IPEF Supply Chain Text Describes Facilitation, How to Identify Key Goods

The Supply Chain Agreement, one of the pillars of the Indo-Pacific Economic Framework for Prosperity, will ask participating countries to work together to:

• promote diversification of sources where market concentration exists for the sector or key good
• accelerate business matching, particularly for medium or small businesses, in those key goods
• describe raw material needs, demand expectations, manufacturing and processing capacities in their countries
• relieve logistical bottlenecks, including those resulting from transportation to, from and between ports of entry
• improve air and port connections
• facilitate research and development to support resilience and competitiveness of supply chains in those key goods
• facilitate trade in these goods, including "removing impediments to that trade."

Each country in the agreement will identify its critical sectors or key goods, with input from the private sector, government, academia, non-governmental organizations and workers' groups, within 120 days of entry into force. If at least three countries in the agreement identify the same good or sector, those are the areas the IPEF Supply Chain Council will target for business matching, data collection, R&D and so forth. The Council will vote on each recommendation before publishing it, with each country having a vote.

Australia, Fiji, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, the U.S. and Vietnam all negotiated the supply chain agreement; once five of those countries ratify it, it will enter into force.

These details are laid out in a 25-page text for the agreement, which was published by the Commerce Department Sept. 8. "Working in lockstep, we will be prepared to best address our shared economic challenges together," Commerce Secretary Gina Raimondo said in a news release accompanying the text.

"In identifying its critical sectors or key goods, each Party intends to consider factors such as: (a) the impact of a potential shortage on its national security, public health and safety, or prevention of significant or widespread economic disruptions; (b) the level of dependence on a single supplier or a single country, region, or geographic location; (c) geographic factors including actual or potential transport constraints, especially for its island or remote regions; (d) the availability and reliability of alternative suppliers or supply locations; (e) the extent of imports required to meet domestic demand; (f) the availability of domestic production capacity; or (g) the extent of interconnectedness with other critical sectors or key goods," the agreement says.

"An Action Plan shall not address financial regulatory issues, economic sanctions, or monetary policy," the agreement adds.

The text gets into specifics on areas that affect exports, such as asking countries to adopt "procedures that provide, under normal circumstances, for the release of perishable goods as soon as possible following receipt of all documents and fulfillment of all applicable procedures and requirements" and to "foster the increased availability of and investment in long-term and cold-chain warehousing near or easily accessible to ports of entry, and to avoid discriminatory policies and procedures that limit warehousing options for imported goods." It also says countries should consider "the development, upgrading, or digitalization of ports, logistics hubs, roads, and freight railways."

It also describes initiatives that affect U.S. importers, such as countries pledging to "explore supply chain mapping approaches, including chain-of-custody protocols and utilization of production- and logistics-related data where appropriate and feasible, with the goal of improving supply chain transparency from raw materials to finished goods." If achieved, this could help importers avoid detentions based on forced labor, though it says that the approaches, which would be designed in consultation with both countries and unions, would focus on critical sectors and key goods. So that might help importers of solar panels, for instance, but not apparel importers.

The agreement acknowledges there could be capacity constraints in some countries that could make upgrading infrastructure difficult, but says the participants will organize investment missions and encourage public-private efforts to find business partners in the other countries.

The agreement also describes a Supply Chain Crisis Response Network that will cooperate in times of disruption and also do simulations of future disruptions and responses.

The agreement includes a labor rights mechanism somewhat similar to the one in USMCA, but that differs in some important respects. Workers may file complaints with an IPEF country other than their own, as in USMCA, and both the home country and the one that received the complaint will discuss "whether an allegation is adequately substantiated and likely to affect IPEF supply chains," and the home country will investigate whether the allegation is inconsistent with its domestic labor laws.

However, the names of the companies that are the subject of the allegations will never be disclosed, whether or not both countries ultimately agree there was a problem. If the outside country is dissatisfied with the home country's response, if two-thirds of the IPEF Labor Rights Advisory Board agrees, it can "develop proposals to address any negative effects on IPEF supply chains resulting from the alleged labor rights inconsistency," as well as report it to the International Labor Office. The board also can "identify opportunities for technical assistance and capacity building to address labor rights inconsistencies similar to those identified in the allegation."

Those unresolved allegations will go on a public list, but still won't identify the companies; the list will identify the country where the problem occurred, and in what sector, unless naming the sector would identify the factory or facility.

Any country in the supply chain agreement can withdraw after the first three years; after five years, its participants will review the agreement to see if it can be enhanced and amended. Other countries may ask to join the agreement after the first year.