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Dhaka Tribune

How will the IPEF affect Bangladesh?

The Indo-Pacific Economic Framework will introduce new regulatory baselines in Asia, raising expectations for businesses and government in Bangladesh

Update : 17 Jul 2022, 05:51 AM

Bangladesh is not a member of the Indo-Pacific Economic Framework for Prosperity (IPEF). US representatives have, however, briefed their Bangladeshi counterparts on the IPEF. 

This suggests Washington DC believes the IPEF will impact Bangladesh’s economy, and sees Bangladesh as a country that could participate in the future. 

Separately, there remain many uncertainties regarding the IPEF’s future course. 

US president Joe Biden’s administration has designed a framework for multilateral dialogue based on what the president could reasonably achieve with a deeply divided congress. 

But each participating government has its own economic interests and political constraints. 

Larger IPEF economies -- like Australia and Japan -- have similar laws to those on the books in the US, while smaller IPEF economies -- like Indonesia and Vietnam -- have just begun adopting some. 

There are also outliers in the IPEF, like India, which has resisted multi-lateralism as part of its non-alignment, and Fiji, a micro-state that shares little in common with other IPEF members. 

The IPEF will then produce a wide-range of outcomes supported by different groups of countries within the IPEF, depending on their interests in each initiative. 

Given Bangladesh’s limited involvement at present, and the variety of variables that will emerge, it is fair for Bangladeshis to take a wait-and-see approach to the IPEF. 

At the same time, the IPEF is substantive enough to reach firm conclusions about its trajectory. 

The IPEF will establish new regulatory baselines for Bangladesh

One overlooked aspect of the IPEF is that some of the initiatives are not breaking new ground. 

Many IPEF participants have adopted new labor, environment, and corporate accountability standards over the last decade. Corporate accountability, in particular, has proven popular, and contributed to tax collection, anti-money laundering, and anti-bribery regimes globally. 

While there is a great deal of diversity in each IPEF participant’s legislation, as well as their ability, and willingness, to enforce standards, harmonizing these standards is not beyond the IPEF’s capacity. Many countries already have, for example, tax agreements or shared accounting standards. 

Any IPEF agreements to further align labor, environment, and corporate accountability standards will raise expectations on businesses from Bangladesh whether Dhaka joins the IPEF or not. 

Businesses from Bangladesh that do business with, or in, IPEF countries will likely need to comply with new compliance standards in the coming years. 

Meanwhile, businesses from IPEF countries may hesitate to contract, trade with, or invest in businesses from Bangladesh if they are not able to meet commonly accepted best practices. 

New regulations in IPEF countries could also affect Dhaka’s economic aspirations. 

Dhaka is currently exploring a number of preferential trade, free trade, and comprehensive economic agreements in Asia -- it has claimed it would like to sign at least 10 in the coming years. 

Should IPEF members strengthen business regulations, it would directly impact the feasibility of the trade and economic agreements Dhaka is currently exploring. 

Governments from larger economies, and trade groupings, already appear concerned about Dhaka’s ability to enact the reforms needed for trade and economic agreements. 

Meanwhile, governments from smaller economies may not have the capacity, or willingness, to negotiate Dhaka’s specific concerns when they are deepening their involvement with the IPEF. 

Dhaka may then need to accelerate its time timeline for trade and economic agreements with IPEF countries, and the reforms they require, to save the work it has already conducted. 

Alternatively, the government would need to re-study and -negotiate proposals with IPEF countries. 

The IPEF will change trade and investment flows in Asia

Other IPEF initiatives go well beyond strengthening and harmonizing regulatory standards. 

The IPEF’s interest in supply chain commitments, for example, is a new feature of multilateral economic dialogue in Asia. It appears to reflect lessons learned from unanticipated events over the last five years, namely the US-China Trade War, Covid-19 pandemic, and Russia’s invasion of Ukraine. 

Biden described this initiative, “establishing an early warning system, mapping critical mineral supply chains, improving traceability in key sectors, and coordinating on diversification efforts.”

It is not clear whether this commitment would take the form of a new, centralized institution, or a less-structured, cross-government working group between participating IPEF governments. 

Larger, more developed IPEF countries -- like South Korea, Japan, or the US -- likely have interest in pursuing a more centralized institution that could provide their businesses a competitive edge, and protect their consumers from costly, and politically damaging, supply chain disruptions. 

Smaller, less developed IPEF countries -- like Brunei, Malaysia, or Thailand -- would benefit from such an institution, but may resist the effort if it were fold-in, or track, regulatory compliance and enforcement, particularly for labor, environment, and corporate accountability standards. 

This initiative’s final incarnation will then depend on whether its champions take a big tent approach. 

The IPEF’s interest in establishing regulations for the digital economy is even more ambitious. This is an initiative the Biden administration has been discussing over the past year, and would reflect the IPEF’s signature achievement, if any combination of its participants reach consensus. 

Biden described this initiative as defining the “rules of the road in the digital economy, including standards on cross-border data flows and data localization” and “addressing issues is such as online privacy and discriminatory and unethical use of artificial intelligence.”

This initiative is a political minefield. 

It is possible that a few IPEF countries -- Singapore or the Philippines -- with service sectors that export to the US will be interested in pursuing negotiations on the digital economy. It could lower the cost of doing business, and increase trade and investment. 

However, a majority of the IPEF countries do not share US interests, when it comes to cross-border data flows and data localization, and values, when it comes to online privacy and discrimination.

The IPEF’s interest in clean energy and decarbonization is a more straight-forward proposition. This initiative will produce a split between developed and developing countries, while the US itself will struggle to garner the domestic political support it would require for binding terms. 

The impact of the supply chain, digital economy, and clean energy initiatives are then less certain.

What is clear, though, is that these ambitions reflect a broad array of interests in IPEF countries. And they have committed to working towards agreements where possible.

And when they reach agreements, they will change the way many businesses work in Asia, redirecting trade and investment flows in the region. 

Questions about the IPEF’s feasibility, or strategic impact, obfuscate these more relevant concerns. 

Adam Pitman is an American writer and analyst in South Asia.

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