucial economic and trade matters that concern the region, such as building resilient supply chains battered by the pandemic.
IPEF is built to be an “open platform”, which does not require member states to remove trade barriers for other member, and thus does not require parliamentary ratify to participate.
In addition, members can choose to engage in some or all of the four pillars that they consider appropriate to the country’s development goals. Arguably this is a completely new economic framework and different from the free trade agreements. According to National Security Advisor Jake Sullivan, this will be the United States’ first economic negotiation.
2. Why did the US come up with this initiative?
To make up for its withdrawal from TPP (or CPTPP), on 12th January 2021, the US Strategic Framework for the Indo-Pacific was published, because “US security and prosperity depend on free and open access to the Indo-Pacific region”. In the official US document on this Strategy, the US plan is to build a strategy to contain China’s influence in the region, strengthen links with allies, and promote cooperation with Asian countries as well as emphasize the central role of ASEAN in the regional security architecture2. The initial members from the Indo-Pacific region represent around 60% of the world’s population and 40% of global GDP, over the next 30 years, the Indo-Pacific region is expected to be the largest contributor to world growth3. Thus, if IPEF is successfully negotiated, this will benefit not only the region but the whole world. Participating countries, especially ASEAN, all look to the US for investment in trade and economy and vice versa, the Indo-Pacific is also strategically important to the US4.
3. Differences between IPEF and CPTPP, RCEP5
CPTPP and RCEP are Free Trade Agreements (“FTA”), which means their purpose is to remove trade barriers or tariff reductions, but not IPEF.
It’s called “framework” because the purpose of this initiative is to focus on cooperation between countries, to strengthen the cooperation in many areas other than commercial commitments in a traditional FTA, specifically including 4 pillars6:
- Connected Economy, which covers fair and resilient trade topics including the seven sub-topics of labor, environment and climate, digital economy, agriculture, transparency and good regulatory practices, competition policy, and trade facilitation;
- Resilient Economy, which covers supply chain resilience topics;
- Clean Economy, which covers infrastructure, clean energy, and decarbonization topics; and
- Fair Economy, which covers tax and anti-corruption topics;
The pillars of IPEF are economic but do not propose to promote globalization. The main purpose of IPEF is to exploit other aspects of economy to strengthen supply chains, build and develop a clean and fair economy.
Thus, IPEF will not help the members increase exports to the US as they expect. Instead, it is hoped that this framework will help countries link together in a new way of cooperation, rather than simply exporting goods.
4. Benefit of Vietnam participating in IPEF.
The IPEF will be the third major trade pact with the participant of Vietnam, Australia, and New Zealand aside from CPTPP and RCEP. Participating in a framework with many new fields will strengthen the relationship between countries. However, it will also cause difficulties when discussing areas that already exist in previous agreements.
IPEF creates a framework for countries to collaborate and establish common ground. Four pillars of IPEF shape the key economic sectors into a sustainable and competitive future. This is in line with Vietnam’s economic development orientation.
5. Standpoint of Vietnam with IEPF7
Vietnam only participated in starting the discussion process to understand IPEF. We will have to wait for more specific details to determine what role IPEF will play in the relationship between the US and the 13 partner countries under this framework.