US unveils 13-nation economic pact to assert Asia leadership; seven South-East Asian countries included


US Secretary of State Antony Blinken and Japan's Foreign Minister Yoshimasa Hayashi speaking during the Japan-US Foreign Ministers Meeting at Happo-en in Tokyo, Japan on Monday, May 23, 2022. - Reuters

JAKARTA/TOKYO, May 23 (Bloomberg): The Biden administration announced that a dozen Indo-Pacific countries will join the US in a sweeping economic initiative designed to counter China’s influence in the region, even as questions remain about its effectiveness.

Altogether the nations involved in the Indo-Pacific Economic Framework, or IPEF, constitute roughly 40% of global gross domestic product, according to the White House, which has touted its launch as a marquee accomplishment of President Joe Biden’s first trip to Asia.

Australia, India, Japan, South Korea and New Zealand were included, along with seven South-East Asian countries - Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

"The United States is deeply invested in the Indo-Pacific,” Biden said Monday at an event in Tokyo launching the partnership. "We’re committed for the long haul.”

The framework is the most significant US effort to engage Asia on economic matters since former President Donald Trump in 2017 withdrew from the Trans-Pacific Partnership agreement negotiated under the Obama administration.

But unlike that trade deal, the new framework doesn’t include any tariff reductions and it’s unclear which parts are binding, making it hard to quantify the economic benefits.

"This framework is intended to advance resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness for our economies,” the countries said in a joint statement. "Through this initiative, we aim to contribute to cooperation, stability, prosperity, development, and peace within the region.”

Democrats and Republicans in Congress have questioned the initiative because it doesn’t include a goal of negotiating mutual tariff reductions to make US exports cheaper for consumers in foreign markets, a typical objective of past trade negotiations.

Under the framework, participants will be asked to make "high-standard commitments” in at least one of four areas: trade, supply chains, clean energy and fairness.

Asked on Sunday if Congress will need to approve the agreements, US Trade Representative Katherine Tai was non-committal.

"Let’s see where the discussions go, but along the way -- regardless -- we have to keep Congress close and Congress needs to be a part of shaping what we do with our partners here,” Tai said.

At a March Senate hearing, she disagreed with the criticism the IPEF isn’t sufficiently ambitious, saying that it will include innovative elements that people will appreciate with time.

US National Security Adviser Jake Sullivan on Sunday said the 13 founding countries would develop criteria for other members to join, including potentially China.

China Not Invited

"I want to be clear that the framework will be open to others who wish to join in the future -- if they sign up and meet the goals and work to achieve those goals,” Biden said Monday.

A senior administration official said the US didn’t invite China to join the framework, partly because it will be based on a set of standards the White House believes Beijing would have a hard time meeting.

The US selected the initial group out of a desire to reach beyond countries that have deep economic ties with America, while also ensuring they can agree to at least one of the pillars, the official said.

The US official said the timeline for reaching substantive commitments -- both binding and non-binding -- will be shorter than traditional trade negotiations that include tariff reductions.

The US hopes to know which countries will participate in each of the four pillars by mid-June, and aims to have substantive commitments in about 12 to 18 months, the official said.

Many countries in the region are reluctant to sign up to any agreement that doesn’t include China, which is the largest trading partner for most governments.

The US offer to keep the framework open to China had been demanded in particular by countries in South-East Asia. Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam ended up participating in the framework.

"It’s important for the US and the Asean countries to have a place to positively and cooperatively hold discussions to achieve concrete results,” Japanese Prime Minister Fumio Kishida said Monday during a joint briefing when asked about criticism of the IPEF. "Through those efforts we can bring about concrete benefits.”

China has repeatedly accused the US of seeking to contain its rise by forming economic and military alliances in the region. On Sunday, Foreign Minister Wang Yi said the US’s Indo-Pacific strategy was "doomed to fail.”

‘Destroying Peace’

"Facts will prove that the so-called ‘Indo-Pacific strategy’ is essentially a strategy for creating divisions, a strategy for inciting confrontation, and a strategy for destroying peace,” the Chinese Foreign Ministry said in a statement on Sunday.

The nations included in IPEF represent $34.7 trillion in global output, or about 41% of global production, compared with $31.7 trillion for TPP members, according to Bloomberg calculations. Trade with the region supports more than three million American jobs, according to the White House.

The biggest economies in IPEF include Japan and India, which are also both members of the Quad group of nations in addition to Australia. Biden plans to meet Tuesday with Indian Prime Minister Narendra Modi in Tokyo as part of a summit of the Quad, a group designed to counter China’s growing economic and military might in the region.

Hard Decisions

The US didn’t invite Taiwan to join the framework, even after more than 50 senators wrote to Biden urging him to include the government in Taipei. Tensions have recently increased over Taiwan, which has long been the biggest potential military flashpoint between the US and China.

US businesses welcomed the effort to take a leadership role in the region and see the potential for real economic gains down the road, according to Jake Colvin, president of the Washington-based National Foreign Trade Council, a business group that advocates for open and rules-based trade.

"Obviously the best outcome is a high-standard initiative with as many countries in the region as possible,” he said. "But, at some point, hard decisions will have to be made about who is sitting around the table and how big of a meal they’re eating.” - Bloomberg

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