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The challenges, disruptions, and opportunities accelerated by the pandemic are creating a new economic era that American businesses will help define.
Published
February 25, 2022
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The Indo-Pacific region has become the world’s hotbed of economic activity and integration. Our future in the United States is inextricably linked to the region: That future will be more prosperous and secure if we can maintain and expand on our traditionally strong business presence across the Pacific. The Biden administration has clearly recognized the strategic importance of the Indo-Pacific to America’s global leadership and security, and it has identified the role of robust commercial relations as a key plank in a successful regional strategy.
Regrettably, the hard-won negotiations that in 2015 produced the Trans-Pacific Partnership (TPP) were abandoned in 2017 by the Trump administration. Exiting the TPP and dismissing the opportunity to strengthen and join its successor agreement, the CPTPP, have created a vacuum of U.S. economic and strategic leadership in the Indo-Pacific. Meanwhile, other countries in the negotiation proceeded more than three years ago to implement the agreement without the United States, and far from triggering the cataclysm some U.S. critics predicted, the agreement has served as a magnet to new applicants, further expanding its regional impact and economic heft. Seeking to strengthen and rejoin the CPTPP would be the straightest and best path to realizing the administration’s economic and strategic ambitions in the Indo-Pacific.
While not a perfect agreement, the American business community supported the TPP and is, first and foremost, in favor of seeking to strengthen and rejoin it. The administration’s proposed alternative, the Indo-Pacific Economic Framework (IPEF), lacks the precision, specificity, economic impact, and enforceability of that clear first choice. Indeed, even the name of the new initiative seems to suggest a reluctance to be forthright that trade is essential to U.S. relations with the Indo-Pacific and supports many jobs in the United States. However, in the absence of a return to the TPP, important elements in the administration’s Indo-Pacific Strategy could be achieved through the IPEF. Following are our suggested points for inclusion in that new framework:
FIRST PRINCIPLES
RECOMMENDATIONS
As explained in the U.S. Chamber’s recent report, The Digital Trade Revolution: How U.S. Workers and Companies Can Benefit from a Digital Trade Agreement, burgeoning digital trade opportunities are supporting dynamic growth and good jobs in all 50 states, and firms of all sizes and sectors are poised to benefit. Following are some of the report’s chief findings:
To counter these foreign trade barriers and secure the benefits of digital trade for American workers and companies, the Chamber is pressing for the United States to negotiate new rules for digital trade with key partners abroad. Central to the IPEF should be an enforceable digital trade agreement building on the U.S.-Japan Digital Trade Agreement or the digital trade chapter of the United States-Mexico-Canada Agreement (USMCA). Such an agreement should do the following:
Other relevant new areas to consider including are provisions to address cybersecurity challenges (including a coordinated, voluntary vulnerability disclosure), trust in ICT suppliers, and interoperability in wireless technologies such as Open RAN.
Customs Administration and Trade Facilitation
In this area, the IPEF should expand on the WTO Trade Facilitation Agreement (TFA) to streamline procedures and ease logistical impediments to the free flow of goods and services. This focus should be two-fold: (1) accelerate implementation of key provisions of the TFA, as the U.S. and other countries have already proposed at the WTO; and (2) go beyond the TFA to further retool customs procedures for the 21st Century.
Some of these elements are also embodied in the ASEAN Single Window, a project the United States supported to create a single automated system for clearing customs across the region, making trade more transparent and secure, lowering costs for business and prices for consumers. (Indeed, the move from paper to digital customs also made it possible to keep cross-border trade moving during the COVID-19 lockdowns. During the first year of the pandemic, the countries that were most active on the platform saw their trade activity rise by 20 percent, even as most other cross-border trade was falling.) A new agreement would ideally include:
While the Single Window seeks to standardize the movement of formal customs entries (i.e., large quantities of goods usually found in container-based trade), a new agreement should also seek to revolutionize the customs clearance of lower value e-commerce shipments whose volumes grew substantially since the pandemic’s onset. For instance, the IPEF should look to digitize the customs declaration and payment of any duties, fees, and taxes due, moving these processes off the border.
