This is from an Inside US Trade article from last week:
Members of the Indo-Pacific Economic Framework for Prosperity agree on a need to pursue binding commitments, ministers told Inside U.S. Trade last week, but those commitments likely will differ from those in other trade arrangements as countries consider self-enforcing and incentive-based rules.
Philippine Trade and Industry Vice Minister Ceferino Rodolfo is one of the proponents of an incentive-based approach rather than the punitive system enshrined in traditional trade agreements. Rodolfo told Inside U.S. Trade that "binding commitments" could mean IPEF-compliant countries are the ones allowed to participate in regional supply chains. Conversely, countries that aren't living up to IPEF provisions would be left out.
I would like to hear more details about all this, but if I understand what is being suggested in the article, I see some problems with this approach, as follows.
When you are dealing with tariffs, it is often very clear whether a particular government measure is in violation of a trade agreement. There may be some instances where there are questions about customs classification or something similar, but most of the time, compliance with the obligations is easy to judge: Either the tariff exceeds the bound rate or it does not.
By contrast, with obligations that are based on substantive legal principles and their various exceptions, compliance can be difficult to determine. In most cases where compliance questions arise, the parties will disagree about whether the measure is in compliance. In these circumstances, adjudication is helpful in making a definitive determination that everyone can accept.
IPEF won't have any tariff reductions. Instead, it will focus on substantive obligations that apply to domestic laws, regulations, and practices. As a result, there are likely to be disagreements about whether particular domestic measures are in compliance with IPEF, and without adjudication it is going to be a challenge to determine whether compliance exists.
If I understand the IUST quotes above, the current vision for IPEF is that determinations of compliance are going to be unilateral. Thus, if the U.S. is concerned about the actions of one of the other IPEF parties, the U.S. would on its own make a determination about whether the other party is in compliance. The U.S. would then use "regional supply chains" as the incentive to enforce its judgment. That is, having determined that the other party was not in compliance, the U.S. would not let that country participate in a particular supply chain initiative it was developing. I'm not completely sure what that would mean, but what it could mean, to take an example, is that if there were U.S. government financing being offered for the production of a raw material or product in an electric vehicle supply chain, producers from that other party would not be eligible for the financing.
Could this approach work? It depends what we mean by "work."
Would it provide a short-term incentive to comply with U.S. demands related to IPEF compliance? I see how it could. If the carrots being offered are attractive enough, there would be an incentive to comply. But over the long-term, how will other parties feel about these sorts of unilateral judgments and demands, which will have an impact on their domestic policies that are affected by the substantive obligations of IPEF (e.g. the domestic regulation of digital policy or environmental policy or labor policy)? They might not like it very much.
And does this approach work for everyone? It comes across as unequal and imbalanced, as it is likely to be enforced by the United States but not by others. It's hard to see, for example, Australia and Japan using this kind of enforcement against each other.
As a result, I'm not sure how durable this kind of approach to enforcement would be. While other parties may be saying positive things now about the theoretical idea of such a mechanism, would they like it being applied to them in specific cases of enforcement? Maybe not. On the other hand, whether any of these obligations would actually be enforced seems very far off at this point; and perhaps people are not expecting an aggressive use of such an enforcement mechanism.
If the idea here is that if other countries just join the IPEF club they can get access to regional supply chain initiatives, I see how this vision of IPEF can get off the ground. I'm just not sure how enforcement of the club rules will go if it turns out people are interpreting the obligations differently.
