Indo-Pacific Economic Framework for Prosperity (IPEF)

Indo-Pacific Economic Framework for Prosperity (IPEF)

Updated July 22, 2024
Indo-Pacific Economic Framework for Prosperity (IPEF)
In May 2022, the United States and 13 partners launched
welcomed U.S. reengagement in the region and see IPEF’s
the Indo-Pacific Economic Framework for Prosperity
potential benefits to include provisions on trade facilitation,
(IPEF), the Biden Administration’s first major trade and
digital trade, and support for investments and public-private
economic initiative in the region. Partner countries are
partnerships in key sectors. At the same time, some are also
Australia, Brunei, Fiji, India, Indonesia, Japan, Malaysia,
concerned over the lack of market access/tariff provisions.
New Zealand, the Philippines, Singapore, South Korea,
USTR Katherine Tai has framed IPEF as a new model that
Thailand, and Vietnam. The initiative is not designed as a
is better designed to address “21st century” trade issues and
traditional comprehensive U.S. free trade agreement (FTA).
to advance “worker-centered” policies and global economic
IPEF aims to establish “high-standard commitments” in
resilience. Tai views past U.S. FTAs, centered on market
four pillars: (1) Connected Economy (selected trade issues);
access and tariffs, as “20th century tools” that benefited
(2) Resilient Economy (supply chains); (3) Clean Economy
some sectors while harming others and contributed to
(clean energy, decarbonization, infrastructure); and (4) Fair
vulnerable supply chains. Economic studies have generally
Economy (tax, anti-corruption issues). The U.S. Trade
found that trade liberalization supports economic growth,
Representative (USTR) is leading the trade pillar talks, and
and the economy-wide gains generally exceed adjustment
the Commerce Secretary is leading the remaining pillars.
costs for certain sectors and regions. Some observers argue
All partners opted to participate in all IPEF pillars, except
that omitting traditional FTA provisions may limit IPEF’s
for India, which opted out of the trade pillar. IPEF partners
economic significance, remove incentives for countries to
have reached agreements in all pillars except for trade.
agree to provisions (e.g., labor standards) sought by the
Some Members of Congress and stakeholders support IPEF
United States, and disadvantage U.S. firms abroad. U.S.
as an opportunity for the United States to reassert a leading
officials counter that aspects of IPEF center on facilitating
role in establishing updated trade and economic rules with
trade and market access, e.g., addressing nontariff barriers.
key partners, and to support broader strategic aims in the
U.S.-IPEF Partner Trade Ties
region. Others question IPEF’s durability and potential to
IPEF partners, which represent 40% of global GDP, are
deepen economic linkages given the lack of commitments
diverse in size and economic development. In 2023, Japan,
on market access, notably on tariffs, a central component of
South Korea, and India were in the top 10 U.S. trading
past U.S. FTAs. At the same time, some stakeholders
partners; U.S.-Vietnam trade has grown by more than 400%
support IPEF’s targeted agenda and approach as innovative
in the past decade. IPEF partners accounted for nearly one-
and relevant in addressing issues not typically covered in
fifth of both U.S. goods and services trade. In 2022, they
FTAs, like supply chain resiliency. The Administration has
accounted for 11% of U.S. direct investment abroad (stock)
not committed to submit executive agreements resulting
and 18% of foreign investment in the United States.
from IPEF for congressional approval. Given Congress’s
constitutional authority to regulate foreign commerce, the
Figure 1. U.S. Trade with IPEF Partners, 2023
negotiating approach has raised concerns for Members in
both the House and Senate over Congress’s role in IPEF.
Context and Rationale for IPEF
IPEF appears to be the Administration’s response to urging
from policymakers and stakeholders for a more robust U.S.
economic and trade strategy in the Indo-Pacific region,
which many perceive as lagging behind its military
engagement. This view solidified after the U.S. withdrawal
from the Trans-Pacific Partnership (TPP) in 2017 and
nonmembership in TPP’s successor, the Comprehensive
and Progressive Agreement for Trans-Pacific Partnership
(CPTPP). Many have argued that such decisions have
limited the U.S. ability to shape regional rules and counter
China’s economic influence. Others supported U.S. TPP
withdrawal and are wary of the IPEF trade pillar as a
potential stepping-stone to rejoining. Although U.S.-Indo-

Pacific trade has steadily increased in the past decade,
Source: CRS, data from U.S. Bureau of Economic Analysis.
countries have become even more reliant on trade with
China. In 2020, 14 Asian countries and China formed the
IPEF Structure and Outcomes
Regional Comprehensive Economic Partnership (RCEP);
Unlike typical FTA talks, IPEF does not involve a “single
China has also requested to join CPTPP. IPEF partners have
undertaking,” i.e., IPEF partners may conclude agreements
separately rather than waiting to finalize all elements of a
https://crsreports.congress.gov

