On May 31, a press release from the U.S. embassy in Indonesia said that the 14 members of the Indo-Pacific Economic Framework for Prosperity (IPEF) “announced the substantial conclusion of the negotiations” of an IPEF Supply Chain Agreement. The negotiations took place at the IPEF Ministerial Meeting in Detroit, Michigan. The agreement, touted as “a first-of-its-kind international IPEF Supply Chain Agreement,” includes the 14 IPEF partner countries – Australia, Brunei, Fiji, India, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Thailand, the United States, and Vietnam.
The U.S. embassy press release said that the aim of the agreement is “to increase the resilience, efficiency, productivity, sustainability, transparency, diversification, security, fairness, and inclusivity of their supply chains through both collaborative activities and individual actions taken by each IPEF partner.”
Building supply chain resilience has become a shared objective for many Indo-Pacific countries that experienced supply chain disruptions and recognized the vulnerabilities therein because of overdependence on a single source: China. This became particularly acute during the the pandemic years, leading many governments as well as industries to review and make important changes in terms of sourcing. The Economist in December 2021 said that “the era of predictable unpredictability is not going away,” and 18 months later, it is not clear that the situation is any better.
Citing Loadstar reports, Maersk said, “as of 21 October, the 14-day average ocean shipment volume at the port of Shanghai was down 15%, Shenzhen was down 21% and Ningbo-Zhoushan was down 29%. This has resulted in a ripple of disruptions across global supply chains and port congestion remains a major concern across North Europe ports.” It’s not only impacting North Europe; this has created disruptions all over the world, including in the Indo-Pacific. In addition, the Russian invasion of Ukraine, rising oil prices, and an economic slowdown have all made the supply chain-related challenges even bigger.
But given the over-reliance on China by most countries in the region as elsewhere, it is impossible to completely decouple from China and hence there are collective efforts being made to address this. De-risking has emerged as a practical approach, but there are also other efforts in smaller groupings to adopt practical, feasible measures among like-minded countries to augment one’s opportunities and minimize vulnerabilities.
At a smaller scale, the Australia-Japan-India trilateral came up with the Supply Chain Resilience Initiative a few years ago. It is a work in progress that is yet to come to fruition, but given the vulnerabilities and the need to build resilience, more such groupings will be necessary in the future. The IPEF supply chain agreement involves a much larger grouping but was negotiated with the same goal of building resiliency and removing vulnerabilities.
IPEF, launched on May 23, 2022, aims to strengthen economic engagement among member countries in order to deliver on peace and prosperity in the Indo-Pacific region. IPEF work is divided among four key pillars – trade, supply chains, clean economy, and fair economy. The supply chain is an area that has caught the attention of almost all member countries because, as a recent study put it, “this area is a clean slate, paving the way for creative thinking on rules and cooperation mechanisms to minimize disruptions.”
According to a press release from the Indian Ministry of Commerce and Industry, IPEF is making efforts to “make supply chains more resilient, robust, and well-integrated through crisis response measures.” The Indian minister for commerce and industry, who participated in the virtual meeting, noted that negotiators had delivered “an expeditiously negotiated, and mutually beneficial Agreement that could propel deeper integration of economies and supply/value chains within IPEF, and urged for expeditious implementation of all the action-oriented cooperative and collaborative elements identified as part of this Agreement.”
These negotiations did not happen overnight. There were multiple rounds of IPEF consultations, negotiations, and many virtual intersessional meetings, in addition to bilateral discussions that helped consolidate the different goals to arrive at this. According to the U.S. embassy press release, the IPEF Agreement has several different institutional components — including the IPEF Supply Chain Council, the IPEF Supply Chain Crisis Response Network, the IPEF Labor Rights Advisory Board — that are each tasked with a specific agenda.
For instance, the IPEF Supply Chain Crisis Response Network is supposed to put in place an emergency communication network for IPEF members to enlist support in case of a supply chain disruption. The network will aid in information-sharing and cooperation among IPEF partners, with the goal of providing for “a faster and more effective response that minimizes negative effects on their economies.” Similarly, the IPEF Supply Chain Council is supposed to institute an arrangement among IPEF partners in order to establish “sector-specific action plans for critical sectors and key goods to enhance the resilience of IPEF partner’s supply chains, including through diversification of sources, infrastructure and workforce development, enhanced logistics connectivity, business matching, joint research and development, and trade facilitation.”
The text of the IPEF Agreement is not available yet, but one assessment by experts at the Center for Strategic and International Studies (CSIS) indicates a number of possible areas of cooperation — for instance, the U.S. commitment to a number of “new technical and capacity building programs: digital shipping pilot projects, including one with the Port of Singapore; expansion of the U.S. Customs Trade Partnership Against Terrorism (CTPAT) program in the Indo-Pacific; a IPEF STEM Exchange Program; and additional trainings, symposiums, and two-way trade missions with IPEF partners.” The United Sstates also plans to rope in the private sector in a big way to affect public-private partnership in this domain.
A ministerial statement put out by Japan identifies a number of ways in which the IPEF countries will work together to “anticipate, withstand, or rapidly recover from shocks and strengthen the competitiveness of our economies within the Indo-Pacific region… we intend to work to minimize market distortions, protect confidential business information, promote regulatory compliance, respect market principles, and act consistently with our respective WTO obligations.”
The next round of negotiations is to be held in Busan, South Korea, and IPEF member countries are looking to conclude the negotiations by November this year. That IPEF member countries have come so far since the establishment of IPEF exactly a year ago suggests that there is a near unanimous view in the room about the supply chain vulnerabilities. There is also eagerness to conclude agreements to remove these vulnerabilities and possible disruptions, while putting in place mechanisms to deal with adverse situations so as to minimize negative impact on their economies. Given the China challenge continuing, with no sign of thawing of tensions, IPEF countries will have an agreement on supply chains sooner than later.