IPEF Supply Chain Agreement to take effect from April 17 in South Korea
Date of publication: April 30th, 2024
On April 12, 2024, The Ministry of Trade, Industry and Energy of South Korea (S. Korea) announced that the Indo-Pacific Economic Framework for Prosperity (IPEF) Supply Chain Agreement would come into effect on April 17, 2024 in Korea after South. Korea submitted for ratification on March 18, 2023. The IPEF is an initiative by the US aimed at strengthening economic partnerships among participating countries in the Indo-Pacific region. It is designed to address a range of economic issues, including trade facilitation, digital economy and technology, supply chain resilience, decarbonization and clean energy, infrastructure, worker standards, and anti-corruption measures. The countries that were initially part of the framework include: Australia, Brunei, Fiji, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, Vietnam, and the United States. For the U.S., Japan, Singapore, Fiji, and India, the Supply Chain Agreement has taken effect as of February 24, this year; S. Korea will be the sixth country to ratify the said agreement.
What does the IPEF cover?
The IPEF is a multi-faceted initiative aimed at strengthening economic cooperation and trade among participating countries in the Indo-Pacific region. The framework is organized around four main pillars, each covering a range of issues. Here is a summary of what each pillar aims to address:
- Trade pillar: This pillar focuses on setting standards for the digital economy, including digital trade, data flows, and data localization. It also aims to facilitate trade by reducing barriers and improving transparency, as well as addressing labour and environmental standards in trade agreements.
- Supply chains pillar: The objective here is to enhance the resilience and security of supply chains. This involves identifying critical sectors and goods, diversifying supply sources, and establishing mechanisms to prevent and respond to supply chain disruptions.
- Clean economy pillar: This pillar promotes the transition to a clean energy economy. It includes initiatives for decarbonization, the development and trade of renewable energy and clean technology, and possibly the creation of a carbon trading market.
- Fair economy pillar: The focus is on setting standards to combat corruption, improve transparency, and ensure fair competition. It also seeks to improve labour standards and ensure that economic growth benefits are widely shared.
The IPEF is not a traditional trade agreement but rather a collaborative platform for participating countries to commit to certain principles and cooperative actions. The specific commitments and steps to be taken within these pillars will evolve as member countries continue their discussions and negotiations within the framework.
What is the IPEF chain agreement covered?
The IPEF is the first multilateral international agreement on supply chains. It aims to enhance the resilience and security of supply chains among participating countries. It's important to note that the specifics of the IPEF Supply Chain Agreement, including the exact commitments and operational details, would be subject to the outcomes of the ongoing negotiations among the IPEF member countries, it generally covers the following aspects:
- Establishment of cooperation mechanisms: The agreement seeks to create mechanisms for cooperation on supply chain issues, which are critical in the face of disruptions like those experienced during the COVID-19 pandemic.
- Identification of critical sectors: It involves identifying key sectors and goods where supply chain resilience needs to be strengthened to prevent potential disruptions.
- Diversification of supply sources: The agreement aims to diversify supply chains to reduce over-reliance on any single source or country, thereby mitigating risks associated with supply chain concentration.
- Joint response framework: It establishes a foundational framework for joint responses to global supply chain disruptions among member nations, which could involve early warning systems, coordinated action plans, and possibly stockpiling strategies.
- Policy consultations and cooperation: The agreement includes provisions for policy consultations to enhance supply chain stability and smooth operation, as well as to address any disruptions in a timely manner.
- Engagement with China: Despite the IPEF being seen to reshape the Indo-Pacific economic landscape, possibly excluding China, the context indicates that Korea has been engaging with China to negotiate a Supply Chain Agreement to maintain stability in trade relations.
- Comparison with other agreements: There is a discussion about how the IPEF Supply Chain Agreement compares with existing texts, such as the CPTPP, and whether it supports or cuts across WTO rules.
How the IPEF compares to other FTAs
Features | IPEF | CPTPP | RCEP |
|---|---|---|---|
Member countries | Australia, Brunei, Fiji, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, Vietnam, United States and others may join. | Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and others may join. | Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, Philippines, Singapore, South Korea, Thailand, and Vietnam, and others may join |
Main Objectives |
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Type of Agreement | Economic Framework (not an FTA) | Free Trade Agreement | Free Trade Agreement |
Current Status | Under discussion/Negotiation | In force since December 30, 2018 | In force since January 01, 2022 |
The IPEF is not a traditional free trade agreement; it doesn't currently aim to reduce tariffs but rather focuses on setting standards and rules for economic engagement. An assessment of the IPEF's potential impact on global trade dynamics, including its role in countering economic coercion and promoting a rules-based international order. The key impacted areas are likely to be trade policies, supply chain management, digital economy, environmental standards, and labour practices. However, the specific impacts will depend on the final form of the agreements and how they are implemented by the member countries. For more details about the IPEF can be found here.
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