On November 16, the U.S. signed a major multilateral supply chain agreement with its 13 Indo-Pacific Economic Framework for Prosperity (IPEF) partners – Australia, Brunei, Fiji, India, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, and Vietnam. As highlighted in the IPEF joint statement, the 14 countries announced the signature of the IPEF Supply Chain Agreement. In addition, IPEF member-states announced the “substantial conclusion of negotiations” for the IPEF Clean Economy Agreement, IPEF Fair Economy Agreement, and the Agreement on the Indo-Pacific Economic Framework for Prosperity. Together, these agreements aim to enhance U.S. economic engagement and address emerging challenges in a region representing 40% of global GDP and 28% of global goods and services trade.
The Indo-Pacific Economic Framework for Prosperity (IPEF) is a multilateral economic initiative launched by U.S. President Joe Biden on May 23, 2022. Since its inception, IPEF member countries have emphasized that this initiative will differ from traditional multilateral trade negotiations, focusing on key areas such as supply chains, climate change, and anti-corruption. In addition, none of the IPEF agreements include tariff reductions, which eliminates zero-sum negotiations on market access. IPEF negotiations revolve around four separate agreements referred to as “pillars”: trade, supply chains, the clean economy, and the fair economy. This flexibility permits negotiations on each pillar to advance at different speeds, reaching agreements independently and on different timelines.
The IPEF Supply Chain Agreement, negotiated on the U.S. side by the Department of Commerce, creates a baseline of policy coordination among IPEF member-states to draw upon lessons learned from the COVID-19 pandemic and subsequent global supply chain shortages. The IPEF Supply Chain Agreement is not a traditional trade pact, as U.S. commitments will not be enshrined into U.S. law by Congress and foreign commitments will not be fully enforceable. The agreement calls for member-states to take concrete steps to enhance logistics infrastructure, collaborate on attracting investment for critical sectors, assist companies in diversifying their sourcing, share effective practices on cargo risk assessment, improve supply chain monitoring capabilities, and remove restrictions on warehousing near ports of entry. In addition, each IPEF member country has committed to establishing a reporting mechanism “to receive, including through electronic means, allegations of labor rights inconsistencies at production facilities located in the territory of another party” and to work with that party to resolve any issues once identified.
The IPEF Supply Chain Agreement establishes three new multilateral bodies designed to enhance cooperation among IPEF partners on supply chain issues moving forward:
- The IPEF Supply Chain Council, which will develop sector-specific “action plans” designed to address workforce challenges, promote supply chain diversification, and improve supply chain resilience among IPEF partners;
- The IPEF Supply Chain Crisis Response Network, which will provide an emergency communication channel in the event of a supply chain disruption and enable a more effective response to minimize negative effects on the economies of IPEF partners;
- The IPEF Labor Rights Advisory Board, which will support IPEF partners in promoting labor rights in their supply chains, promote sustainable trade and investment, and facilitate opportunities for investment in businesses that respect labor rights.
IPEF member-states now have 120 days from the date of signing the Supply Chain Agreement (Nov. 16) to identify critical sectors and goods key to their national security, public health and safety, and economic stability, and share this information with IPEF partners. The governments of each of the IPEF countries must also decide how to staff each of the newly created IPEF supply chain bodies. For the U.S., this will involves determining the appropriate roles for the Departments of Commerce, State, and Labor, as well as other interagency partners well-versed in various aspects of supply chain policy.
Crowell & Moring, LLP continue to monitor this development and the potential impact to businesses and consumers moving forward.