[CTC] Civil society groups call for IPEF supply chain text, caution developing countries

[Arthur Stamoulis]

Civil society groups call for IPEF supply chain text, caution developing countries
July 6, 2023, Inside US Trade
Ahead of the fourth Indo-Pacific Economic Framework for Prosperity negotiating round, set to kick off on Sunday, civil society and labor groups are calling for increased transparency and warning of potential pitfalls of potential IPEF provisions while business groups push for the inclusion of rules from existing deals.

IPEF negotiators will gather in Busan, South Korea, July 9-15. They will continue a legal scrub of a deal on the supply chain pillar while trying to advance negotiations on the other three, which cover trade, the clean economy and the fair economy.

IPEF ministers in May announced they had “substantially concluded” negotiations on the framework’s supply chain pillar but have yet to release the details. According to a group of civil society organizations and labor representatives, the IPEF talks are even less transparent than the Trans-Pacific Partnership negotiations.

“Even in the TPP, the concluded text was released before legal scrubbing so the public could see what was in it,” the 15 civil society and labor groups said in a statement <http://aftinet.org.au/cms/sites/default/files/CSO%20IPEF%20Pillar%202%20Release%20Letter.pdf#overlay-context=> on Wednesday. “Far from being a first-of-its-kind agreement, the negotiating process is repeating the problematic approaches to free trade agreements that has led to their deep unpopularity.”

The groups include Public Citizen and Trade Justice Education Fund, several labor groups from Australia, Focus on the Global South, and others.

“The need to release what was agreed in Detroit, before legal scrubbing and certainly before it is signed, is even more pressing given Ministers ‘committed to operationalizing this landmark Agreement as soon as practicable,’” they continued. “The rush towards implementation needs to be tempered by the transparency, inclusivity, fairness and collaborative approach that you say is a hallmark of the outcome. In particular, Ministers announced a number of accompanying bodies in the sectors that civil society has expertise in. Yet, there is no detail on what these bodies will actually do, how they will operate and who will be able to be involved.”

In Commerce’s May announcement <https://insidetrade.com/sites/insidetrade.com/files/documents/2023/may/wto2023_433b.pdf> of the supply chain deal, the Commerce Department said the parties had agreed to establish an IPEF Supply Chain Council, an IPEF Supply Chain Crisis Response Network and a tripartite IPEF Labor Rights Advisory Board that will include business, labor and government representatives.

Developing countries should be wary of the supply chain accord, according to a June report <https://twn.my/title2/briefing_papers/twn/IPEF%20TWNBP%20Jun%202023%20Das.pdf> by Third World Network, an organization that advocates for developing countries and has historically opposed free trade accords.

The supply chain pillar could prevent IPEF members “from imposing export restrictions and export taxes if these adversely impact resilience of IPEF supply chains in critical sectors and critical products,” or unless the restrictions are notified ahead of time, according to the report. “This would effectively compel resource-rich developing countries to remain exporters of primary commodities and constrain them from nurturing value-added downstream processing industries that may be required for facilitating the transition to a low-carbon economy.”

Without the ability to impose export restrictions, the report says developing countries may be unable to fortify domestic production of critical products.

The report also suggests IPEF members could be required to export critical minerals only to each other, thereby eliminating China as a competitor. But doing so would give the U.S. “monopsony power in dictating the global prices of these commodities” and prevent resource-rich developing countries from getting a fair price for critical mineral exports. Labor provisions in the supply chain pillar also might prevent IPEF members from importing parts or components from China, according to the report.

IPEF supply chain rules could particularly disadvantage India, the report says, citing the White House’s 2021 “Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broad-Based Growth <https://insidetrade.com/sites/insidetrade.com/files/documents/2021/jun/wto2021_0262a.pdf>” report. That report “recommended that the U.S. use products with ingredients manufactured in ‘countries other than those with the lowest labor costs and least robust environmental frameworks (such as China and India),’” according to the TWN report. “India, which supplies approximately 40 percent of generic pharmaceuticals used in the U.S., could see its exports of these products plunge on account of IPEF rules on labour rights.”

The group similarly cautions of the pitfalls it says could befall developing countries if they agree to digital trade provisions. “In respect of digital issues, the trade pillar is likely to commit IPEF participants to allowing for cross-border data flows,” it said. “This would prevent the developing countries in the IPEF from leveraging their data advantage for creating a vibrant domestic digital economy, and undermine effective regulation in a variety of areas.”

For instance, inclusion of “national treatment” provisions, which require that countries treat domestic companies no more favorably than their own, would prevent India and Indonesia “from nurturing digital startups through providing them preferential access to government data,” the report states.

The paper further lists several potential adverse implications of potential IPEF digital provisions, including “limiting the ability of countries to raise revenue from the burgeoning trade in digital goods by prohibiting imposition of customs duties on electronic transmissions; deregulation of electronic authentication; preventing countries from nurturing domestic players in the digital sector through non-discriminatory treatment of digital products; and not allowing regulators to require the transfer of source code to other companies for regulatory compliance through prohibition on disclosure of source codes.”

Business groups are calling the inclusion of many of those same provisions crucial if IPEF is to be a meaningful agreement. For instance, the American Association of the Indo-Pacific’s IPEF task force on Thursday issued its recommendations <https://americanindopac.com/wp-content/uploads/2023/07/AAIP-Paper-on-IPEF-Digital-Trade-FINAL.pdf> on digital trade, which it called IPEF’s “keystone.”

IPEF members should adopt many of the digital provisions from the U.S.-Mexico-Canada Agreement, the group said. “The IPEF’s digital provisions should reflect the strong standards set in the USMCA,” the recommendations said. “Weakening these commitments will prevent U.S. economic interests from reaching their full potential. The language in the USMCA provides IPEF countries with the policy space needed to develop new digital regulations while supporting cross-border data flows. They create a balanced framework that promotes a thriving digital economy while enabling governments to regulate digital markets to protect important public policy interests, like consumer protection and privacy.”

USMCA, and to a lesser extent the Comprehensive and Progressive Agreement for TPP, set a baseline for digital standards, which IPEF “should not fall below,” AAIP said.

“These landmark agreements are characterized by their comprehensive and progressive digital trade provisions, encompassing key aspects such as cross-border data transfers, non-discriminatory treatment of digital products, and the protection of online consumer rights and privacy,” the group said.

The Biden administration’s digital policy intent in IPEF has business groups worried. In late May, the U.S. Chamber of Commerce, the National Foreign Trade Council and 12 other business groups wrote to the administration <https://insidetrade.com/node/176987> to say they were “deeply concerned about statements from U.S. officials and reports from the third IPEF round that suggest the administration is wavering in its promotion of high standard rules for digital trade.”

The groups, like AAIP, said USMCA digital provisions should be the starting point for framework negotiations. “The United States should use the IPEF talks to build on the outcomes achieved in past negotiations and address evolving challenges to U.S. trade,” they said. “An IPEF that instead derogates from these outcomes and abandons the core principle of nondiscrimination risks doing material harm to U.S. economic interests by emboldening restrictive foreign trade and data practices, undermining the efforts of like-minded allies to promote high standard global norms, and ceding U.S. leadership on rulemaking for the digital economy.” -- Brett Fortnam (bfortnam at iwpnews.com <mailto:bfortnam at iwpnews.com>)
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