The agreement brings welcome attention to the issues facing supply chains, but effective implementation will be key to realising the agreement’s potential.
The Supply Chain Agreement contains a laundry list of the parties’ plans to make supply chains stronger and more resilient. This includes everything from increasing transparency, to facilitating investment and to encouraging the use of digital standards.
While mostly laudable aims — particularly considering the challenges in reaching consensus among the diverse range of IPEF participants — much of the language is broad and non-binding, which leaves it open to interpretation. The hope will be that these can at least set baseline norms and perhaps inform binding rules in the future. The risk, though, is they become dead letters with little tangible impact.
The Supply Chain Agreements’s new institutional mechanisms may provide more concrete outcomes. These include an IPEF Supply Chain Council, an IPEF Supply Chain Crisis Response Network to prepare for and respond to disruptions and an IPEF Labor Rights Advisory Board made up of government, worker and employer representatives.
The United States has said it hopes IPEF will become an ‘enduring forum’ for negotiations. Effective and sustained engagement in these bodies by parties and stakeholders could cement IPEF as a key part of the region’s economic architecture.
But the new workload may also raise concerns about IPEF siphoning attention and resources from other initiatives such as APEC, RCEP or other more ASEAN-centred fora. Some IPEF participants may also struggle to actively participate across the full suite of activities.
Parties will also be calibrating their engagement depending on their view of how enduring IPEF will be, particularly with a US election in 2024. IPEF agreements are Executive Agreements for the United States, which puts US participation at the whim of any future president. The Supply Chain Agreement attempts to guard against changes of heart with a requirement that parties stay members for at least three years. But with no real way to enforce this requirement, if a future administration failed to see the agreement’s value there is little to stop them from walking away.
Concerns about the future may also explain the set timeframes and work programs the various supply chain bodies have been given in the agreement. They reflect a clear desire to ensure the agreement leads to action and results as soon as possible. The United States will also be hoping for quick ratifications from the parties so that the agreement can enter into force and start to show its value as the United States heads into election season.
No discussion of an IPEF agreement can fail to mention dispute settlement and enforcement. As expected, the Supply Chain Agreement does not have any binding dispute settlement, with only consultation and public reporting requirements to incentivise implementation. Given the contents of the agreement and its provisions this is not a surprise nor likely a real concern.
While it would have been preferable — and certainly more impactful — to see concrete outcomes for businesses operating supply chains, such as binding outcomes on regulatory coherence or improved market access, in their absence it is not clear that a traditional dispute settlement regime would have been worth the negotiating effort.
That said, a similar outcome for IPEF pillars with more direct and tangible benefits for trade and investment — such as digital trade rules in pillar one — could raise questions around credibility from stakeholders.
Structuring dispute settlement in the absence of market access will require some innovative thinking, and perhaps this is something the United States is ready for given its work on World Trade Organization dispute settlement reform. US Secretary of Commerce Gina Raimondo has said that IPEF ‘is enforceable because countries that don’t follow the rules or live up to their commitments don’t receive the benefits’ and cautioned that non-compliant parties could be ‘kicked out of the club’. This is not reflected in the Supply Chain Agreement, but could still be on the cards for the other pillars.
At bottom, IPEF’s Supply Chain Agreement shows a welcomed willingness to break with the past and try new ideas to address new challenges. If participation is robust, implementation is real and stakeholders take an interest, the agreement could become a valuable framework for resolving supply chain issues in the region.
All agreements are only as good as their implementation. The key benefits of the Supply Chain Agreement, in particular, depend upon discussions, consultations and cooperation. Only time will tell if this model, centred around good intentions, can be translated into tangible outcomes.
Devon Whittle is Special Counsel at Watson Farley & Williams.