Indo-Pacific Economic Framework for Prosperity (IPEF)
comprehensive deal. IPEF commitments will not be subject
outstanding issues. Some analysts are skeptical of progress
to dispute settlement akin to FTAs, but may involve select
in 2024 due to the political climate ahead of U.S. elections.
monitoring mechanisms. IPEF outcomes to date include
Issues for Congress
• IPEF Supply Chain Agreement—entered into force in
Members may seek to influence or enhance oversight over
February 2024. Lauded by partners as “the first of its
IPEF via hearings and legislation on IPEF core issues or
kind,” the deal establishes three new bodies: the Supply
negotiating procedures. In addition, the outcome of the U.S.
Chain Council to enhance collaboration on building
presidential election could affect IPEF negotiations,
resilience in critical sectors; the Supply Chain Crisis
implementation, and impact. Key issues include
Response Network to coordinate during crises/supply
chain disruptions; and the Labor Rights Advisory Board
Congress’s Role? Pursuit of IPEF as executive agreements
to address labor concerns in supply chains. The deal
raises questions for Congress’s role in trade policy.
creates a mechanism for addressing allegations of “labor
Congress has typically set procedures and requirements for
rights inconsistencies” at facilities in an IPEF country.
trade agreements in Trade Promotion Authority (TPA) and
New initiatives announced separately (e.g., IPEF
authorized and implemented FTAs through legislation. TPA
Critical Minerals Dialogue) may supplement work under
expired in 2021; the Biden Administration has not sought
the agreement. Observers have supported efforts to
reauthorization. Some Members have asserted Congress’s
expand such regional cooperation, while raising
authority over trade deals like IPEF even if the deals do not
questions over prospects for private sector involvement
cut tariffs or require changes to U.S. law. They urged robust
and how provisions will be implemented. In June 2024,
consultation and transparency with Congress on how IPEF
the Commerce Department issued a request for public
agreements are approved and implemented. Others also
comments on the critical sectors and goods to be
question if future U.S. administrations will abide by IPEF
prioritized by the IPEF Supply Chain Council, and on
deals compared with deals approved by Congress. U.S.
the U.S. government supply chain risk assessment tool.
IPEF negotiators said their agencies have focused on
• IPEF Clean Economy Agreement—signed June 2024.
“relevant executive branch authorities,” including authority
The deal seeks to support countries’ green energy
delegated by Congress to USTR “to defend and promote
transitions through enhanced cooperation on innovation
U.S. interests through the negotiation of trade agreements.”
and investments in clean energy and climate-friendly
Members might consider asserting Congress’s role in IPEF,
technologies. Partners established a new capital fund,
such as in P.L. 118-13, which set conditions for approval of
administered by a private sector entity, to pool resources
agreements under the U.S.-Taiwan trade initiative.
and an annual investor forum to mobilize financing for
New Model for Trade Engagement? USTR’s framing of
climate projects. At the inaugural investor forum in June
IPEF as a potential new model for U.S. trade engagement—
2024, 22 U.S. firms participated, and IPEF partners
also reflected in concurrent U.S. trade initiatives with
identified priority projects worth $23 billion.
•
Taiwan and Latin American countries—presents issues for
IPEF Fair Economy Agreement—signed June 2024. It
Congress, such as IPEF’s scope and comparison to past
aims to “level the playing field” through enhanced
U.S. FTAs; the need for and impact of tariff/market access
fairness, inclusiveness, transparency, rule of law, and
provisions; and merits of cooperative versus binding
accountability in the partners’ economies. Efforts
commitments. A related question is how IPEF builds on or
involve combatting corruption and tax evasion, and
departs from USMCA precedents in areas like digital trade
enhancing transparency and information exchange. The
and labor. Some Members urge using USMCA as a model
deal includes dedicated capacity-building measures,
for new U.S. trade deals, while others support new
which Commerce has framed as integral to helping IPEF
approaches. The U.S. rethink of negotiating positions in
partners meet the agreement’s standards.
•
digital trade and uncertain prospects for an IPEF trade
Agreement on the IPEF—signed June 2024. It creates
outcome could affect whether IPEF serves as a template.
an IPEF Council and Joint Commission to meet
annually and facilitate the collective operation of IPEF
Complement or Counterpoint to Other FTAs? IPEF has
agreements, including the possibility of new members.
advanced as other FTAs covering major Indo-Pacific trade
partners have entered into force without U.S. participation.
Countries have been unable to reach an agreement in the
These deals lower tariffs and trade barriers and may
trade pillar, which covers labor, environment, digital
consolidate regional supply chains through common rules,
economy, agriculture, competition policy, regulatory
excluding U.S. exporters from these benefits. These FTAs
practices, trade facilitation, inclusivity, and economic
may also conflict with U.S. standards or FTA rules, thus
cooperation/technical assistance. Several of these issues are
diminishing U.S. competitiveness. The relative significance
typical chapters of recent FTAs like the 2020 U.S.-Mexico-
of CPTPP would grow with new members. Some experts
Canada Agreement (USMCA). Trade talks stalled amid
see IPEF as important to reasserting U.S. influence and
differences over the digital economy and labor provisions
ensuring U.S. priorities inform regional rules. Others view
among IPEF partners as well as among U.S. policymakers
IPEF as a constructive step but not a substitute to a
and stakeholders. Some stakeholders had viewed digital
comprehensive trade deal. Congress may debate whether
trade in particular as a promising area. In November 2023,
IPEF is an effective alternative to other deals and whether
USTR paused the IPEF digital trade talks, citing the need
the United States should negotiate FTAs like CPTPP.
for domestic “policy space” and internal consultations on
sensitive areas like data flows. The move prompted
Cathleen D. Cimino-Isaacs, Specialist in International
reactions of both support and frustration from Members.
Trade and Finance
IPEF partners have stated that they will continue work on
https://crsreports.congress.gov

Indo-Pacific Economic Framework for Prosperity (IPEF)

Mark E. Manyin, Specialist in Asian Affairs
Kyla H. Kitamura, Analyst in International Trade and
IF12373
Finance

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https://crsreports.congress.gov | IF12373 · VERSION 10 · UPDATED