▸ The IPEF as a multilateral economic negotiation is marked by distinctive characteristics in terms of its negotiation scope and procedures. The IPEF is slated to announce negotiation results at the Asia-Pacific Economic Cooperation Leaders’ Summit that the U.S. will host in November 2023. 

▸ In the face of the US and China conflict, the Covid-19 pandemic, and Russia’s invasion of Ukraine, the U.S. has come to realize that over-reliance on foreign supply chains poses threats to national and economic security. The U.S. appears to be willing to ensure economic stability and supply chain resilience. So, regulatory reforms are central to the IPEF because the U.S. aims to achieve national economic security by building new supply chains among partner countries with China excluded. 

▸ South Korea needs to adjust its strategy to achieve desired outcomes in IPEF-related negotiations accordingly. South Korea could consider utilizing the IPEF as a platform for building its own economic security by focusing on future technologies-related negotiations such as the digital economy and emerging technology, supply chain resilience, decarbonization, and energy and infrastructure investment. South Korea needs to reflect this development in its trade policy formulation, and joining CPTPP could be part of that reflection. Also, South Korea should pursue proactive and preemptive diplomacy. And taking one step further, South Korea could vow to uphold universal principles and the rules-based international order and stabilize the Indo-Pacific region through its own Indo-Pacific strategy.

During his visit to South Korea and Japan in late May, U.S. President Joe Biden announced the launch of the “Indo-Pacific Economic Framework for Prosperity” (hereinafter “IPEF”) in Japan one day before the convening of the 2022 Quad Leaders’ Summit of Australia, India, Japan, and the U.S. The IPEF is going to be a US-led, region-wide economic negotiation. The U.S. projects that the Indo-Pacific region with 60 percent of the world’s population will be the largest contributor to global growth over the next 30 years and aims to write new rules to guide the region’s economy and trade in the 21st century. The U.S. intent in the background appears to give rise to distinctive features of the IPEF, which could potentially affect the feasibility and credibility of the IPEF as multilateral economic rules as well. 

I. The IPEF as a Multilateral Economic Negotiation

The IPEF focuses on four key Pillars: (1) Connected Economy, (2) Resilient Economy, (3) Clean Economy, and (4) Fair Economy. Pillar (1) has seven Modules such as ▲digital economy and emerging technology (Cross-border data flows and data localization, Online privacy and the discriminatory and unethical use of Artificial Intelligence), ▲labor, ▲environment, etc., and Pillars (2)-(4) include ten Modules ▲supply-chain diversification, ▲renewable energy, ▲decarbonization, ▲anti-corruption, and taxation, etc.

The U.S.-led IPEF is joined by thirteen Indo-Pacific countries-Australia, Brunei, Fiji, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. Together, the fourteen countries represent 40 percent of the global GDP. The IPEF is slated to announce negotiation results at the Asia-Pacific Economic Cooperation Leaders’ Summit that the U.S. will host in November 2023. 

The IPEF as a multilateral economic negotiation is marked by distinctive characteristics in terms of its negotiation scope and procedures. First and foremost, the IPEF will not negotiate tariff reductions, which constitute a key market access tool in international trade agreements. In that regard, the IPEF hardly falls under the category of a free trade agreement in a traditional sense. Nor is the IPEF comparable to the U.S. offering an alternative to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Second, the IPEF is concentrated on addressing national competitive measures, in other words, domestic regulations. The IPEF will establish economic rules for the Indo-Pacific region, rolling out new initiatives to address the emerging economic phenomena and areas of the 21st century, such as climate change and supply-chain resilience, and harmonizing or reforming the extant regulations regarding, for example, labor, environment, and agriculture. Third, since participants in the IPEF are not required to join all four Pillars of the IPEF, the pace of negotiations, level and degree of agreement, and parties to the agreement will likely vary by Pillar. Fourth, there will remain uncertainty about how participating countries will enforce the IPEF since the IPEF does not negotiate tariff liberalization. Tariff liberalization, which usually requires legislation, plays an essential role in the enforcement of trade agreements. This appears to be particularly the case with the U.S. The Biden Administration has indicated that it does not intend to seek congressional approval of the IPEF, and will instead treat it as an executive agreement avoiding the challenging process of congressional ratification. 

Ⅱ. Outlook for the IPEF 

With its distinctive features in mind, it is possible to draw the following implications and prospects for the IPEF. 

First, on the negotiation dimension of the IPEF, the exclusion of tariff liberalization, which flags that no additional access to U.S. markets will be on the horizon, is likely to weaken participant countries’ incentives to agree on a high level of regulatory reform, although the IPEF could provide benefits other than market access (e.g., infrastructure financing). Second, whereas the Biden Administration has expressed a desire to secure broad participation in the IPEF, focusing on regulatory reform in labor, environment, taxation, etc. absent market access would potentially make developing countries in the region hesitate to join the IPEF in the future. Third, the possibility that the U.S. signs onto the IPEF without congressional approval would cause doubt about the durability of U.S. support for the IPEF and other participant countries would face reduced incentives to agree on the IPEF at a high level. The infirm status of an executive agreement made without congressional authorization in the U.S. is already shown with the Paris Climate Change Agreement signed by President Obama in 2015 but from which President Trump withdrew without facing any legal obstacles in 2019. 

