- IPEF
Indo-Pacific Economic Framework for Prosperity Agreement relating to Supply Chain Resilience
4.1IPEFF was referred to the Committee on 2 May 2024.
4.2The Committee received four submissions and held a public hearing in Canberra on 15 July 2024. A list of submissions can be found at Appendix A. The hearing and witnesses are listed at Appendix B. The transcript of evidence from the public hearing can be accessed through the Committee’s website.
Overview
4.3The proposed major treaty action (Category 1) Indo-Pacific Economic Framework for Prosperity Agreement relating to Supply Chain Resilience (the Agreement) between Australia, Brunei, Fiji, India, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, the United States and Vietnam aims to create a framework to enhance collaboration to prevent, mitigate and prepare for supply chain disruptions across the region.
4.4The Agreement will benefit Australia in relation to supply chain resilience by establishing international policy levers, sending market signals on diversification, promoting an international evidence-based approach, and ensuring a systemic and coordinated approach to disruptions.
Background
4.5The Agreement was signed by Australian on 16 November 2023 and entered into force generally in February 2024 after ratification by five states (Fiji, India, Japan, Singapore and the United States). The Agreement will enter into force for each additional state 30 days after ratification.
4.6At the public hearing Ms Blundell, from the Indo-Pacific Economic and Supply Chain Branch of the Department of Foreign Affairs and Trade (DFAT), told the Committee that the Agreement ‘is a first-of-its-kind agreement that sets an important precedent in the way that governments can collaborate to advance supply chain resilience through trade policy and public sector tools.’
Indo-Pacific Economic Framework for Prosperity (IPEF)
4.7The Minister for Trade and Tourism launched the negotiations for the Indo-Pacific Economic Framework for Prosperity (IPEF) on 12 September 2022 with the aim of reinforcing Australia’s commitment to ‘diversifying trade relationships, creating new export opportunities, contributing to greater employment and inclusive economic growth for Australians, and promoting regional economic integration’.
4.8IPEF has four pillars across Trade (Pillar I), Supply Chain Resilience (Pillar II), Clean Economy (Pillar III) and Fair Economy (Pillar IV) with each intended to have a standalone international agreement. An overarching agreement will provide for annual Ministerial engagement and a governance framework to ensure that the pillars are coherent and complimentary. Ratification of Pillar II is sought due to the divergent negotiating times between agreements.
4.9The Agreement will also establish three supply chain bodies aimed at enhancing cooperation - the IPEF Supply Chain Council, IPEF Supply Chain Crisis Response Network, and the IPEF Labour Rights Advisory Board.
Justifications
Supply chain resilience
4.10According to the National Interest Analysis (NIA), the Agreement will benefit Australia in relation to supply chain resilience by establishing international policy levers, sending market signals on diversification, promoting an international evidence-based approach, and ensuring a systemic and coordinated approach to disruptions.
4.11The establishment of the IPEF Supply Chain Council will provide Australia with a platform for engagement in regional policy discussions, cooperative measures and crisis response coordination which will assist in reducing Australia’s future risk of shortages of critical goods.
4.12Additionally, the Agreement establishes the IPEF Supply Chain Crisis Response Network which should benefit Australia though reduced exposure to geographic bottlenecks, early warning of disruptions, preparing for and mitigating against volatility in supply chains, and reducing the likelihood that countries will implement unilateral, interventionist market-distorting policies that worsen supply chain disruptions.
4.13During the hearing, DFAT explained that in the past supply chain disruptions have been caused by ‘global and regional epidemics, climate change, natural disasters, cyber incidents, logistical interruptions, fluctuations in the availability of critical raw materials, geopolitics or international conflict’. These disruptors have had flow on effects that have impacted Australia’s national security, public health and safety, and overall economic stability.
4.14As was experienced during the COVID-19 pandemic, these disruptions to supply chains cannot be solved by Australia acting on its own. By signing on to the Agreement, Australia aims to de-risk those supply chains through fostering greater cooperation and collaboration, the sharing of vulnerabilities with industry and other Parties, and though the development of cooperative action plans around risk mitigation.
