“The United States is an Indo-Pacific power.” The White House’s ‘Indo-Pacific Strategy Report’, published in February 2022, begins with a rather challenging declaration. The Biden administration emphasized in this report that the Indo-Pacific (Inta) region is growing in importance and will strengthen the US role in the Inta region. As one of those means, Biden proposed the ‘Indo-Pacific Economic Framework (IPEF)’, an economic agreement, and requested the active participation of Korea, a key ally, for it. An invitation that Korea could not refuse has arrived.
To understand the context in which the IPEF was conceived, we must first turn the clock back five years. On January 23, 2017, then-US President Trump signed an executive order withdrawing from the Trans-Pacific Partnership (TPP) with 11 countries in the Asia-Pacific region. This is because he judged that the TPP was not helpful in developing his own industry and raising labor income. Trump, who advocated ‘America First’, chose to return to the traditional sense of protectionism rather than participating in the formation of regional order with the countries of the Inta region.
Contrary to Trump’s intentions, ‘America First’ has opened up an opportunity for China. Taking advantage of the diminishing influence of the United States in the Intai region, China tried to lead the regional order. One of the outcomes is the Regional Comprehensive Economic Partnership (RCEP). Including 10 ASEAN countries, Korea, China, and Japan, as well as 15 countries including Australia and New Zealand, took the lead in the RCEP, the largest trade agreement in the Intai region, breaking through a power gap. The TPP also went through revisions and led to the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), but the United States did not participate in the end. As such, it was excluded from major economic agreements and was evaluated to have weakened the US leadership in the Inta region (see figure on page 60).
Biden, who took office in 2021, has announced his intention to end Trump’s “America First” policy. From his inauguration speech, Biden declared that he would “restore the alliance and engage the world once again.” Naturally, attention was focused on whether the US would rejoin the CPTPP. Although it withdrew once, TPP, the prototype of CPTPP, was the core of Obama’s ‘return to Asia’ strategy. The CPTPP member states were also considering the US re-joining the US by suspending the provisions requested by the US without repealing it. Korea formalized its membership in the CPTPP in December of last year and made plans to submit an application in April of this year. However, Biden proposed IPEF instead of US membership in the CPTPP. On October 27 last year, he announced at the East Asia Summit (EAS) that he would propose the IPEF and cover sectors such as trade promotion, digital economy, carbon decarbonization and supply chain resilience as key items.
Allied countries that share ‘American values’
Is Biden going to end America’s protectionist strategy and re-elevate the banner of free trade? It’s hard to see it that way. This is because the US goal is not to achieve a world of complete free trade, but to build an international supply chain centered on US manufacturing by uniting allies to check China and build an international supply chain centered on US manufacturing. Kim Yang-hee, head of the Economic, Trade and Development Research Department at the National Diplomatic Academy, calls this a ‘revolution of protectionism’. “The Trump administration tried to deal with China alone, but it felt difficult. So Biden is trying to form a camp with countries that share values and ideologies to face China.” The means have changed, but the goal is the same.
It is also important that production is globalized and interdependence between national economies has been strengthened. If we look at semiconductors as an example, it is not only inefficient but also practically impossible to take charge of all processes in the United States. This does not mean that the supply chain can be extended indefinitely overseas. This is because high-tech fields such as 5G and data form the basis of not only industry but also national security. Therefore, the United States seeks to establish a closed supply chain within the camp of allies. U.S. Commerce Secretary Gina Raymond has called this “friend-shoring.” It means that the supply chain will be reorganized by sharing production bases among allies, compared to off-shoring in which production bases are moved abroad and re-shoring in which they return to Korea.
Once you have decided to establish the camp of protectionism, it is important to decide what to divide the ‘camp’. The criterion that Biden suggests is ‘value’. When Biden speaks of alliances, he mainly uses the term ‘value alliance’. This does not simply mean spreading the values of liberal democracy or human rights. It means setting the difference between China and the United States as a value and forming a camp with allies who share ‘American values’. After Biden defined the countries in his camp as ‘trustworthy countries’, he declared that he would reshape the economic order and supply chains based on alliances with those countries. IPEF is a camp formed by these ‘trusted countries’ and a set of new promises that countries within the camp want to share.
