Malaysia’s Interests in the IPEF: Managing Trade Frictions and Restoring Market Access

To re-engage economically with the Indo-Pacific region, United States (US) President Biden
launched the Indo-Pacific Economic Framework for Prosperity (IPEF) in May 2022. For Malaysia,
the IPEF could help restore market access to the US by relaxing Withhold Release Orders (WROs)
that ban exports of companies facing forced labour allegations. Malaysia also expects that the
ease and frequency with which trade sanctions are applied in the future will be better managed as
a result of the IPEF. These potential benefits of the IPEF need to be weighed against a worst case
scenario where the creation of the IPEF further fuels US-China tensions. Another problem is that
the IPEF without China is almost economically meaningless to countries with China-centred supply
chains like Malaysia. Worse than that, any potential benefits could be more than offset if it fuels
US-China tensions leading to actions that further disrupt supply chains and trade.

IPEF: An Indian Perspective

Twelve months after the launch of the Indo-Pacific Economic Framework for Prosperity (IPEF), it
has achieved “substantial conclusion of the negotiations of a first-of-its-kind international IPEF
Supply Chain Agreement”, in one of its four Pillars. The remaining three Pillars are Trade, Clean
Economy and Fair Economy (taxation/anti-corruption). Significant progress on each of these
remaining Pillars has also been announced, raising the expectation of conclusions by the end of
this year.

This paper reflects on what the IPEF means for India. The structure of the paper is as follows: the
first part traces the principal drivers for engagement in the IPEF, both from the United States (US)
and the Indian perspectives; the second part identifies some of the key challenges for negotiation,
anticipated outcomes as well as implementation challenges for India across its four Pillars, while
dwelling deeper into the Supply Chain Pillar, which has seen substantial conclusion; the third part
is the concluding section for assessing the future evolution of the IPEF.

Indo-Pacific Economic Framework: Negotiating and Implementation Challenges for the US

As the Indo-Pacific Economic Framework (IPEF) negotiations intensify, significant challenges await
the United States (US), both in successfully concluding an agreement that achieves US objectives,
as well as ensuring successful implementation of the agreement once concluded. Complicated
negotiating dynamics will deny the US important leverage that it has used in the past to get
trade agreements over the finish line. Unique institutional features of the agreement call into
question whether some objectives can be achieved and enforced. Divergent domestic interests on
some issues will require US negotiators to walk a tightrope between energetic and diametrically
opposed domestic constituencies. The IPEF is freighted with heavy geopolitical baggage which
could complicate negotiations. The unorthodox use of Executive Orders (EOs) to effectuate the
agreement will raise several significant implementation challenges of which the IPEF partners
should take clear note. Ultimately, the most important impact of the IPEF could lie far beyond the
Indo-Pacific. The IPEF could be an important bellwether for how US-European Union (EU) trade
relations are handled in this post-Free Trade Agreements (FTA), post-World Trade Organization
(WTO) world.

Impact of regional trade agreements on the IPEF

The Indo-Pacific Economic Framework (IPEF) seeks to establish the United States (US) as the primary
rule-setter in the Asia Pacific (APAC), a position it has ceded to China in recent years. The reciprocal
benefits for the APAC are not so evident. Many in the region are not keen to choose sides and as
a trade pact, it compares poorly with the Regional Comprehensive Economic Partnership (RCEP)
and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). On its
side, the IPEF has reminded detractors that it is not a traditional Free-Trade Agreement (FTA), but
a new generation economic agreement. This has some appeal and the APAC allies have signed on
quickly. But the IPEF’s flexible approach means that having signed on, there is no compulsion to
follow through. Importantly, for now, there are no clear incentives for the private sector to part
with the sensitive supply chain information that is central to the IPEF’s success. Future negotiations
will benefit from the US’s willingness to sweeten the terms and position IPEF as an economic
arrangement complementing existing trade pacts rather than upending those.