On the strategic dimension, the IPEF is proposed as a means for the U.S. to counter China’s economic clout in the Indo-Pacific. The IPEF constitutes a component of the Indo-Pacific Strategy with which the U.S. is responding to the rise of China. Up to this point, the U.S. has lacked economic tools to utilize in the Indo-Pacific after it withdrew from the Trans-Pacific Partnership (TPP) in 2017. Thus, the IPEF is intended to increase U.S. economic engagement in the region from a rules and standards perspective and counter China’s growing influence. At the same time, with the IPEF, the U.S. would finally complete its Indo-Pacific Strategy by striking a balance between military and economic components. The integral link between the two components is the key to defining the trajectory of US influence in the Indo-Pacific. This is why the Biden administration has included the IPEF among ten action plans to be implemented over the next 24 months. 

Nevertheless, it still remains to be seen whether the U.S. will be able to counter China’s influence in the Indo-Pacific. If the U.S. wants to create a counterbalance to China’s economic influence, it is necessary for the U.S. to incentivize more Indo-Pacific countries’ participation in the IPEF and encourage them to shift away from China and look to the U.S. for economic cooperation. In case the IPEF falls short of its goal to affect trade flows in a significant manner and shift economic weight toward the U.S., the U.S. would neither be successful in curtailing China’s influence nor in changing the way Indo-Pacific countries engage with China in other areas. 

Finally, the IPEF has implications for the international order in the post-pandemic era. First, the IPEF represents the direction that the U.S. is heading in terms of the international economy. The U.S. views that tariffs have been lowered globally under the WTO regime and new trade rules should focus on addressing non-tariff barriers or regulatory reforms. The U.S. hopes, through the IPEF, to establish new trade rules for the 21st century. Second, the IPEF indicates that the U.S. is shifting toward managed globalization from laissez-faire globalization. While free trade and globalization promoted a great deal of economic efficiency and profit-maximization over the past 30 years, it entailed unintended negative consequences such as deindustrialization, income inequality, and so on. The Biden administration seems to view that, given the landscape of international relations, domestic politics, and economy in the 21st century, unbound globalization hitherto is no longer sustainable and thus seeks to move toward managed globalization. The emphasis on labor and environment standards under the IPEF is in line with the Biden administration’s approach toward managed globalization. Third, the IPEF indicates that the U.S. is working to combine economy with security. In the face of intensifying competition with China, the Covid-19 pandemic, and Russia’s invasion of Ukraine, the U.S. has come to realize that over-reliance on foreign supply chains poses threats to national and economic security. The U.S. appears to be willing to ensure economic stability even at the expense of efficiency to a certain extent. Supply chain resilience and regulatory reforms are central to the IPEF because the U.S. aims to achieve national economic security by building new supply chains among partner countries with China excluded. With the U.S. striving to combine economy with security, it cannot be ruled out that the IPEF would potentially result in forming economic blocs although it does not explicitly state its intention to do so. 

Ⅲ. South Korea’s Approach toward the IPEF

Taking into account the IPEF’s distinctive features and the driving forces behind them, South Korea should consider the following negotiation strategies. 

First, since the IPEF is a framework designed to promote economic security rather than market access, which necessitates adjusting trade rules to the changes in international relations, South Korea needs to adjust its strategy to achieve desired outcomes in IPEF-related negotiations accordingly. Further, South Korea may consider utilizing the IPEF as a platform for building its own economic security. Second, among the four IPEF Pillars, South Korea should place greater focus on future technologies-related negotiations such as the digital economy and emerging technology, supply chain resilience, decarbonization, and energy and infrastructure investment. Through the IPEF, South Korea should look for opportunities to form cooperative networks with technologically-advanced countries, resource-rich countries, and manufacturing countries. Third, as the IPEF represents Washington’s shift from unfettered globalization to a managed one, South Korea needs to reflect this development in its trade policy formulation, and joining CPTPP could be part of that reflection. In addition, as the U.S. is willing to cooperate with other developed countries (the European Union, for instance) in transforming approaches toward globalization, South Korea should consider joining such a cooperation group. Last, but not least, South Korea needs to be prepared for the diplomatic consequences arising from its participation in the IPEF. Some countries in the Indo-Pacific region may not necessarily welcome South Korea’s involvement in this U.S.-led economic framework, and so South Korea should pursue proactive and preemptive diplomacy in order to minimize potential damages. And taking one step further, South Korea could vow to uphold universal principles and the rules-based international order and stabilize the Indo-Pacific region through its own Indo-Pacific strategy, which is currently under consideration. In relation to that, it would be worthwhile for South Korea to propose governance in the Indo-Pacific region bringing all the significant stakeholders together with a view to preventing over-militarization of the region.