By Claude Barfield
On May 23, 2022, in Tokyo, President Joe Biden (pre)launched the administration’s Indo-Pacific Economic Framework (IPEF). Thirteen nations signed off on this very preliminary document including Australia, Brunei, Fiji, India, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Thailand, and Vietnam. This post will deal with the digital trade elements of the IPEF; a future one will analyze the broader contents and implications of the framework.
The IPEF will take the form of an executive agreement, bypassing Congress, and the administration has stated firmly that it will not advance any new market access commitments. The president claimed that through this project, the US aimed to write the “rules of the road” for 21st-century international economic relations. While questionable on many fronts, it is true that, regarding digital trade and investment disciplines, multinational rules of the road remain diffuse and generally lacking in strong enforcement.
To briefly review other accords in the Indo-Pacific: The 11-nation Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which came into legal force in December 2018, contains a number of basic rules for digital trade. These include a prohibition of tariffs on e-commerce and on laws forcing localization of data or source codes, mandated free flow of transnational data, and compulsory privacy and consumer protection rules—with details left to the individual countries. Though former President Donald Trump pulled the US out of the original trans-Pacific pact, the US did negotiate advanced digital trade rules in the 2018 US-Mexico-Canada Agreement, which also tightened enforcement rules and added new obligations for financial services.
The major competitor to the CPTPP is the China-led 15-nation Regional Comprehensive Economic Partnership (RCEP), which also contains elements of a digital trade regime—namely, prohibition of e-commerce duties, restrictions on data localization, and privacy provisions. The RCEP’s digital rules, however, strongly reflect China’s vision of “digital sovereignty,” are bound by wide “public interest” exceptions, and are not subject to normal dispute settlement actions. (There are also digital agreements between Australia and Singapore, and among Chile, New Zealand, and Singapore.)
This brings us to the IPEF, where the digital economy is included within the so-called trade pillar—one of four pillars that compose the framework. The remaining three are comprised of (1) resilient supply chains; (2) clean energy, decarbonization, and infrastructure; and (3) taxation and anti-corruption practices. In order to pull in key countries—namely, India and Indonesia—the Biden administration was forced to dilute its earlier, more ambitious goals. Thus, IPEF nations will first enter into “engagement,” leading later to actual negotiations. It is not clear which countries will sign up for which pillar, nor how many pillars they will ultimately sign up for. For the rapidly digitalizing, high-growth Indo-Pacific nations, a common regional e-commerce high-standards regime is very attractive.
Yet, challenges lie ahead for the IPEF. First, without the inducements from increased market access, the US is left without strong carrots to compensate for new digital obligations. Second, more specifically, pressure from progressives forced the administration to add labor standards and increased environmental regulations to the trade module. Again, it is not clear whether IPEF members must sign up for all parts of each pillar, but if that is the case, most Southeast Asian members will opt out.
Some experts suggest that if the administration is serious about a digital IPEF down the road, it should seriously consider breaking out the proposed digital elements into a separate pillar, leaving behind the more onerous demands in the trade pillar. It could also add sweeteners, such as digital-specific infrastructure, capacity-building, investment incentives, and cybersecurity training.
As noted previously, there are real divisions within the administration, pushed by deep suspicions of digital trade advancement as a sop to Big Tech. This is because it is a high priority for both members of Congress and the business community. However, the administration might also think at some point in the future about using digital trade as a means of requesting that Congress renew presidential authority for full-scale trade agreements (known as the Trade Promotion Authority). In any case, if the White House wants a digital IPEF to succeed, it will have to greatly enhance what is on offer in the coming months.
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