Excluding Taiwan from the Indo-Pacific Economic Framework is a mistake
On Monday, President Biden officially launched the Indo-Pacific Economic Framework (IPEF). The administration likes to say that IPEF is not a “traditional free trade agreement.” It isn’t, if by “traditional” you mean that it opens markets with enforceable binding commitments. What, then, is IPEF? The answer largely rests on whether the U.S. continues to exclude Taiwan from joining.
First, the background. IPEF debuted with 13 members, including the U.S., Australia, Brunei, India, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand and Vietnam. Other countries are free to join later. The deal has four “key pillars:” (1) trade; (2) supply chains; (3) clean energy, decarbonization and infrastructure; and (4) tax and anti-corruption.
IPEF will be a la carte, meaning that members get to pick and choose which pillars to sign up for. India, for example, is reportedly uninterested in the trade pillar. That’s really saying something, because IPE will not include legally enforceable market access commitments. This is where things get interesting.
A White House presser says “the fact that this is not a traditional free trade agreement is a feature of the IPEF not a bug.” There’s no talk about how IPEF reaches farther and deeper than the World Trade Organization (WTO), or even how it stacks up against the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). The Biden administration isn’t interested in these measuring sticks. They’re too “traditionalist.”
A slew of business groups, and many in Congress, think Biden has it wrong. They’re calling on the administration to get behind enforceable market access commitments. The National Milk Producers and U.S. Dairy Export Council, for example, insist that bindings are the only way to “level the playing field” with competitors that have “successfully negotiated agreements across the region.” Not a few members of the House and Senate agree.
Why no enforceable market access commitments? One theory is that this makes it possible for Biden to pass IPEF by executive order. Some in Congress disagree. But it also presents him with a problem: namely, how to incentivize countries to join IPEF without the prospect of “WTO plus” market access to the U.S.?
The answer, for now, seems to be to exclude Taiwan, which makes it easier for countries worried about offending Beijing to join. This is a mistake.
To see why, let’s take a step back. If India doesn’t join the trade pillar, each and every one of America’s IPEF partners belongs either to CPTPP or the Regional and Comprehensive Economic Partnership (RCEP). China has applied to the former and leads the latter. This means that, in terms of trade flows, IPEF, with no enforceable market access commitments, can hardly be expected to isolate China. In fact, given CPTPP and RCEP, IPEF it at risk of being dismissed as more noise than signal.
If IPEF isn’t going to be built on “WTO plus” provisions, there’s only one way to overcome this signal-to-noise ratio problem: invite Taiwan to join. My preference would be for IPEF to do both, but let’s focus on Taiwan.
Like China, Taiwan has applied to join CPTPP. Malaysia and Vietnam are not going to quit CPTPP or RCEP if Taiwan is in IPEF. Let’s stop talking about IPEF in a vacuum. The queues to join CPTPP and RCEP are long and growing. IPEF isn’t going to change that. To get attention in a region that has CPTPP and RCEP, IPEF, which doesn’t compare on binding commitments, really has only one card to play: Let Taiwan in.
Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service at Georgetown University. Follow him on Twitter @marclbusch.