IPEF: Implementation will be key for Supply Chain Agreement

Many thanks to the East Asia Forum for publishing a short piece I wrote on IPEF’s Supply Chain Agreement (Pillar II). In it I set out some of the key risks and opportunities for the agreement. Some quotes:

The United States has said it hopes IPEF will become an ‘enduring forum’ for negotiations. Effective and sustained engagement in these bodies by parties and stakeholders could cement IPEF as a key part of the region’s economic architecture.

But the new workload may also raise concerns about IPEF siphoning attention and resources from other initiatives such as APEC, RCEP or other more ASEAN-centred fora. Some IPEF participants may also struggle to actively participate across the full suite of activities.

Parties will also be calibrating their engagement depending on their view of how enduring IPEF will be, particularly with a US election in 2024. IPEF agreements are Executive Agreements for the United States, which puts US participation at the whim of any future president. The Supply Chain Agreement attempts to guard against changes of heart with a requirement that parties stay members for at least three years. But with no real way to enforce this requirement, if a future administration failed to see the agreement’s value there is little to stop them from walking away.

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No discussion of an IPEF agreement can fail to mention dispute settlement and enforcement. As expected, the Supply Chain Agreement does not have any binding dispute settlement, with only consultation and public reporting requirements to incentivise implementation. Given the contents of the agreement and its provisions this is not a surprise nor likely a real concern.

While it would have been preferable — and certainly more impactful — to see concrete outcomes for businesses operating supply chains, such as binding outcomes on regulatory coherence or improved market access, in their absence it is not clear that a traditional dispute settlement regime would have been worth the negotiating effort.

That said, a similar outcome for IPEF pillars with more direct and tangible benefits for trade and investment — such as digital trade rules in pillar one — could raise questions around credibility from stakeholders.

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At bottom, IPEF’s Supply Chain Agreement shows a welcomed willingness to break with the past and try new ideas to address new challenges. If participation is robust, implementation is real and stakeholders take an interest, the agreement could become a valuable framework for resolving supply chain issues in the region.

All agreements are only as good as their implementation. The key benefits of the Supply Chain Agreement, in particular, depend upon discussions, consultations and cooperation. Only time will tell if this model, centred around good intentions, can be translated into tangible outcomes.