IPEF Supply Chain Plank Discussed by Officials at Think Tank
Some supply chain agreements in the Indo-Pacific Economic Framework may be announced in May, according to officials at the Asia Society Policy Institute, and the institute held a webinar May 3 and released a paper with recommendations of how to shape the supply chain pillar ahead of those announcements.
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Andrew Jory, minister counselor for trade at the Australian Embassy in Washington, said Commerce Secretary Gina Raimondo "is exercising a lot of leadership. I think it’s possible we will see some early outcomes" in May. He said one thing he expects to be announced is a crisis response element.
The paper suggested that as the 14 countries in IPEF think about how the crisis response to supply chain shortages could help themselves or their partners, they consider one or more countries to draw down its stockpiles to send to a country with an acute shortage, with the understanding that the country with the worst shortage could replenish the product later, after the crisis is passed.
Former Korean Trade Minister Han-koo Yeo, now a fellow with the think tank, noted during the webinar that Korea was thrown into crisis when China put de facto export restrictions on urea, a chemical that Korean diesel engines needed as an additive. China accounted for 95% of Korea's supply before the crisis; during the crisis, Korea sent military planes to Australia to bring back thousands of gallons of urea.
Jory said governments did intervene in the market during the pandemic to respond to sudden shortages. "IPEF offers a real opportunity to harmonize" and "make that an efficient and streamlined process," he said.
The paper said that co-investment in strategic supply chains could be particularly helpful for developing countries in IPEF, and could incentivize new supply chains.
Yeo said that given that IPEF does not include any work to lower tariffs, investments will be particularly important. He also said the U.S. should offer the same kind of critical mineral preferences under the Inflation Reduction Act to other IPEF partners that it did for Japan and it does for Australia and Korea.
Jory said harmonizing standards would be very helpful.
"Really look at the barriers that really stand in the way of establishing those new supply chains," he advised. "I think there is a lot of political will for IPEF. There is an opportunity to do something different in this space that’s quite different for participants."
The paper said: "The reality in the region is that only 1 of the 13 participating countries, India, has the United States as its top trading partner, and 10 countries record China as their top trading partner, which is unlikely to change anytime soon. Instead, IPEF offers an opportunity to develop networks with friends and partners to collaborate in times of need; in other words, open 'friend-shoring' will be a positive-sum game, which can coexist with other established and new supply chains."
Jory said that while IPEF is breaking new ground in its crisis management ideas, establishing new supply chains among IPEF partners is not as natural a result, given the fact that it won't lower tariffs.
"Harmonizing standards is an excellent idea and is often overlooked," he said, and diverging standards can be as difficult for traders as tariffs are. But, he said, "the economic reality is" that the Trans-Pacific Partnership and the China-led Regional Comprehensive Economic Partnership, which cover most of the countries that are in IPEF, already have facilitated supply chain linkages among those participants.
IPEF "doesn't have the capacity to compete in one sense with those regional trade agreements that do lower tariffs and do create rules of origin," Jory said. "Negotiators are going to have to work extra hard to provide incentives for businesses to move supply chains in a particular way."
Iman Pambagyo, a former trade negotiator for Indonesia, said he thinks IPEF will provide his country with the opportunity to rethink its export restriction on nickel, a metal critical in electric vehicle batteries.
He called the restriction "wrong," and said he doesn't think it met its objective, which was to encourage the building of nickel processing facilities in Indonesia.
"I think it comes from the vision of Indonesia becoming an industrial country," he said. "Indonesia would like to climb the ladder of supply chains by way of processing some minerals."
Indonesia is going to restrict the export of bauxite, the raw material for aluminum, and might restrict more commodities, as well. He said he hopes the co-investment elements of IPEF can help Indonesia move up the value chain by being able to process more of its natural resources.