Vietnam: Indo-Pacific Economic Framework for Prosperity

In brief

In May 2022, the Indo-Pacific Economic Framework for Prosperity (IPEF) was launched between Australia, Brunei, Fiji, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, the US and Vietnam. These 14 IPEF partner countries represent over 40% of the global economy and 28% of the global goods and services trade.

IPEF has been flouted by the US government as central to its commitment in the region. The framework, centered around four pillars, is an ongoing process, with a number of initiatives and projects under consideration that will significantly impact various sectors and states. IPEF is not a traditional trade agreement with market access commitments, and instead adopts a modular approach with a reliance on tailored initiatives (such as technology, harmonization, focused investments and joint projects).  On account of its specified focus on labor standards and issues, IPEF is likely to have an ongoing impact on labor regulations and trends among partner countries, including Vietnam.


Aside from the specified pillars, there are also a number of key themes that are prevalent throughout IPEF, including private sector engagement and investment, technology and innovation, as well as labor standards and regulations. On account of its specified focus on labor standards and issues, IPEF is likely to have an ongoing impact on labor regulations and trends among partner countries, including Vietnam.

The four pillars

IPEF is based around four pillars, of which trade is the most impactful on labor matters, as detailed below.

Pillar one: “Connected economy” — Trade

The trade pillar focuses on reducing nontariff trade barriers to increase business connectivity through expanding market access opportunities across IPEF members. A specific emphasis is placed on the promotion of trade facilitation, with a focus on digital trade and the digital economy, cross-border data flows and cybersecurity. This pillar will also aim to accentuate consistent administrative rulemaking and transparency to help create opportunities for both businesses and workers.

IPEF also specifically envisions high standard commitments in the labor and environment fields to enhance regional competitiveness, while supporting workers and encouraging higher regional labor and environmental standards. This stated emphasis on labor regulations demonstrates a renewed focus from the US through IPEF on labor issues and standards throughout the region and in member states, including Vietnam.

Pillar two: “Resilient economy” — Supply chains

Supply chains form the second IPEF pillar. A key theme of this pillar is achieving supply chain resilience through encouraging supply chain diversification and fostering favorable market conditions. Initiatives discussed by member countries include novel supply chain and logistics commitments that are resilient to market disruptions and supply shocks, such as training skilled workers and investing in local suppliers. This is an area of crucial importance to Vietnam, which has been a net beneficiary of supply chain diversification efforts. Accordingly, this continued emphasis under IPEF presents various opportunities for Vietnam.

Pillar three: “Clean economy” — Clean energy, decarbonization and infrastructure

IPEF has placed sustainable development and combatting climate change as one of its main cornerstones. This is reflected in the third pillar, which is centered on green technology and infrastructure development. The third pillar focuses on commitments to counter the effects of climate change, including by investing in clean energy, building sustainable infrastructure and the proliferation of decarbonization technologies. This pillar is indicative of the potential for investments in Vietnam’s infrastructure and renewable energy sectors.

Pillar four: “Fair economy” — Tax and anti-corruption

IPEF partners will seek commitments to enact, enforce and encourage effective tax, anti-money laundering and anti-corruption regimes that are in line with existing multilateral obligations. Through strengthening anti-corruption initiatives and streamlining tax administration efficiency, IPEF aims to introduce horizontal benefits to the private sector via an overall improvement to the regional business environment.

Key themes

Private sector engagement

IPEF places a strong emphasis on close collaboration with the private sector. Considering the role of private investment and private-public partnerships in IPEF initiatives, there have been substantial consultations with the business community to seek private sector expertise and comments. As IPEF encourages continued engagement and input from private industry throughout its negotiating rounds and at stakeholder events, there is ample opportunity for companies in the region to shape and influence policy decisions and direction.

Technology

Technology is also set to play a crucial role to the various IPEF pillars, particularly in relation to supporting a low carbon transition through R&D and infrastructure, as well as joint support for relevant projects in member countries. IPEF further seeks to support an open and secure ICT system to encourage cross-border data flows and foster regional private sector growth. Key technologies highlighted as instrumental to the future of IPEF and the region in general include 5G, OpenRAM, submarine cables and data centers.

Developing economies

Another area of relevance to Vietnam is the intended role of IPEF in relation to developing countries. Opportunities for development are evident in the trade pillar, as well as the increased opportunities for investment, infrastructure expansion and connectivity through digital trade and joint projects. IPEF also aims to facilitate skilled job creation in developing countries through increased trade and providing technical assistance and capacity building to help meet the rules and high standards to be implemented under IPEF.

Vietnam perspective

IPEF is an ongoing process that is proposed as an alternative model to traditional treaties, and although it does not address tariff reductions or currently involve binding commitments in relation to Vietnam — it is envisioned as a precursor for continued negotiations in this context. Various initiatives will have the capacity to foster Vietnam’s continued integration into global supply chains and impact issues of importance to Vietnam — such as infrastructure development, renewable energy and foreign investment. Intended rules and standards under IPEF initiatives will also likely have the capacity to impact the future regulatory environment in Vietnam.

Labor considerations

The most relevant pillar to labor regulations is trade. IPEF ministerial statements on the trade pillar have made direct references to the pursual of provisions and initiatives related to labor practices and standards to the explicit benefit of workers. There has also been specific mention of trade initiatives contributing to inclusive growth and the promotion of adopting internationally recognized labor rights (based on the International Labour Organization Declaration on Fundamental Principles and Rights at Work) in domestic regulations, as well as encouraging corporate accountability and cooperative mechanisms on emerging labor issues in support of labor rights and workforce development, including with respect to the digital workforce.

Under the supply chain pillar, there is also a stated emphasis on initiatives that invest in the training and development of skilled workers to support supply chain resilience. In addition to stated areas involving labor standards, a common thread throughout all IPEF pillars is a focus on human-centric results, with workers and job creation mentioned in various contexts. This highlights that many of the initiatives formulated under IPEF will also likely be viewed through the lens of labor standards.

Comments from public officials at the 2023 Indo-Pacific Business Forum discussing IPEF also demonstrated an emphasis on supporting workers and promoting high labor (and environmental) standards in the region. This is reflective of the overarching goals under IPEF of implementing high standard rules and agreements across various initiatives and sectors. Considering this, it is likely that various specific IPEF projects and agreements, particularly on investments and trade, will be tied to certain standards in labor regulations and practices.

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