On their own, the Covid pandemic, Russia’s invasion of Ukraine, or the climate crisis would have each disrupted global supply chains, leading to shortages of critical goods. As it turned out, however, each magnified the impact of the others, creating havoc.
In attempting to deal with these crises, governments learned just how little they knew about global supply chains.
The Indo-Pacific Economic Framework initiated by US President Joe Biden took a giant first step toward finding ways to mitigate future global supply shocks with the Substantial Conclusion of IPEF Supply Chain Agreement Negotiations in Detroit in May.
As the first-ever multiparty framework dedicated to supply chains, including with direct business and labor participation, the 14 members of IPEF have a framework in place to make supply chains more resilient while better respecting and protecting worker rights.
Now, the members must flesh out the framework with details to allow the IPEF initiative to give countries and companies the comfort they need to have faith in regional supply chains, and to protect their respective citizens from future harm.
Covid illustrated fragility of supply chains
With governments’ lack of understanding of supply chains and no inter-governmental network to address disruptions, supply chains were bound to falter as soon as the Covid-19 pandemic hit.
The term “supply chain” itself underscores why governments were unequipped to deal with the crisis.
As retired Singaporean diplomat Bilahari Kausikan puts it, “The very metaphor of a ‘chain’ understates the complexity, because a chain is an essentially simple linear structure. A more appropriate metaphor is the root system of a tree leading to its trunk, leading to branches, twigs, and leaves. The global system comprises a thick forest of trees intertwined with each other across continents.”
When Covid hit, each government focused on its own supply chain and did not take into account the root system. As a result, all hell broke loose.
For example, the grounding of passenger aircraft at the country level led to a severe reduction of air-cargo capacity. As a result, critical health-care goods competed with escalating online demand for consumer goods for the limited capacity across the globe.
Even as governments recognized the need for business continuity for essential goods, they forgot the critical role of air and maritime crew to support the movement of these goods, creating some of the toughest conditions for operators, and exacerbating the shock.
As a result, the logistics industry struggled with staffing issues. A talent challenge that had already existed pre-pandemic became a crisis.
During the pandemic, governments created task forces to focus on domestic health outcomes, but did not account for how complex supply chains would contribute to the fight against the spread of the virus.
Lockdowns and movement-control orders affected the production, distribution, import and export of parts, components, and finished goods. Constantly changing measures including testing and quarantines strained capacity, added costs, and challenged planning, forecasting, and production timelines.
National pandemic responses including stockpiling and nearshoring did not account for long and complex supply chains, raising costs of business at home while decimating suppliers and partners overseas.
IPEF to address supply-chain challenges
The IPEF Supply Chain Agreement takes up these lessons learned by contemplating the establishment of bodies to facilitate cooperation. These include the following.
The IPEF Supply Chain Council is to establish a mechanism for the partners to work collaboratively to develop sector-specific action plans for critical sectors and key goods to enhance the resilience of IPEF partners’ supply chains, including through diversification of sources, infrastructure and workforce development, enhanced logistics connectivity, business matching, joint research and development, and trade facilitation.
Similarly, the IPEF Supply Chain Crisis Response Network would establish an emergency communications channel for the partners to seek support during a supply-chain disruption and to facilitate information sharing and collaboration among them during a crisis, enabling a faster and more effective response that minimizes negative effects.
Recognizing this significant first step, Singaporean Minister for Trade and Industry Gan Kim Yon said, “Singapore joins other IPEF partners in welcoming an innovative Supply Chain Agreement that will enhance our individual and collective efforts to strengthen the resilience and connectivity of our supply chains. This will also put us in a stronger place to anticipate and respond to any future disruptions to these supply chains.”
Worker rights
IPEF incorporates the Biden administration’s “worker-centric” trade policy by establishing a Labor Rights Advisory Board consisting of government, worker, and employer representatives to support the promotion of labor rights in their supply chains, promotion of sustainable trade and investment, and facilitation of opportunities for investment in businesses that respect labor rights.
Singapore’s tripartite structure consisting of unions, employers, and the government works successfully in addressing wage, productivity, and talent issues. However, whether a tripartite model across the 14 IPEF countries can be as successful remains an open question.
What standards apply when it comes to determining if a worker’s rights are being respected? What will be the enforcement mechanism if there is an allegation of unfair labor practices at a specific facility? Will it be up to each IPEF member to address the allegation of worker abuse in a manner consistent with its domestic laws and regulations? How is this feasible when IPEF will not be a binding legal agreement (at least to start)?
Persuading certain IPEF members to adopt and implement tougher labor standards, especially without the promise of increased US market access, will be a challenge and will take time.
IPEF should move fast
As IPEF’s Supply Chain Pillar has only been “substantially concluded,” each of the 14 parties now engages in domestic consultations and legal review.
The multiple global crises are on no such timetable. The climate crisis is worsening. There is no end in sight to the war in Ukraine. The US, the European Union, Japan, South Korea and Australia continue “de-risking” from China, as China itself implements its own dual circulation strategy, each of which have supply-chain consequences. The next pandemic could strike tomorrow.
In the meantime, Donald Trump leads in the polls to become the Republican nominee for president of the United States again. The US will pull out of multiparty frameworks such as IPEF if he wins.
The Supply Chain and Crisis Response Networks, where governments work with one another and with business and labor, recognizing that supply chains are no longer chains, needs to be established soonest, given there are so many crises on the horizon.