In addition to exploring opportunities for regulatory harmonization, the IPEF should incorporate and build on the Good Regulatory Practices and Technical Barriers to Trade provisions in USMCA and the recently concluded WTO Reference Paper on Services Domestic Regulation, including:
The IPEF should emulate the anticorruption commitments in USMCA and the U.S. trade protocols with Brazil and Ecuador, including such measures as:
Government Procurement
There have been reports that the IPEF might not include market access commitments by either the U.S. or its partners. If true, this is a regrettable omission that would limit the value of IPEF to U.S. exporters and disincentivize the negotiating ambitions of other economies in the Indo-Pacific. However, even if the IPEF were to exclude market access commitments, commitments like those in the USMCA Government Procurement chapter text on government procurement procedures — all of which are already enshrined in U.S. procurement law and practice — would represent an important step in enhancing U.S. exporters’ ability to compete for foreign government contracts.
In view of the importance of Indo-Pacific government procurement markets to U.S. exporters, we would also urge that the IPEF incorporate significant increases in funding for work with IPEF partners under the U.S. Trade and Development Agency’s Global Procurement Initiative. Although this valuable initiative to build capacity in foreign government procurement does not involve formal market access commitments, it has enhanced transparency, fairness and value — and thus competitive opportunities for U.S. exporters — in those foreign markets where USTDA has undertaken it.
The COVID-19 pandemic has drawn attention to the strength of health systems around the globe, and the Indo-Pacific region is home to a particularly diverse range of investments in national health systems. As the world gradually shifts toward future pandemic preparedness, increased and holistic investment in health will be critical to shared prosperity. Countries with low levels of investment have been particularly vulnerable to public health threats like COVID-19, and as a result, have also seen their economic strength decline over time.
An investment in health systems from innovation to delivery is an investment in economic growth and stability. Not only will strong and resilient health systems withstand public health emergencies, but a healthy population is more likely to live happy and productive lives. It will be important to remember that resilient health systems protect against both infectious disease threats as well as rising chronic disease burdens. There needs to also be a collaborative and trusted partnership with the private sector, whose role in health systems has been of critical importance during the pandemic via the development, production, and mass distribution of high-quality vaccines, therapeutics, diagnostics, and PPE.
The economic evidence to support investments in health systems is clear. Chamber commissioned research from the Victoria University in 2016 found that as non-communicable disease burdens climb a country on average could expect to experience a 6.5% drag on its GDP by 2030 as a result of lost labor productivity. An updated study from the same group in 2020 found that on average a country could expect a $20 return on each additional dollar invested to counter cardiovascular disease and diabetes. The McKinsey Global Institute has estimated that better alignment between health and investment could add boost global GDP by 8 percent or $12 trillion, or 0.4 percent a year faster growth by 2040.
COVID-19 has laid bare the link between health and the economy. The Chamber encourages the IPEF to establish a health track for dialogue to strengthen health systems. We further urge IPEF participants to further create an enabling environment that encourages investments in the strengthening of health systems across the Indo-Pacific in line with the US’ Vision for Health System Strengthening initiative. The Biden Administration has committed to invest resources and provide assistance to strengthen health systems through disease surveillance, laboratory detection capacities and the strengthening of immunization systems and vaccine delivery.
More broadly, tariffs on vaccines and the inputs and equipment required to develop and manufacture them impose unnecessary material costs on the manufacture and distribution of COVID-19 vaccines. According to the Organization for Economic Co-operation and Development (OECD), tariffs on vaccines exist in 22% of countries, with 8% of countries applying duties above 5%. Equally concerning are the numerous tariffs that governments impose on raw materials and other inputs necessary to produce medicines, including vaccines. According to the OECD, average world tariffs on vaccine ingredients such as preservatives, adjuvants, stabilizers, and antibiotics range between 2.6% and 9.4%.
The Chamber urges IPEF members to engage meaningfully in discussions at the WTO and elsewhere to eliminate tariffs on health products, including finished therapeutics, diagnostics, and vaccines, as well as the active pharmaceutical ingredients, raw materials, chemicals, other inputs and intermediaries, and specialty equipment used to invent, manufacture, and deploy these products.