If we look at the IPEF from the point of view of ‘camp formation’, we can understand the unique characteristics of this new normal frame. IPEF has differences in form and content compared to free trade agreements (FTAs). First, in its format, IPEF consists of ‘modules’. According to a USTR official in the US Congressional Research Service report, the IPEF “will consist of separate modules such as supply chain, fair trade, digital economy, and decarbonization, with each participating country deciding which module to participate in. do.” In most of the existing trade agreements, countries wishing to participate could become members only if they accepted all the provisions. However, in IPEF, participating countries can choose whether or not to participate in each module. Moreover, even within one module, only the ‘non-binding inclusive principle’ is applied or it is possible to choose between options that follow the ‘binding rule’.
Each country has different requirements and acceptable requirements depending on the economic and political situation they are in. For example, some countries would like to promote trade by participating in supply chain formation with other countries, but decarbonization regulations may feel burdensome. In the traditional way of trade agreements, it was not possible to separately negotiate each detailed item, whether it was commodity trade, intellectual property rights, or decarbonization regulations. Since all items to be negotiated were viewed as ‘a bundle’ organically connected to each other, item-by-item negotiations were not allowed (batch settlement). Traditional trade agreements had to take a long time to reach an agreement, as all member countries had to agree on everything according to certain standards. It is difficult to cover many countries. This is because the interests of each country must be reconciled.
‘A new international order to replace the multilateral system’
In this respect, looking at the IPEF, it is not difficult to understand the intentions of the United States. The IPEF’s low hurdles are an incentive to cover more countries. It is difficult to achieve the American ambition of forming a camp and besieging China through the traditional method of concluding trade agreements, which is difficult for many countries to join and requires a long negotiation period.
In terms of content, IPEF also differs from traditional trade agreements. IPEF does not include ‘market opening’, which is the core of trade agreements. That is, it has nothing to do with tariff cuts. This is a device for the US to quickly recover leadership in the Intae region. This is because agreements not related to market opening do not need to be ratified by Congress. Moreover, market openness causes opposition from stakeholders and adversely affects elections. Biden plans to quickly launch the IPEF with minimal backlash by not including market opening. In fact, the Biden administration explained that the IPEF was an executive agreement, not a treaty like the FTA.
Sejong Institute’s New Southern Cooperation Research Center Director Choi Yun-jeong argues that these characteristics of IPEF should be looked at from a longer-term perspective. IPEF means more fundamental change than just improving the speed and scope of negotiations. It was the United States that led the multilateral liberal trade order represented by the World Trade Organization (WTO). However, under the WTO order, China has benefited the most. Moreover, the liberal trade order exposed the limits of the United States’ ability to control non-Western powers such as China and Russia. It is also the background for the rather unfamiliar picture of the US president (Trump) advocating protectionism and the Chinese president demanding free trade in the context of the US-China trade conflict.
The US found the cause of this situation in the multilateral liberal trade order itself. It was judged that the multilateral system such as the WTO was not conducive to US economic and security interests. Therefore, the United States devised a new international order to replace the existing multilateral system, and that is the form and content of the IPEF. In other words, it is trying to ‘make a new edition’ by replacing the previous trade agreement with the modular and administrative agreement method. Indeed, Biden has declared that there will be no new trade deals until the domestic economy fully recovers. He didn’t even push for renewal of the ‘Trade Facilitation Authority (TPA)’ that could facilitate trade agreements. Director Choi Yun-jung said, “The IPEF’s short-term goal is to encircle China, but its long-term goal is to present a new international order. It means that the international trade environment itself will be reorganized in a way that is favorable to the United States and its allies.”
In the Indo-Pacific Strategic Report, the US announced that it would launch the IPEF in early 2022, and recommended Korea to participate through various channels. The Korean government has a positive stance on the US invitation. In a video conference commemorating the 10th anniversary of the Korea-US FTA hosted by the American International Trade Association, Yeo Han-koo, head of trade negotiations at the Ministry of Trade, Industry and Energy, who oversees trade affairs, said, “We consider the IPEF to be a very positive development. “We welcome the return of American leadership back to the region,” he said. President-elect Yoon Seok-yeol also announced that he would pursue membership in the IPEF. However, in Korea, the RCEP, a trade agreement led by China, has been in effect since February 1. A turbulent time is approaching for Korea, which has again been at the center of the US-China conflict despite not making a choice.
© EPN