The Indo-Pacific Economic Framework (IPEF) comes into
force on 24 February 2024. But what is it? And what does it mean for the
apparel supply chain?
February 8, 2024
IPEF is described as a “first of its kind” agreement, bringing coordination
between the US and 14 partner nations in four key areas.
“I am thrilled to see the continued
commitment and enthusiasm of the IPEF partners to make concrete progress and
deliver tangible outcomes in record time,” said US Secretary of Commerce Gina
Raimondo. “With the IPEF Supply Chain Agreement shortly entering into force, we
will now move forward and work collaboratively through this innovative
framework with the goal of strengthening our supply chains and preventing
potential disruptions before they arise for the collective benefit of our
countries’ workers and businesses.”
On 24 February 2024, the area of the scheme focused on supply chains will come into force. Here’s how the IPEF will impact the apparel sector.
What is the IPEF?
The IPEF launched in 2022 under President Biden, aiming to strengthen ties between the US and countries in the Indo-Pacific region. The White House says the scheme will create a “stronger, fairer, more resilient economy for families, workers and businesses”.
The agreement includes four pillars – trade, supply chains, clean economy and fair economy.
It is important to note that the initiative does not include lowering tariffs.
What is included in the agreement?
Participating states in the IPEF agree to “seek to establish enforceable, high-standard commitment” in the following areas:
• digital economy and e-commerce, including cross-border data flows, data localisation, online privacy, and discriminatory and unethical use of artificial intelligence
• labour and environment issues and corporate accountability
• supply chain resiliency, including establishing an early warning system, eliminating bottlenecks in critical mineral supply chains, improving traceability in key sectors, and coordinating on diversification efforts
• accelerated implementation of the WTO Trade Facilitation Agreement
• facilitating agricultural trade through science-based decision-making and sound, transparent regulatory practices
• clean energy, decarbonisation, energy efficiency standards, infrastructure, and methane emissions
• enforcement of effective tax, anti-money laundering and anti-bribery, including provisions on the exchange of tax information, criminalisation of bribery in accordance with UN standards, and effective implementation of beneficial ownership recommendations.
Participants are working to establish exactly what each pillar includes and what commitments they will need to make.
Why doesn’t the IPEF include lower tariffs?
US National Security Advisor Jake Sullivan previously explained that the IPEF is “not a traditional free trade agreement” and does not include lower tariffs because “the new landscape and the new challenges we face need a new approach”.
Raimondo added that, even without lower tariffs, there is still a “very concrete benefit” for countries in the Indo-Pacific region for collaborating with the US on the issues outlined above.
Which countries are included in the IPEF?
The following countries have so far agreed to join the scheme:
• New Zealand
• The Philippines
All the countries have agreed to take part in all four pillars of the agreement, aside from India which has opted out of the trade element of the deal.
The US has also invited others in the region “that share our goals, interests and ambitions” to join the scheme.
What does the IPEF mean for apparel supply chains?
The IPEF says it aims to build resilient, efficient, productive, sustainable, transparent, diversified, secure, fair and inclusive supply chains.
The US Department of Commerce says it hopes the agreement will help member nations “prepare for supply chain disruptions such as those experienced in recent years from the Covid-19 pandemic”.
Member nations will need to:
1. Identify representatives to the Agreement’s three supply chain bodies by 25 March 2024.
2. Select a Chair for each supply chain body.
3. Each supply chain body will need to adopt the terms of reference by no later than 23 June 2024.
4. Identify and notify partners of each country’s list of critical sectors and key goods for cooperation under the Agreement by no later than 120 days after the date of entry into force for each country.
5. Develop the guidelines for the facility-specific.
The text of the agreement on supply chain resilience is available to read in full here.
Why is the US increasing links in the Indo-Pacific region?
The White House claims the scheme aims to create a “stronger, fairer, more resilient economy for families, workers and businesses”.
When the policy was announced in May 2022, US Commerce Secretary Gina Raimondo commented that the IPEF would also offer “an alternative to China’s approach” in the region.
Some apparel sector experts have gone further, speculating that the IPEF offers a “smokescreen” to reduce sourcing from China, while expanding US influence in the region.
As the scheme was announced in 2022, Gherzi Textil Organization partner Bob Antoshak told Just Style: “The Indo-Pacific Economic Framework for Prosperity is an initiative led by the Biden Administration to develop an economic counterbalance to China in the Pacific while expanding US economic influence in the region.”
Antoshak added that the IPEF is not a free trade agreement, nor is it a form of security pact.
He explained: “It is designed, however, to further economic cooperation in the region. But it’s also, frankly, a smokescreen obscuring US objectives in the Indo-Pacific region to deter an increasingly assertive China.”
How has the apparel sector responded to the IPEF?
At the time the policy was announced in 2022, USFIA’s president Julia Hughes welcomed the potential for joint policies to tackle forced labour in supply chains, but told Just Style: “USFIA would be remiss if we did not convey that import taxes such as tariffs are the primary obstacle to the creation of fair and resilient supply chains in the region. Any agreement that fails to lower tariffs on clothing will represent a missed opportunity to create a more equitable trading system.”
AAFA’s senior vice president of policy Nate Herman told Just Style: “The proposed IPEF is a small first step. It offers the potential to reengage with our allies in that part of the world. At the same time, it shows the danger of the US not fully executing important trade agreements. Partial engagement and half measures are not the path to long-term success.”