► IPEF may not be a traditional trade agreement, but it has the potential to bring together a wider range of countries that share common interests in each of these areas, if not always the same positions.

► A successful IPEF, as currently envisioned in its announcement, could help to advance the interests of the United States and Korea.

Since the United States withdrawal from the Trans-Pacific Partnership under the Trump administration, it has lacked a region wide initiative for economic engagement with the Indo-Pacific. The recently announced Indo-Pacific Economic Framework (IPEF) is the Biden administration’s effort to rectify this shortcoming.

The IPEF is a new approach to trade. Rather than a traditional trade agreement that reduces tariffs, addresses regulatory barriers, and is approved by Congress, IPEF’s four pillars are a vehicle for countries to tackle areas of trade policy that have not traditionally been included in FTAs. Two of the pillars deal with emerging issues such as secure supply chains and digital trade, while the other two focus on issues traditionally not covered by trade agreements in climate change and corruption.

However, the nature of IPEF also represents the political limitations on trade policy in the United States. Despite Americans having more positive views of trade than at any point over the last three decades and being supportive of free trade agreements, trade is politically challenging domestically. First, while Americans view trade and trade agreements favorably overall, a majority of Americans also see trade agreements as having only minimal benefits for middle class and working class Americans. Second, the political bases of both political parties have grown increasingly skeptical of trade.

The decline in political support for trade limits the scope of U.S. trade initiatives. It also makes IPEF more vulnerable to a reversal by a future U.S. president than traditional trade agreements, since it would lack the approval of Congress.

Despite these political challenges, IPEF holds real potential benefits for the United States and Korea. Over the last two U.S.-Korea summits, the United States and Korea have committed to deepening the alliance through cooperation on digital trade, secure supply chains, and climate change. Bilateral cooperation on these issues is important, but each of these issues extend beyond the bilateral relationship and requires cooperation on a multilateral level. IPEF can play an important role in deepening the U.S.-Korea alliance’s cooperation on these issues within the Indo-Pacific, while also providing the United States and Korea an opportunity to shape the rules and norms on issues that will be increasingly important in the years ahead.

Cooperation on Digital Economy and Trade

The digital economy began emerging well before the pandemic, but lockdowns and restrictions around the world pushed businesses and individuals to transition more of their work and consumption to the digital realm.  This has helped to push the digital economy unto the U.S.-Korea alliance’s agenda, with both countries agreeing to support an “open, free, global, interoperable, reliable, and secure Internet,” with IPEF an opportunity to take substantive steps in developing those standards in the Indo-Pacific.

One approach for the IPEF negotiations would be look to an existing digital trade agreement, such as the Digital Economy Partnership Agreement (DEPA), which includes provisions on issues such as cross-border data flows, cybersecurity, personal data protection, digital inclusivity, artificial intelligence, small and medium enterprise trade, and the creation of regulatory sandboxes for data and innovation. Members of IPEF could either pledge to join DEPA or to build on the work of DEPA or other digital trade agreements.

Developing high quality rules and norms in the areas identified by DEPA will be important not only for digital commerce, but also digital innovation. In some cases, the rules established will also need to work together to spur innovation. For example, rules on cross-border data flows will be crucial not only for the flow of digital commerce, but also for the development of artificial intelligence applications, which will need access to data from multiple countries. However, without adequate rules on cybersecurity and personal data protection countries may continue to push for data localization.

As two digital societies, the United States and Korea have an interest in how the rules of the digital economy are shaped in the Indo-Pacific. Though, in some cases Korea’s interests may diverge from the United States.

Korea is at the forefront of the development of the metaverse. The metaverse and its 3D environment will likely create unknown digital opportunities and challenges if it is successfully developed, but rules on cross-border data, payments, privacy, and social interactions will all likely play a role in how it evolves. As one of the countries at the frontier of its development, Korea, along with the United States, has a clear interest in how rules around its development are shaped.

Korea has also been at the vanguard of a push to allow apps to use the payment system of their choice rather than systems required by large tech firms such as Google and Apple. SK Broadband is also in a dispute with Netflix over payments for internet traffic. The IPEF could help to shape rules in these areas and resolve these disputes.

Secure Supply Chains and Climate Change

The early disruptions to global supply chains from the pandemic and the subsequent surge in demand for consumer goods has resulted in extended supply chain disruptions over the last two years. These disruptions have been most prominently seen in the shortages of semiconductors for automobiles and other consumer electronics, but have extended to other areas and been further strained by Russia’s invasion of Ukraine.

The United States and Korea are already cooperating on developing secure supply chains, but IPEF provides an opportunity to expand cooperation, especially in areas related to climate change.

At the 2022 U.S.-Korea summit, the two countries agreed to cooperate on developing secure supply chains for batteries and critical minerals. Korea is already playing an important role in the United States’ transition to electric vehicles (EV), as Korean producers of EV batteries have partnerships with Big 3 and many foreign producers in the United States to supply EV batteries. In addition, 12 of 15 announced high capacity battery plants expected to be built in the United States by 2025 will be built by or in a joint venture with Korean EV battery producers.

While this investment will address production capacity issues in the United States, it does not address the critical minerals components dimension of EV battery supply chains. China is the dominant source for mining or refining critical minerals such as cobalt, lithium, and nickel. In light of China’s use of economic coercion, developing new supply chains of critical minerals is important for maintaining the resiliency of the U.S. and Korean economies.

In this area the two countries are already working through the Minerals Security Partnership to develop a robust supply chain for critical minerals, but IPEF offers an opportunity for the United States and Korea to expand supply chains for critical minerals within the region. It would also aim to develop early warning systems and improve transparency in ways that would benefit the economies of the Indo-Pacific. If developed properly, collaboration on secure supply chains through IPEF could be more promising for Korea than as a Quad Plus member as it would expand the potential partners for the U.S. and Korea. 

Beyond the supply chain side of climate change, IPEF would also provide a platform to align rules and standards on clean energy infrastructure and development finance for clean technologies in the region.

Why IPEF?

As the United States and Korea look to deepen collaboration on issues such as technology, secure supply chains, and climate change, there is a need to expand that cooperation beyond the bilateral relationship. Each of these issues requires not just bilateral cooperation, but cooperation with likeminded partners to establish rules that will protect technological innovation, secure parts of supply chains that range beyond the United States and Korea, while addressing the global challenge of climate change.

IPEF may not be a traditional trade agreement, but it has the potential to bring together a wider range of countries that share common interests in each of these areas, if not always the same positions. A successful IPEF, as currently envisioned in its announcement, could help to reduce supply chain dependence on China, create more supply chain resiliency, expand digital and traditional economic opportunities in the Indo-Pacific, and assist countries in the region with the transition to climate change – all of which are also in the interest of the United States and Korea.