EDITORS DESK
The Indo-Pacific Economic Framework for Prosperity (IPEF) hatched by the Biden administration speaks volumes of the US government’s dissatisfaction on the results of trade liberalization implemented by the World Trade Organization (WTO) and even on its own bilateral and regional free trade deals.
In fact, the Biden administration is distancing itself from forging new FTAs with its partners, including the Philippines.
Whatever America’s opponents think about IPEF, in my mind, this Biden initiative appeals to our common sense. It seeks to put the workers and environment at the heart of its agenda.
US Trade Representative (USTR) Ambassador Catherine Tai in a media roundtable during her recent visit in the country shared that when Biden started his administration, he asked for a new approach to trade.
And specifically, the kind of approach that makes the worker the center of a trade policy, which past policies had not done enough to improve the livelihoods of the workers.
Thus, IPEF is intended at the very beginning to benefit not just big companies, but also micro, small and medium enterprises, and in particular, to consider the workers when US trading partners think of their economies.
Indeed, it is true that oftentimes, the crafting of policies focuses on numbers like trade volumes, trade balances, GDP, and sectoral growth, forgetting the fact that the whole purpose of economic growth and development is to improve opportunities for the people.
Policy makers lose sight of the fact that the people in the economy are not just consumers, but that every consumer is also someone who works and earns a livelihood.
And so, a framework by which the US government will engage its trading partners was born.
Launched in May 2022, the IPEF initial partners are Australia, Brunei Darussalam, India, Indonesia, Japan, the Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, and Vietnam. Together, they represent 40 percent of world GDP. The partners represent 40 percent of global GDP and 28 percent of global goods and services trade.
This framework will advance resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness for partner economies. The framework will offer tangible benefits that fuel economic activity and investment, promote sustainable and inclusive economic growth, and benefit workers and consumers across the region.
The partners already began discussions of future negotiations on the four IPEF pillars: Trade; Supply Chains; Clean Energy, Decarbonization, and Infrastructure; and Tax and Anti-Corruption.
Since IPEF is designed to be flexible, IPEF partners are not required to join all four pillars. But how can they achieve cohesiveness if one is not a member in all four. I would like to think though that each pillar in one way or another related to each other. Anyway, let the members sort out the details later.
Already, US engagements with all of its trade partners are not just limited to meetings with government officials, business leaders, but workers and labor leaders to connect the trade and labor in all of these conversations.
In fact, Ambassador Tai quoted an Oxfam report earlier this year. The report stated that the world’s richest one percent bag nearly twice as much wealth as the rest of the world put together over the past two years.
Thus, IPEF is an offshoot of the growing inequalities among peoples and the widening disparities in the development of nations, decades after the birth of trade liberalization under the WTO.
Free trade, a product of neo-liberalist’s thinking, is now under scrutiny. It did not promote inclusive growth despite dismantled high tariff walls to open world market access to all, making global trading a free for all and a survival of the fittest. Economies that offer the cheapest cost, abundant and dirt cheap labor, with efficient operations became the darling of manufacturers in search of huge margins.
True, WTO provides for some differential and special treatment to least developed and developing members, and mechanisms against unfair trade practices, but these are not effective nor successful.
Instead, it created unprecedented concentration of production in couple areas that offer scale, efficiency and cheapest cost.
Manufacturers left for China and before we knew it, the world was already flooded with Made in China products. China became the factory of the world and experienced unprecedented growth.
Free trade rewards the efficient and punishes the inefficient. There was not much thought on the plight of workers as they were not central in the deal, but growth in trade is expected to eventually trickle down to take care of labor.
The imbalance in development and vulnerabilities of supply chains were more evident when Covid-19 broke out. It exposed shortages in supply of face masks, gloves, and ventilators because the production hub was the first to lockdown, followed by a breakdown in global supply chain.
The IPEF concept seeks to create incentives that are not just based on maximum efficiency or just cutting costs to produce the cheapest things. It is a tool to entice companies in trading economies to make decisions for their supply chains, that are not just efficient, but also resilient.
One concrete example is the US Trade and Development Authority (USTDA) grant to a Filipino mining company, Eramen Minerals Inc. (EMI).
USTDA will grant over $1 million for a selected American company to conduct a feasibility study for EMI. The study will assess the viability of developing an ore-to-battery grade nickel sulfate/hydroxide and cobalt sulfate processing facility to produce battery grade precursor materials and energy storage systems in the Philippines.
The Philippines, a highly mineralized country, is a big producer of nickel but these are exported as raw ore and processed elsewhere. Poor Philippines aspires to participate in the global value chain for electric vehicle batteries, which major component is nickel. The country aims to become a production hub for EVs.
For now, I would venture to say that IPEF is unique and has great potential. It comes with idealism. Its lofty components are far different from the FTA deals we normally find.
The goal is to achieve inclusive outcomes and that prosperity doesn't get stuck in few pockets.
(The author is the assistant Business Editor of Manila Bulletin.)