What it will take to make the IPEF supply chain deal work

Money Control, September 18, 2023

By Pradeep S Mehta & Advaiyot Sharma

The Indo-Pacific Economic Framework for Prosperity (IPEF) Agreement Relating to Supply Chain Resilience (ASCR) has been finalised and released publicly. It will enter into force a month after at least five of the fourteen IPEF parties have signed and ratified it. Besides India and the United States (US), Australia, Brunei Darussalam, Fiji, Indonesia, Japan, South Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand and Vietnam are members of the IPEF. This is the first substantive agreement concluded under the aegis of the IPEF negotiation pillars. Accords on the three remaining pillars (trade, clean economy and fair economy) are expected to be finalised in the coming months.

For many of the participating countries, the IPEF ASCR marks the latest in a series of international cooperative endeavours for tackling supply chain challenges and building resilience. The ASCR formalises a framework for many of the activities set out in sub-initiatives such as the 2020 joint ministerial statement on maintaining open and connected supply chains (by Australia, Brunei, Canada, Chile, Myanmar, New Zealand and Singapore); the 2021 Supply Chain Resilience Initiative (by Australia, India and Japan); and the 2022 Supply Chain Ministerial (with 30 participating economies), which took forward the discussions at the US-led 2021 Global Supply Chain Resilience Summit.

The conceptual framework of the IPEF ASCR broadly follows a vulnerability-threat-risk-resilience approach. Regional and global supply chains are inherently vulnerable to disruption. This could be caused by factors such as pandemics, natural disasters, cyber incidents, logistical interruptions, raw material supply bottlenecks etc. (threats). The disruption of supply chains by these factors could in turn lead to adverse consequences for countries’ national security and public health, and could cause significant economic disruptions (risks). Finally, a robust framework to mitigate and respond to such risks can minimise these adverse impacts and insulate supply chains from unanticipated shocks (resilience).

Aspirational In Nature
The agreement has some notable features. Apart from the provisions operationalising the newly established bodies — IPEF Supply Chain Council, IPEF Supply Chain Crisis Response Network and IPEF Labour Rights Advisory Board — very few substantive commitments under the ASCR are legally binding obligations. A majority of the clauses are worded in aspirational terms, where IPEF parties “intend to” undertake/explore/align/encourage/share/promote etc various mechanisms to strengthen IPEF supply chains and promote regulatory transparency. It is clear that the overarching emphasis is on advancing cooperation through information sharing mechanisms, rather than creating onerous and enforceable obligations.

Recognising the diversity of the grouping’s membership, the ASCR also provides that IPEF parties need only implement this agreement within their available resources. The most significant binding obligation that IPEF Parties have undertaken is to identify their respective critical sectors or key goods, with the objective of developing a shared understanding of supply chain risks. While some guidance has been provided regarding the parameters to be considered for identifying these critical sectors or key goods, these are non-exhaustive. Countries remain free to consider other relevant aspects in enumerating their respective lists.

Collaboration under the IPEF ASCR will be supported by an institutional framework. An IPEF Supply Chain Council will periodically oversee the efforts undertaken by the Parties towards the implementation of the specific initiatives identified in the agreement. An IPEF Supply Chain Crisis Response Network has been tasked with responding to supply chain disruptions. This will be a forum for any Party experiencing or expecting such a disruption to share relevant information regarding it, after which other Parties may provide various forms of support (such as sharing experiences in tackling similar disruptions, facilitating movement of affected goods, etc.).

Both these bodies will comprise senior officials from each IPEF party. They together aim to make IPEF supply chains more resilient, transparent, efficient, secure and diversified, as well as coordinate and cooperate on IPEF responses in times of supply chain disruptions. Given that supply chain matters will often require dealing with sensitive commercial information, the ASCR also contains broad provisions dealing with confidentiality and disclosure of information.

Some Challenging Provisions
Finally, the ASCR framework relating to labour rights will be among the high-ambition, and arguably the most challenging, provisions for many IPEF members to cooperate on. An IPEF Labour Rights Advisory Board with tripartite representation (a government, worker and employer representative from each Party) has been set up to work on promoting labour rights within IPEF supply chains, as a means of making them fairer, more sustainable and thereby, more resilient. There is also a provision for a reporting mechanism for labour rights-related inconsistencies in firms (employing more than 20 workers) operating within IPEF Parties’ territories.

As IPEF economies now go through their domestic processes to approve the IPEF ASCR, a priority for them must be to find maximum convergence between the collaborative framework outlined in the ASCR and their existing supply chain resilience-related initiatives. Extensive stakeholder consultations must be undertaken before IPEF parties come up with their respective lists of critical sectors or key goods which are particularly vulnerable to supply chain disruptions.

Preventing disruptions and building supply chain resilience is one of those areas which requires consistent and unglamorous efforts towards achieving a non-event. Facilitating cooperation, enhancing transparency and enabling greater information sharing lie at the heart of the IPEF Supply Chain Resilience Agreement. Overall, it can have a significant bearing on developing and maintaining the resiliency of Indo-Pacific supply chains.

Pradeep S Mehta is Secretary-General and Advaiyot Sharma is assistant policy analyst at CUTS International, a global public policy research and advocacy group. Views are personal, and do not represent the stand of this publication.

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