In One Sentence

• The U.S. plans to host a meeting in July to identify import dependencies of Indo-Pacific Economic Framework (IPEF) members and lay the groundwork for finalizing the IPEF supply chain deal. 
• The European Commission is considering its own framework to restrict outbound investments in military and intelligence technologies by the end of the year, as part of a larger European Economic Security Strategy.
• The Organisation for Economic Cooperation and Development (OECD) adopted a ‘Strategic Framework for the Indo-Pacific’ to increase cooperation with ASEAN countries and align standards in supply chains, climate change, and the digital economy.
• A U.S. trade official said U.S.-EU trade and technology cooperation is not meant to counter or single out China but seeks to build a resilient alternative “to PRC models” that can “deliver for democracies.”

Mark the Essentials

• According to U.S. officials, IPEF members have “substantially concluded” the supply chain pillar negotiations and intend to start “pre-implementation” during the meeting in July. The meeting will work on “supply chain monitoring and operations” and share best practices to “identify import dependencies and other potential supply chain bottlenecks” and “start some of the work that we have laid out.”
• In the recently released European Economic Security Strategy, Brussels expressed an European interest in preventing “actors who may…threaten international peace and security” from making advances in “a narrow set” of advanced dual-use technologies, and mentioned outbound investment screening as a possible means to achieve this objective. The Commission also stressed that any new policies would be implemented in “a proportionate and precise way” to limit “any negative unintended spill-over effects on the European and global economy.”
• The U.S. Department of Commerce has announced a plan for “fact-finding” trade mission visits to “link American exporters to opportunities in sectors wherein IPEF Partners are seeking increased diversification and resilience.” The U.S. also said it will utilize technical assistance and capacity building to increase investment in critical sectors, key goods, and physical and digital infrastructure.
• In discussing U.S.-EU cooperation on supply chains and infrastructure, Under Secretary of State for Economic Growth, Energy, and the Environment Jose Fernandez said that the U.S. and the EU do not seek to “decouple” from China but only to “de-risk,” adding that “you never want to be dependent on one or two suppliers for anything and not necessarily because they might weaponize that.”
• In laying out the negotiating objectives related to a critical minerals deal, the European Commission said it aims to diversify the international supply chains of critical minerals, facilitate trade, promote fair competition and market-oriented conditions, and ensure robust labor and environmental standards.

Keeping an Eye On…

• The West’s march towards ‘de-risking’ its economic relationship with China continues steadfastly. On June 20, the European Commission released its European economic security strategy with a view to protect the Union against economic security risks, promote domestic competitiveness, and partner with the broadest range of like-minded nations to achieve the transition to a more resilient and secure economy. To this end, an expansive geoeconomic toolbox is to be employed, ranging from free trade agreements to digital partnerships, to green alliances and partnerships, including raw materials partnerships. Insofar as the tools to utilized to protect against the enumerated economic security risks—i.e., risks to the resilience of supply chains, to the physical and cybersecurity of critical infrastructure, in technology security and technology leakage, and regarding the weaponization of economic dependencies or economic coercion—these range from instruments targeting trade dumping, foreign subsidization, 5G/6G security, export controls, and foreign direct investment screening. To this toolkit, an outward investment-related instrument that will screen a narrow set of key outbound enabling technologies with military applications (in the areas of quantum, advanced semiconductors and artificial intelligence) is to be instituted as well. The key underlying principles that are to inform the economic security strategy are ‘proportionality’ and ‘precision’; ‘proportionality’ to ensure that the EU’s tools are in line with the level of economic risk and limit their unintended spillover effects and ‘precision’ to define exactly the goods, sectors or core industries that are to be targeted for protective measures. Multilateral cooperation and the rules-based framework is to provide the strategy’s essential foundation. It remains to be seen, going forward, if the economic security strategy can live up to its stated purpose as well as place guardrails on global economic fragmentation and protectionism as well as the trend towards a ‘might is right’ philosophy. Key in this regard will be whether the strategy is genuinely employed to facilitate derisking or is in fact a stalking horse for decoupling (as seems to be the case with the Biden administration’s approach despite the many protestations to the contrary). Establishing a list of key technologies that are indispensable to European economic security and assessing their risks is a critical next step. Much hinges on getting this step right–not least, to preserve the integrity of the European Union’s cherished single market. 

Expanded Reading

• We can work it out, say US and EU, but trade disputes linger, Politico, June 26, 2023
• US and EU outbound investment – where are we?, Linklaters, June 22, 2023
• An EU approach to enhance economic security, European Commission, June 20, 2023
• US-led minerals partnership shortlists projects for green energy shift, Financial Times, June 14, 2023 [Paywall]
• EU moves forward with Critical Minerals Agreement negotiations with the US, European Commission, June 14, 2023
• United States to Participate in Fourth Indo-Pacific Economic Framework for Prosperity (IPEF) Negotiating Round in South Korea, Department of Commerce, June 13, 2023
• OECD Ministerial Council Statement and Outcomes, Organisation for Economic Cooperation and Development, June 8, 2023
• FACT SHEET: U.S.-EU Trade and Technology Council Deepens Transatlantic Ties, The White House, May 31, 2023
• Press Statement on the Substantial Conclusion of IPEF Supply Chain Agreement Negotiations, Department of Commerce, May 27, 2023