Improved labour standards
4.15The Agreement also focuses on supporting International Labour Organization (ILO) efforts to lift labour standards in the region alongside economic development and should contribute to a more balanced playing field for Australian manufacturers and exporters.
4.16The establishment of a Labor Rights Advisory Board will provide Australia with an avenue to advocate for greater transparency on labour practices in the region's supply chains and represents ‘a major collective lift to uphold and enforce labour protections across the region.’
Key initiatives and obligations
4.17The Agreement sets out binding obligations and non-binding commitments for Parties to cooperate on the initiatives established, which are to be undertaken consistent with domestic laws and existing treaty obligations.
4.18Binding obligations primarily relate to the establishment of the IPEF Supply Chain Council, IPEF Supply Chain Crisis Response Network, and the IPEF Labour Rights Advisory Board.
IPEF Supply Chain Council
4.19Through the Agreement the IPEF Supply Chain Council (the Council) aims to deliver sector-specific regional Action Plans to improve supply chains for key goods and critical sectors nominated by the Parties.
4.20The Council will be guided by a terms of reference and will meet annually to review annual reports provided by Parties, establish teams to develop action plans, review submitted action plans, discuss any labour rights concerns or recommendations, and discuss opportunities to support skills and workforce development.
4.21Further, the Council will consider areas in which technical assistance and capacity building could be beneficial, and will establish Action Plan teams in consultation with a wide range of stakeholders to aid the development of recommendations.
IPEF Supply Chain Crisis Response Network
4.22The establishment of the IPEF Supply Chain Crisis Response Network (the Network) aims to serve as an early warning information sharing facility and provide an emergency mechanism to ensure the timely delivery of critical goods during supply chain disruptions.
4.23The Network will serve as an emergency communications channel during supply chain disruption, facilitate cooperation of responses to supply chain disruption, provide opportunities to prepare and test strategies for responses to supply chain disruption, and assess policies and procedures to determine preparedness for supply chain disruption.
IPEF Labour Rights Advisory Board
4.24The IPEF Labour Rights Advisory Board (the Board) will focus on lifting labour standards within Parties’ economies with regards to the role of labour rights in increasing the resilience of supply chains.’
4.25The Board will identify labour rights concerns that pose a risk to IPEF supply chains and inform the Council, with recommendations to address the risks.
4.26Additionally, the Board must develop up to two sector-specific reports annually on labour rights in IPEF supply chains, and may publish materials such as advice, best practice guides, information, and resource to support increased labour standards, as well as summaries of its activities.
Addressing facility-specific labour rights inconsistencies
4.27In recognition that labour rights inconsistencies in national economies can affect supply chains, each Party to the Agreement must undertake ‘to establish a reporting mechanism to receive, including through electronic means, allegations of labour rights inconsistencies at subject facilities located in the territory of another Party’ (the Mechanism).
4.28The Mechanism will assess any allegations made through it, and if substantiated it will communicate ‘the allegation to the Party in whose territory the labour rights inconsistency is alleged to have occurred and how the Parties must work together to resolve the issue.’
Identifying critical sectors or key goods
4.29A key intention of the Agreement is for Parties to develop a shared understanding of global supply chain risks. To inform this, each country must identify its critical sectors and key goods with regard to the impact of shortages on ‘national security, public health and widespread economic disruption’ in consultation with ‘diverse set of stakeholders.’
4.30Parties to the Agreement must provide an initial list of critical sectors and key goods within 120 days of entry into force for that Party. The list may be amended at any time through written notification to the IPEF Supply Chain Council.
Confidentiality of information and security
4.31The Agreement stipulates that unless expressly provided for, all information provided by a Party to another Party or IPEF body will be confidential. This includes reports, recommendations, and other materials produced by IPEF.
4.32Parties are not required to disclose information contrary to their laws, confidential business information, or information contrary to the public interest or national security. Parties also not precluded from applying measures considered necessary to fulfil obligations with respect to peace and security and the protection of security interests.
