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IPEF: Are we on the same page?

Jakarta Post Editorial - November 20, 2023

Jakarta – Much has been made of the failure to achieve a breakthrough in the Indo-Pacific Economic Framework (IPEF) negotiations held during the Asia-Pacific Economic Cooperation (APEC) summit in San Francisco, the United States, last week.

Given the IPEF's limited scope, however, not much may have been lost when the 14 countries currently signed onto the initiative agreed to disagree.

That is because the trade pillar, as the stand-out among the four IPEF pillars, does not live up to its name.

Since its conception last year, the IPEF has never been aimed at improving market access and reducing tariffs, but those are the very things Indonesia and other ASEAN countries require.

There is widespread agreement that, for Washington, the thrust of the IPEF is to counter China's growing influence in the Asia-Pacific region.

At least some IPEF member countries should be sympathetic to that idea, in as much as they wish to avoid excessive dependence on either of the world's largest economies. Indonesia with its "free and active" foreign policy doctrine is among those countries.

However, the IPEF is ill-designed to serve that purpose, because without a free-trade component, it cannot do much to increase the US' clout in Asia.

The IPEF lacks the appeal of the already-implemented Regional Comprehensive Economic Partnership (RCEP).

Not only is the RCEP the largest trade block in the world, but unlike the IPEF, it comes with liberalization, not political gamesmanship, at its core. It aims to eliminate discriminatory measures that inhibit the cross-border flow of goods and services – the very essence of a free-trade agreement.

Often wrongly portrayed today as a China-led initiative, the RCEP is based on a Japanese proposal that was picked up at the 2011 ASEAN Summit in Bali.

The fact that it includes countries that often stand on different sides in global affairs, such as Australia and China, reflects its nonpolitical character. Despite this, the current US administration has shown no interest in joining.

Indonesia and other Asian economies would welcome a similarly pragmatic offer for a trade block that includes the US, but they are not seeing that in the IPEF. With its focus on "supply chain resilience", diplomatic jargon for "keep China out", Washington's trade concept is deeply political.

Compare that to Indonesia's plan for the IPEF, which is defined on the Foreign Ministry's website as "an inclusive economic framework to realize an Indo-Pacific that is open, free, safe and resilient."

When the IPEF process was formally launched in May last year, then-trade minister Muhammad Lutfi, as quoted from the Cabinet Secretariat website, asserted that "the IPEF must be inclusive and open to all countries in the Indo-Pacific region so that it will bring long-term positive impacts," and that the "Indo-Pacific region is too large if the benefits are only enjoyed by certain countries."

Are Washington and Jakarta talking about the same IPEF?

Aside from being imbued with geopolitics, the US plan for the IPEF comes without general market access to the US. Granting such access is a hot potato on Capitol Hill, but without it, the IPEF will be deemed meaningless in many ASEAN capitals, as it appears to include few rights but many responsibilities.

Coordinating Economic Minister Airlangga Hartarto said in March that there were "great hopes for the IPEF to provide real benefits for businesses, consumers, investors and workers throughout the Indo-Pacific region," but without US market access, those hopes are dashed.

The administration of Joe Biden, like that of Trump preceding it, prefers bilateral arrangements that keep all options open for it to curb trade whenever and wherever it sees fit, such as with semiconductor exports to China.

Such a transactional approach is unappealing to Asian economies looking for dependable, long-term trade relations that cannot simply revoked by a future US administration for political reasons.

It is safe to conclude that, with the IPEF, we are not on the same page.

Source: https://www.thejakartapost.com/opinion/2023/11/20/ipef-are-we-on-the-same-page.htm