Saturday 02 Mar 2024
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This article first appeared in Forum, The Edge Malaysia Weekly on November 20, 2023 - November 26, 2023

US President Joe Biden’s Indo-Pacific Economic Framework for Prosperity (IPEF) is the economic arm of his Indo-Pacific strategy, a regional initiative to mobilise India, Oceania and East Asia in the new US Cold War against China. While it has been touted with much fanfare by his White House, it currently offers few substantial benefits, making it a poor offer to developing countries.

A paltry offering?

Initial IPEF partners include Australia, India, Japan, South Korea and New Zealand, plus seven of the 10 members of Asean, namely Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, which together account for two-fifths of world economic output.

More than a year on, IPEF remains vague, ostensibly because it is still being negotiated. Malaysia’s Ministry of Investment, Trade and Industry (formerly the Ministry of International Trade and Industry [Miti]) has said it hopes to overturn US export bans on some Malaysian companies by negotiating IPEF. Most participating governments, however, privately acknowledge that expecting to set their own terms is akin to the tail trying to “wag the dog”.

Although IPEF is clearly not a free trade agreement (FTA), not even offering market access, then Miti minister Datuk Seri Azmin Ali had wishfully suggested that IPEF should “focus on the market access element”. He had previously praised the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which the US rejects. Incredibly, although IPEF does not even offer market access, he compared it favourably to the CPTPP.

The key problem is that unlike FTAs, IPEF does not even offer access to the US market. Instead, it seeks to impose US international trade standards, criticised as protectionist for the US, and onerous to developing economies.

It has not even offered sufficient tangible benefits to be of much interest to Asean governments and other prospective members, let alone their public. Compared to more generous infrastructure finance initiatives by China, such modest offers, via IPEF, may instead highlight concerns about US commitments to the region.

Trade policy contortions

While China is Malaysia’s main trading partner, IPEF has been greeted in official circles by the usual platitudes of looking forward to more foreign direct investment and common prosperity, ironically echoing China’s own promises of the benefits from its economic cooperation initiatives.

Miti has stated it believes IPEF can be a means to end US “withhold release orders” (WROs) on Malaysian exports. Since 2019, more than eight Malaysian firms have had such restrictions imposed on them due to allegations of “forced labour” in the palm oil and glove manufacturing industries.

In September 2022, the minister seemed to believe IPEF would enable Malaysia to engage with the US to resolve such “trade hindrances” by asking for “some space for [Malaysia] to transition” to international standards. But such wishful thinking runs directly counter to IPEF’s trade pillar setting higher standards.

Miti also proposed establishing an “IPEF centre of excellence” to “facilitate seamless and dynamic exchanges of ideas”, but with few tangible benefits specified.

Further engagements include an upskilling initiative to train women and girls in digital skills. Lauded by Miti officials as “a distinct honour”, such initiatives offer little additional value that can actually be attributed to IPEF.

Following the November 2022 change of government, the new administration has reiterated its commitment to IPEF and hopes the framework will be “pragmatic”, with “tangible outcomes”. The current minister still claims to use IPEF negotiations to end the WROs. But a key IPEF goal, precious to Biden’s political base, is precisely to impose higher labour and environmental standards.

Viva IPEF

Unlike the Trans-Pacific Partnership and Regional Comprehensive Economic Partnership (RCEP), most non-US industry organisations, think tanks and other government ministries have not been engaged with IPEF processes. Unsurprisingly, wary and critical non-governmental organisations — usually among the first to urge caution over FTAs — have barely responded to IPEF. Such tepid responses also attest to the lack of substantial provisions in IPEF.

But predictably, the usual cheerleaders have welcomed IPEF. One, the Federation of Malaysian Manufacturers sees benefits which everyone else is blind to. FMM claimed that “although IPEF is not envisaged as a trade agreement to promote greater market access to the US … Malaysian manufacturers can optimise on the strategic and economic benefits”.

A CPTPP supporter, former deputy trade minister Ong Kian Ming acknowledged IPEF benefits would be “somewhat limited”. He urges Southeast Asian countries to not “wait for the US to set the agenda”, but to “safeguard their own interests”.

Meanwhile, more and more of the US population blames trade liberalisation for the decline of manufacturing as well as related jobs and incomes. Such constraints on US economic foreign policy have reduced its room for manoeuvre on international trade matters.

Southeast Asia non-aligned?

The US is keen to sell its Indo-Pacific strategy to the region. But the current IPEF iteration mainly offers a fig-leaf of economic cooperation for US strategic and military interests.

IPEF also seeks to include India which had dropped out of the RCEP negotiations. India, however, has made clear it is not interested in IPEF’s trade pillar. That being said, Indian economic engagement with the East, including Southeast Asia, has long grown without US involvement.

The largely cool reception to IPEF reflects limited enthusiasm for its clear intention to extend US hegemony in the region. Despite their varied interests, the major trading partner of all Southeast Asian nations is China. None are interested in antagonising China to curry favour with the US.

For IPEF to be attractive, it needs to offer tangible benefits to both current and prospective members, especially developing countries. But for the time being, IPEF is widely dismissed as a low-cost means to restore US hegemony in the region.

In the current circumstances, IPEF may simply become the latest failed US initiative in the Indo-Pacific. These go back to the Cold War’s Southeast Asian Treaty Organization. With the looming prospect of a protracted new Cold War, most Asean members, including Malaysia, will opt for non-alignment rather than take sides.


Ong Kar Jin is an independent researcher and writer focusing on the sociopolitical dimensions of technology. Jomo Kwame Sundaram is currently senior adviser at Khazanah Research Institute. A former economics professor, he was United Nations assistant secretary-general for economic development. He is a recipient of the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought.

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