The Chamber also supports moves by the United States to join the Ottawa Group initiative to examine tariffs on medical goods more broadly. These countries—Australia, Brazil, Canada, Chile, European Union, Japan, Kenya, South Korea, Mexico, New Zealand, Norway, Singapore and Switzerland—have been developing proposals to expand tariff-free trade in medicines, inputs, and medical supplies to build on the framework established by the 1995 WTO sectoral agreement on medicines and promote trade facilitation measures for critical products such as vaccines. Such an initiative could be crucial to minimizing trade disruption and facilitating swift pandemic response, ensuring that the world is better prepared for future pandemics. The United States has an important leadership role to play in brokering an agreement on these issues and encouraging greater global cooperation.
Rather than securing domestic supply, these restrictions hindered the global response to the pandemic by imposing barriers on companies coordinating global medical supply chains. At a time when companies most needed to dedicate their time and resources to increasing global supply, these restrictions disrupted supply chains and distribution routes, produced delays and additional costs, and increased the risk of supply shortages during the pandemic. These policies have a particularly damaging impact on patients in developing and least developed countries that are endpoints in complex distribution systems for medical goods.
The Chamber urges IPEF participants to reiterate their commitments in the WTO and other trade agreements to bar export restrictions on health products, refrain from imposing new restrictions, and ensure that any export restrictions that IPEF members deem necessary are consistent with WTO rules and procedures. The latter includes requirements that the restrictions be temporary, transparent, properly notified to the WTO and impacted parties, and applied only to prevent or relieve critical shortages of essential products.
The Chamber urges IPEF participants to increase and improve regulatory cooperation, share best practices across borders, and expand mutual and unilateral recognition policies, as appropriate. Further, IPEF participants are urged to continue consultations with industry and the private sector. Participants should also adhere to relevant international standards on regulatory mechanisms on critical medical products, including medical devices.
There is a large gap in the Indo-Pacific between its infrastructure needs and current investments. Ports, roads, power grids, and broadband are building blocks for commerce and connectivity, and for the region’s continued economic development. While the United States is unlikely to provide the kind of financial and building capacity offered through China’s Belt and Road Initiative, we and our allies and partners in the region can contribute to the region’s infrastructure needs with greater transparency, governance standards and collaboration with domestic firms than Chinese alternatives.
As Secretary of State Blinken has stated: “Countries in the Indo-Pacific want a better kind of infrastructure. But many feel it’s too expensive, or they feel pressured to take bad deals on terms set by others rather than no deals at all.” The United States and our partners have become experts in providing that better kind of infrastructure. The United States has, for example, together with Australia and Japan, announced a partnership with the Federated States of Micronesia, with Kiribati, and Nauru to build a new undersea cable to improve internet connectivity to these Pacific nations. Since 2015, members of the Quad have provided more than $48 billion in government-backed financing for infrastructure for the region, representing thousands of projects across more than 30 countries and serving millions of people.
Codifying the principles associated with this approach in the IPEF would be an important signal of U.S. commitment to infrastructure development in the region. For instance, countries should promote the development and deployment of 5G, Open Radio Access Networks (“Open RAN”), as well as seek to improve the exchange of information on regulatory, standards, and technological approaches and practices. Moreover, the United States should seek to build a framework that facilitates the active coordination of research activities for the development of future 6G technologies in a way that leverages existing capabilities in the Indo-Pacific region. There are many ways to promote the use of 5G to drive economic growth which should be advanced in the IPEF, including use cases in the private network advanced manufacturing context.
For the semiconductor supply chain, transparency and coordination amongst key economies in the region would help ensure that supply networks for semiconductors remain reliable amid a shifting landscape of control and incentive policies. Key objectives of any policy should be to diversify production capabilities across legacy, intermediatory, and leading-edge nodes while avoiding supply disruptions. We strongly support dialogues to explore the objectives of many to incentivize domestic production, R&D and stimulate local industries.
The IPEF should encourage prioritization of projects that will support greater resource efficiency, including measures to support more sustainable materials; prioritization of a balanced fleet of renewable and low carbon energy projects, including energy storage and green hydrogen; prioritization of projects to support and increase supply chain resiliency, including ports and export-related projects; and improved disaster management and resiliency through encouraging adoption of more underground placement of lines and pipes; and a comprehensive approach to the protection of underground utilities.
