By: Satvik Pendyala
Since the revival of the Quad in 2017, Australia, India, Japan, and the United States have seen successful multilateral cooperation in many fields. However, trade and the rebalancing of supply chains have lagged. Cooperation in this area could be accelerated through a narrow but deep sector-specific arrangement — a Quad Technology Trade Agreement — that focuses on a whole-of-supply-chain approach to critical technologies. Taking a page from China’s book, an agreement that highlights Quad’s “New Productive Forces” supply chain would help the Quad partners de-risk from China.
Sectors such as semiconductors and electronics, machinery, photovoltaics (PV), energy storage, and biotechnology will all play a critical part in improving productivity and economic competitiveness. Excluding defense technology, which will be hampered by the International Traffic in Arms Control (ITAR) and comprehensive regulatory reviews, commercial use cases for each of these priority sectors are reliant on trade in critical minerals, electronic components, advanced chemicals and materials, and the subsequent research institutions that safeguard innovation.
At present, the Quad members find themselves split up by various free trade agreements. Japan and Australia are members of the Regional Comprehensive Economic Partnership (RCEP) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CP-TPP), while India and the United States have remained out. Some Quad countries, including India and Australia, also have bilateral trade agreements with each other. This patchwork of trade makes it difficult for Quad nations to rely on each other for supply chain resilience. Efforts to de-risk critical technology supply chains from China have primarily benefited ASEAN nations, which now dominate most non-Chinese PV imports for Quad nations. China’s consolidation of the battery supply chain means that even mineral resources for Quad nations are largely dedicated towards China. This may result in false perceptions of resilient supply chains.
A deep, yet narrow trade agreement that focuses on the critical technology supply chain may be the path to derisk while maintaining market competitiveness. Such an agreement might involve addressing certain tariff and nontariff barriers and rules of origin and would provide a legal framework for the Quad’s tech trade interests. A comprehensive trade agreement between Quad members is not politically feasible, given concerns about sectors such as agriculture and steel. Such concerns have led India to pull out from RCEP negotiations, while other sectors are politically fraught in the United States. In the United States, Congress has not renewed the Trade Promotion Authority, which expired in 2021. With its renewal not a major priority for either Presidential candidate, the United States’ ability to join a free trade agreement will prove more difficult. However, a narrow agreement focused on critical technologies would allow the Quad to bypass politically sensitive topics such as agriculture subsidies and tariffs.
A whole-of-supply-chain agreement for critical technologies would allow for Quad-specific rules of origin, tariff simplification, IP rules, and regulatory processes. With Australia and the United States having critical mineral resources, Japanese and U.S. firms having capital-intensive manufacturing, and India with the labor pool to support labor-intensive production, the economic factors of Quad members allow for each nation to provide sector and input-specific resilience to the others. Beyond lifting trade barriers, the establishment of Quad-specific rules will ease business processes and investment.
Negotiating a trade agreement in a post-Covid world is a difficult matter, especially as Washington is increasingly skeptical of comprehensive trade agreements. However, analogous to the rise of issue-specific minilaterals in an era of multilateral stagnation and gridlock, it is worth looking at sector-specific trade agreements to address the goal of promoting Indo-Pacific trade and supply chain resilience.
Satvik Pendyala is an intern at the Albright Stonebridge Group. The views expressed herein are strictly his own.