Non-binding commitments
4.33The Agreement outlines a range of non-binding commitments, with each Party required to provide an annual report on their implementation to the Council. These include to:
- Cooperate to increase the resilience, efficiency, productivity, sustainability, transparency, diversification, security, fairness and inclusivity of IPEF supply chains;
- Minimise unnecessary barriers to trade affecting IPEF supply chains;
- Promote transparency by publishing laws and regulations related to IPEF supply chains;
- Collaborate to ensure sufficient skilled workers are available for key sectors and critical goods;
- Use an evidence-based approach to consider supply chain vulnerabilities and monitor import dependencies, prices and trade volumes in critical sectors and key goods, as well as strengthening the ability to monitor supply chain vulnerabilities; and
- Cooperate and support each other during any supply chain crises, including avoiding actions that would exacerbate shortages.
Implementation
4.34No changes to Australian legislation are required to implement the Agreement.
Costs
4.35The Agreement provides that Parties are to implement measures within available resources.
4.36For Australia, initiatives will be implemented within existing resources, in line with current policy settings and frameworks to improve supply chain resilience, including for sharing best practice, facilitating investment, data standards that promote freight and logistics interoperability, regulatory transparency, improving workforce skills and monitoring critical supply chains.
4.37Minor additional costs may be required to establish a mechanism to receive allegations of labour rights inconsistencies in other IPEF territories, which is largely expected to be absorbed within existing resources. The mechanism is not anticipated to result in any compliance costs for local businesses due to Australia’s regulatory framework and high labour rights standards.
Future treaty action
4.38The Agreement may be amended by the written agreement of the Parties and enters into force 30 days after the date on which all Parties have deposited an instrument of ratification, acceptance, or approval, or on another agreed date.
4.39The Agreement may not be amended until one year after it enters into force.
4.40A general review of the Agreement is required every five years after the date of entry into force, andany amendment is subject to Australia’s domestic treaty-making processes.
Denunciation
4.41Australia may withdraw from the Agreement by providing written notification at any time after three years from entry into force, with withdrawal taking effect six months after notification.
4.42The Agreement states that confidentiality obligations remain in effect in relation to any material covered by Article 13 (Confidentiality) of the Agreement that is retained after withdrawal takes effect.
Consultation
4.43The NIA states that DFAT ‘consulted extensively across Government, industry, civil society, and state and territory governments… to ensure Australia’s interests were reflected in the Agreement.’
4.44This included consultation with 21 Government agencies, 10 submissions to public consultation, and both in-person and virtual consultation with industry and civil society stakeholders.
4.45After every second negotiation round, DFAT conducted stakeholder consultation sessions with industry and civil society, and separately with states and territory governments, which included providing an update to stakeholders on the status of the negotiations.
4.46Some key stakeholder requests made during the consultation period included:
- ensuring the Agreement required companies to undertake human rights due diligence;
- incorporating security and integrity measures in IPEF supply chains; and
- integrating commitments to phase out the use of asbestos in supply chains.
- At the public hearing, DFAT explained to the Committee that the request to phase out the use of asbestos in supply chains, in order to reduce the threat to workers around the region, was prioritised throughout the course of Australia’s negotiations. DFAT stated that although the IPEF trade agreement negotiations were ongoing, it was pleased with what had been achieved to date and is hopeful of achieving an outcome on asbestos once negotiations were concluded.
- A full list of the stakeholders who were consulted and a list of the public submissions received is contained in the NIA.
Issues
4.49In their respective submissions to the inquiry, both the Australian Fair Trade and Investment Network (AFTINET) and the Australian Council of Trade Unions (ACTU) raised concerns with the implementation of elements of the Agreement by Australia prior to the completion of this Committee’s inquiry and before domestic ratification of the Agreement. Both organisations suggested that future instances could undermine public confidence in the trade agreement process and is counter to recent changes and inquiry recommendations to improve transparency and accountability in the development of trade agreements.
