Will the IPEF replace the RCEP?

Much of the conversation in the days ahead will focus on the relationship between the IPEF and the RCEP. The speculation will be on whether they will compete or coexist

Will the IPEF replace the RCEP?
In an ostensible effort to reduce sourcing dependencies on China, IPEF will aim to diversify sourcing and reposition supply chains.

The launch of the Indo-Pacific Economic Framework (IPEF) at the Quad Summit in Tokyo has raised questions on what it intends to achieve. There is speculation on whether it is an economic framework that will primarily serve security interests of the US and its allies. There are also conjectures over whether it intends to replace the Regional Comprehensive Economic Partnership (RCEP) as the premier trade and economic cooperation construct in the Indo-Pacific. Whether economics will play second fiddle to security in IPEF will be revealed over time, but security interests have been crucial in determining the fundamentals of the IPEF. The latter is posited on the pillars of resilient supply chains, clean economy, digital connectivity, and fair conduct of cross-border business.

The security implications of these pillars are obvious. Supply chain resilience has acquired national security implications with various countries struggling to overcome sourcing dependencies. Be it semiconductors, pharmaceuticals, or food, countries enjoying monopolies in supplying raw materials and components to these chains—however small and low-value—can destabilise production if they experience supply disruptions. Such risks can be minimised only by diversifying sourcing—either by building local capacities or importing from other locations.

In an ostensible effort to reduce sourcing dependencies on China, IPEF will aim to diversify sourcing and reposition supply chains. By linking a group of 13 strong economies through common rules for resilience including seven from Southeast Asia—a manufacturing hub already absorbing parts of supply chains physically reshoring from mainland China—sourcing dependencies on China can significantly reduce. Clean economy will comprise efforts to develop sustainable development solutions across the Indo-Pacific with emphasis on decarbonisation and renewable energy. Technologies facilitating these goals must move seamlessly across borders. Disturbed flows would impact national capacities to pursue clean energy and climate goals with implications for environmental security. With COP27 coming up and countries bracing to honour past pledges, the Indo-Pacific must rise to the occasion through wholesome policy efforts like in the IPEF.

Security threats are deeply embedded in cross-border digital connectivity. Cybersecurity breaches through data hacks have become unfailingly regular in cross-border systems, particularly in financial transactions and sensitive business information. At the same time, the way forward on global integration is clearly through the digital path. With turfs already split on the use of 5G telecom equipment given the ‘access’ it provides to its suppliers, trade facilitation and adoption of common digital standards will be the IPEF’s core agenda for minimising threats of digital ‘invasion’. Fair conduct of cross-border business connects to bribery, money laundering and corruption issues. A plurilateral commitment, such as that of the IPEF group of large economies, to jointly curb these practices, is a welcome effort. The implicit security imperative of the focus is the idea that these practices have led to faulty projects with suboptimal outcomes while draining national resources and causing harm to communities and societies.

Much of the conversation in the days ahead will focus on the relationship between the IPEF and the RCEP. The speculation will be on whether they will compete or coexist. The Southeast Asian slant in the IPEF is unquestionable. There are 11 members of the IPEF—Australia, Brunei, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, Vietnam—that are in the RCEP. The RCEP has been operating since early 2022. It is a free trade agreement (FTA) based on ASEAN-centrality. It has brought together all the countries with who ASEAN has bilateral FTAs, except India, who did not join it. The IPEF, on the other hand, while emphasising the importance of ASEAN and Southeast Asia in its pronouncement, is not an ASEAN FTA.

There are other major differences between the IPEF and the RCEP. The IPEF will not pursue tariff liberalisation, one of the key goals of the RCEP. It will focus specifically on supply chains, digital connectivity and clean economy—issues only peripherally addressed by the RCEP. The IPEF will also advance labour and environment standards that are not part of the RCEP or other existing ASEAN FTAs. The RCEP includes China, and theIPEF the US and India—it is a collective of US defence partners and strategic allies. Furthermore, it will work closely with Quad members (US, India, Japan, and Australia) aiming at reducing economic dependency on China in strategic industries.

The IPEF’s economic agenda might not be dwarfed by its security objectives, but it will strive to make economics and security work in tandem. It would be naïve to suppose that the IPEF’s efforts to establish standards and rules in its focus areas will be devoid of security perspectives. The combined emphasis on economic prosperity and security interests makes it a unique regional format and markedly different from the RCEP.

(The writer is senior research fellow and research lead (trade and economics), Institute of South Asian Studies, National University of Singapore. Views are personal.)

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First published on: 27-05-2022 at 03:15 IST