How Indo-Pacific economic negotiations can support supply chain resilience

As the world has experienced unprecedented shortages ranging from personal protective equipment and automotive semiconductors to wheat and sunflower oil in the midst of the pandemic and the war in Ukraine, supply chain resilience has emerged as an urgent priority issue for businesses and governments alike. Moreover, looking ahead, the concentration of critical raw materials especially essential for green and digital technologies subjects the supply chains of emerging technologies to potential geopolitical risk.

Through a series of recent supply chain shocks, the world has learned important lessons: No country is immune to them or can manage them on its own. Only through international cooperation, particularly among like-minded countries, can countries improve supply chain resilience and economic security to the advantage of the global economic system.

One of the most promising international initiatives for tackling supply chain vulnerabilities is taking shape now with the Indo-Pacific Economic Framework (IPEF) negotiations. Initiated by the Biden administration in May 2022, IPEF serves as a blueprint for stepped-up U.S. economic engagement in the region with 14 participating countries.

Its supply chain pillar has gained significant attention, as it seeks to create a new framework for international cooperation to strengthen resilience, an area only partially addressed in conventional trade agreements. IPEF provides a venue for innovative thinking on rules and cooperation mechanisms that can help to avert supply chain disruptions in the future, complementing existing trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership Agreement (RCEP.)

IPEF negotiators are reportedly making headway in their supply chain discussions, with the possibility of announcing certain early harvest agreements, like a crisis management mechanism, around the Asia-Pacific Economic Cooperation Ministers Responsible for Trade meeting in late May. This progress is encouraging and will set the agenda for further deliverables.

However, to make IPEF an effective and mutually beneficial supply chain initiative, governments should be ambitious and creative, drawing from lessons learned in recent years. 

It’s encouraging that IPEF negotiators are designing mechanisms to provide early warning for potential shortages and disruptions, as well as to work collectively during crises. This will require timely information-sharing between businesses and governments.

Striking the right balance between sharing relevant business information and protecting privacy and confidentiality is crucial for gaining private sector buy-in. Countries are keenly interested in a collective crisis response mechanism. Creative, bold ideas should be explored here, such as adapting the financial currency swap system to a supply chain version. This would allow countries to access stockpiles and surplus resources within the IPEF-wide network during supply crises caused by external shocks or economic coercion. Developing WTO-plus rules to discourage export restrictions and facilitate customs procedures and essential cross-border movement of products and people will also prove valuable.

Finally, supply chain connectivity and co-investment opportunities can significantly benefit IPEF’s developing country members. A public-private partnership supply chain connectivity forum can help identify potential supply chain partnership and co-investment opportunities while establishing a supply chain ombudsmen system that would provide an effective one-stop shop for addressing specific concerns faced by businesses.

Beyond a sector-wide approach, IPEF work should also focus on sector-specific pilot initiatives in key strategic areas, such as critical minerals and materials — including lithium, nickel, cobalt and rare earths. These resources are economically and geopolitically significant, and diversification is urgently needed due to the current high levels of market concentration.

Developing IPEF-wide supply chain mapping for critical minerals and materials, streamlining and harmonizing regulations and standards and exploring a new swap system for these resources during crises can create tangible benefits for IPEF countries. We also recommend that Washington negotiate similar critical materials and minerals agreements with interested IPEF members, like the one recently concluded with Japan, making them eligible for electric vehicle tax credits under the Inflation Reduction Act.

Pursuing and implementing these suggestions is a large undertaking that cannot happen overnight. Instead, it could be approached in phases. This year, the focus should be on sector-wide deliverables, with 2024 dedicated to detailed, sector-specific work on critical materials and minerals while ensuring that cooperation mechanisms function effectively and address real-time problems. Over time, a market access component should also be considered.

The IPEF Supply Chain Pillar presents a welcome opportunity for the United States and its regional partners to reshape and bolster regional supply chain networks through a next-generation economic agreement. All IPEF members stand to gain by creating more resilient and secure supply chains, and their work can serve as a model for further collective actions in this area.

Han-koo Yeo is the former trade minister of the Republic of Korea and a distinguished fellow at the Asia Society Policy Institute. Wendy Cutler is vice president at the Asia Society Policy Institute.