4.50AFTINET also noted in their submission to the inquiry that while the Agreement references consultation to address the impact of supply chain issues on workers, it does not include similar provisions for ‘communities, women, Indigenous Peoples, persons with disabilities, rural and remote community populations and minorities.’ Further, AFTINET noted that there is no equivalent provision for First Nations Australians to the one enabling New Zealand ‘to accord more favourable treatment to Māori in respect of matters covered by the agreement, including in fulfilment of its obligations under the Treaty of Waitangi.’
Labour rights
4.51In addition, the ACTU welcomed the focus on lifting labour standards in IPEF supply chains but indicated that the labour provisions are ‘largely unenforceable’. It noted several limitations of the Labour Rights Advisory Board that may reduce its effectiveness including that reports may only be published if approved by a two-thirds majority, the non-selection of some sectors due to political reasons, and potential overlap and duplication with work already conducted by the ILO.
4.52Further, the establishment of a facility specific mechanism for considering allegations of labour rights violations was welcomed by the ACTU, however the organisation lamented that it is significantly watered-down’. It suggested that shortcomings include that the host country reviews the allegation to determine whether it is consistent with its domestic laws and regulations, the details of the facility identified are not made public, and there is no obligation to reach a solution. ACTU further suggested that Australia should use the five year review of the Agreement to ensure evaluation of the effectiveness of the mechanism, and for greater transparency and enforceability.
4.53The Agreement’s commitment to cooperate to transition from the use of asbestos was welcomed by the ACTU who noted that asbestos remains extensively used in several IPEF countries despite bans being supported by the World Health Organization, ILO and World Trade Organization. As such in their submission to the Committee the ACTU criticised the non-binding nature of the commitment and added that Australia should advocate for stronger commitments to implement asbestos measures at the five-yearly review of the Agreement. ACTU also suggested that Australia should provide technical assistance and capacity building to ensure the intent is achieved.
Committee comment
4.54The Committee echoes the concerns of both AFTINET and the ACTU that certain elements of the Agreement were implemented prior to the having the opportunity to consider the Agreement. Parliamentary committees provide an opportunity for organisations and individuals to participate in policy making and to have their views placed on the public record and considered as part of the decision-making process. The Joint Standing Committee on Treaties has had a long-standing role in the interrogation of matters arising from treaties and related NIAs and proposed treaty actions and related Explanatory Statements presented or deemed to be presented to the Parliament. Historically the Committee has reviewed and reported on all treaty actions proposed by the Government before action which binds Australia to the terms of the treaty is taken, giving members of the public an opportunity to engage in the process in an open and transparent manner. While the Committee understands there is often a time critical aspect to the ratification of some treaties, it encourages DFAT to allow time for the Committee to consider these matters prior to binding action being taken.
4.55Having experienced the broad impact of supply chain disruptions during the COVID-19 pandemic, the Committee is supportive of the IPEF’s collaborative approach to the minimisation of future vulnerabilities and mitigation of potential risks.
4.56The Committee was pleased to hear that the confidentiality of information and security articles in the Agreement are consistent with language used in other trade agreements to which Australia is a party. The Committee was also pleased to hear from DFAT that Australia would take a considered and careful approach to the sharing of information under the treaty, as was expected by other countries.
4.57The Committee is interested to see the outcome of Australia’s ongoing negotiations surround the use of asbestos in supply chains and is supportive of efforts to reduce the threats posed by asbestos to regional workers.
4.58The Committee recommends that treaty actions are referred to the Joint Standing Committee on Treaties by the Department of Foreign Affairs and Trade prior to action which binds Australia to the terms of the treaty.
4.59The Committee acknowledges that for some types of treaties, for example Convention on International Trade in Endangered Species of Wild Fauna and Flora treaties, referral to the Committee is not possible prior to binding action being taken.
4.60The Committee supports the Indo-Pacific Economic Framework for Prosperity Agreement relating to Supply Chain Resilience and recommends that binding treaty action be taken.