Near-term initiatives should:
Energy Transition and Climate Change Mitigation
Pilot projects and additional collaboration on decarbonization infrastructure. The U.S. is in tough competition with other energy transition technology suppliers like China that have a broader array of government finance options. Therefore, existing U.S. government resources should be more effectively marshalled to help support the adoption of energy transition technologies in Indo-Pacific countries. The USDFC has been active in recent months in India, for example, helping to finance the development of a major solar energy project in Tamil Nadu state. Similarly, the Biden administration has pledged assistance for cleaner energy infrastructure development in ASEAN. IPEF should include a process to identify and provide official financing for bankable energy transition projects in the region
In addition, recognizing that Environmental, Social, and Governance (ESG) issues are becoming increasingly important to global industries, the IPEF should seek to collaborate with business stakeholders in participating countries to promote transparent and globally coordinated ESG standards that will help to foster innovation and market-based solutions to these issues. The IPEF should also ensure officials provide the transition time and long-term regulatory certainty necessary to minimize potential harm to consumers, workers, businesses, and society more broadly.
The COVID-19 pandemic has made clear that countries around the world, including many in the Indo-Pacific region, remain ill-equipped to participate effectively in the global ecosystem for intellectual property (IP) development and technology transfer. Lacking the sufficiently strong IP standards that enable sustained resource allocation to high-risk investments in innovation and that underpin contractual licensing of related rights, these countries have largely been relegated to the sidelines as others advance technological solutions to COVID-19 and other socio-economic challenges. These structural shortcomings in their own systems have led such countries to inappropriately identify intellectual property rights and related trade commitments as a barrier to access to technology.
The findings of the U.S. Chamber International IP Index demonstrate a strong, positive correlation between the strength of IP standards and innovative output, as well as access to innovation, and quantify the enormous gap in IP performance between leading global innovators and the rest of the world. The rapid development of COVID-related vaccines and therapeutics during the pandemic provides a case study for the benefits of strong IP policy: technological leaps were achieved in those countries whose political, legal and commercial environments fostered sustained investment in the development of world-class scientific and technical capabilities; partnerships in the development and production of the new products that resulted were prevalent among and between governments, industries, and non-governmental organizations in those countries where property rights were sufficiently protected by rule of law to support contractual relationships.
This suggests that a critical goal of the Indo-Pacific Economic Framework should be to broaden global participation in ecosystems for innovation through IP capacity building. Previous efforts to build a global IP architecture via trade agreements have failed because IP commitments have been so consistently mis-represented as concessions bargained away to wealthy-country demandeurs in return for market access. The IPEF by contrast presents an invaluable opportunity to foster a de-politicized dialogue, whereby parties can consider the economic and commercial functions of IP policy absent the baggage of express trade commitments.
Technology Standards
The United States should seek to reinforce the importance of strong governance practices which advance fair, balanced, industry-led, and consensus-based processes in global standards bodies in order to prevent distortions such as undue control by any single firm or country. Additionally, the recognition of industry-led standards focused on interoperability between various digital systems would similarly serve to enhance U.S. national security by creating a more diverse and transparent ecosystem.
Export controls best achieve their intended purpose when balanced with practical commercial realities. With U.S. export controls being utilized more expansively by successive administrations as a way to respond to perceived global national security challenges, it is critical that U.S. policies and practices in this regard align with those of our main global and regional allies and partners.
Export controls should be targeted, multilateral, and narrowly applied to avoid creating a lose-lose outcome whereby U.S. businesses are compelled to forgo important export sales but those sensitive technologies end up being provided by our competitors anyway, defeating the national security objectives. This would be an especially untenable outcome with our Indo-Pacific partners, since these are among the countries most directly exposed to any perceived threat from enhanced Chinese capabilities — and should not be undermining U.S. export controls to benefit their own exporters. While much of the discussion of controlled technologies emanates from national security agencies, the economic impact on U.S. businesses is significant and undeniable. Furthermore, many of our Indo-Pacific partners do not have the resources or capabilities the U.S. has developed for assessing the threat posed by exports of certain technologies.
Complete and identical alignment of different countries’ export control regimes is probably not feasible. However, IPEF should contain an agreed framework for member countries to consult on an ongoing basis on the commercial implications of the evolving export control regime for sensitive technologies in order to ensure the greatest possible coordination and alignment with our Indo-Pacific partners and to avoid unfair disadvantage to U.S. businesses.
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