Supply Chain Agreement Can be First Step toward Greater Cooperation

It is important for the United States to be involved in rulemaking for economic activities in the Indo-Pacific region. It is hoped that a U.S.-led economic bloc will be developed, with measures to strengthen supply chains as a driving force.

A ministerial-level meeting of the Indo-Pacific Economic Framework (IPEF), an economic bloc initiative led by the United States with the participation of 14 countries, has been held. An agreement was effectively reached to cooperate in the area of supply chains. This is the first achievement since the IPEF was established in May last year.

IPEF member nations will now aim to finalize an agreement under which they supply each other in the event of shortages of critical materials, such as semiconductors and minerals. This will reportedly be the first time for a multilateral agreement on supply chains to be finalized.

During the coronavirus pandemic, the difficulty in procuring semiconductors caused delays in the production of automobiles and other products, and medical supplies such as masks and disinfectants became scarce. It makes sense to cooperate in strengthening supply chains in preparation for the spread of infectious diseases, conflicts and other emergencies.

The IPEF includes seven countries from the Association of Southeast Asian Nations (ASEAN), plus Japan, the United States, South Korea, Australia, India and others.

Since the United States withdrew from the Trans-Pacific Partnership (TPP) agreement, China has been expanding its influence in the region. Under such circumstances, the IPEF was created as a framework for the United States to remain involved in the Asian economy.

According to the IPEF, it will work on rulemaking in four areas: supply chains, trade, clean economy and fair economy.

However, unlike the TPP, the IPEF does not include the elimination of tariffs among its goals. Some argue that there are few advantages to participating in the IPEF for Asian countries that want to increase their exports to the United States.

But for starters, the member nations have agreed on supply chains, probably because they are an easy area to gain the support of many countries. Hopefully, this will be a step toward greater coordination among the participating countries.

The agreement also aims to reduce dependence on China for critical materials. Using its market dominance as a weapon, China has repeatedly engaged in “economic coercion” to prohibit exports of goods to countries with which Beijing is at odds.

Of particular concern is China’s high global share of mineral resources that are essential for solar panels and storage batteries for electric vehicles. It is hoped that specific measures to build supply chains that do not rely on China will be worked out.

On the other hand, there are many ASEAN countries that have deep economic ties with China and wish to avoid provoking Beijing excessively. It will be important for Japan to act as a bridge between them and the United States while providing them with practical benefits, such as support for decarbonization.

China is a member of the Regional Comprehensive Economic Partnership (RCEP) agreement and is also applying for membership in the TPP. To strongly keep such efforts by China in check, Japan should continue to convince the United States that Washington’s return to the TPP itself is absolutely necessary.

(From The Yomiuri Shimbun, May 31, 2023)