The IPEF: Japan’s Economic Realism and Approachto Indo-Pacific Engagement, Resilience, and Rule-Setting

Japan has wedded its Free and Open Indo-Pacific (FOIP) Vision to various initiatives, including
the Indo-Pacific Economic Framework (IPEF), to embed itself in the regional political economy.
However, several factors such as COVID-19, geopolitics, policy choice, and costs are shaping
Japan’s engagement. The IPEF is an inclusive agenda that sets rules and lays the foundation for the
American-led economic framework, anchoring the United States (US) in the region. It should be
viewed through several initiatives, including the Resilient Supply Chain Initiative (RSCI), Data Free
Flow with Trust (DFFT), and the Japan-European Union (EU) Economic Partnership Agreement (EPA)
amongst others. The Japan-US alliance informs all aspects of the Indo-Pacific engagement, but
Japan has its own nuanced view of the region. Japan seeks to build resilience into the relationship
with China through selective diversification and economic engagement while rejecting zero-sum
approaches, decoupling and containment policies toward the world’s second largest economy. This paper examines Japan’s strategic priorities pertaining to the IPEF, their connection to Japan’s relationship with China and the US, and the actions being taken for successful implementation of the IPEF.

Perspectives on IPEF from Aotearoa New Zealand

This paper articulates the rationale behind New Zealand’s decision to join the Indo-Pacific
Economic Framework for Prosperity (IPEF) based on a study of official documents, publicly
available submissions and other printed materials, as well as conversations with a number of
experts. It discusses the challenges that might be faced in the negotiation process and later in the
implementation of the negotiated agreements. The paper argues that the rationale is not to be
found in the conventional market opportunity (or trade creation) arguments. Instead, it is linked
to opportunities to pursue non-trade and non-economic objectives incorporated in the strategies
put in place by New Zealand in recent years.

Much Ado about Something? Australia’s Views on IPEF’s Prospects

This paper by Peter Draper discusses Australian perspectives on the IPEF’s anticipated outcomes, negotiation challenges and implementation issues. Given that these negotiations are still underway and at an early stage, the material is sourced primarily from internet sources and confidential background interviews with Australian stakeholders. Thereafter, Australia’s participation in the IPEF negotiations is assessed, including a limited case-study on the Pillar 3 – Clean Economy – negotiations. The final section concludes.

The Indo-Pacific Economic Framework for Prosperity (IPEF): Approach, Challenges and Prospects

The Konrad-Adenauer-Stiftung Regional Economic Programme Asia (SOPAS) has collaborated with the NUS Institute of South Asian Studies (ISAS) to produce a series of papers written by esteemed researchers on unique perspectives on the Indo-Pacific Economic Framework for Prosperity (IPEF) from different member nations.

This introductory chapter, written by Amitendu Palit and Ramita Iyer, serves as an entry point to the IPEF Discussion Paper Series and offers an overview of the IPEF’s approach, challenges, and prospects.

The Great Supply Chain Shift from China to South Asia?

Global supply chains connect world industry and international trade in manufactures. East Asia’s dominance with China as the preferred assembly hub in global supply chains has brought unprecedented regional prosperity, but South Asia remains a latecomer. However, pandemic-related and post-pandemic continuing disruptions to supply chains and slowing growth are being keenly felt, dampening China’s attractiveness. In an uncertain global economy, increasingly footloose foreign investors are looking for alternative production locations. Is it South Asia’s turn to prosper through supply chains in this uncertain world? This is the topical public policy question facing India and the others in South Asia.

This paper discusses the concept of global supply chains, the industrial rise of East Asia, drivers of supply chain relocation from China, South Asia’s prospects, India as a complementary hub and policy lessons from East Asia’s industrial success. For the purposes of this paper, South Asia is broadly defined as the India and its contiguous countries: Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.

Japan’s Self-Defense Capability: “Minimum Extent Necessary”

The government and ruling parties proactively worked towards revisions of the three key defense documents, including the National Security Strategy, and these have recently received Cabinet approval. At the time of writing of this paper, Russian aggression against Ukraine, China’s military actions, and North Korea’s intermittent missile launches have had a major impact on the general public’s awareness of national security. Given the current situation, it is reasonable to assume that the security environment around Japan will continue to deteriorate. Japan has long maintained an exclusively defense-oriented policy. Thus, in the event of an armed attack, Japan is constrained to using force to the “minimum extent necessary” beyond proportionality.