The EU should expand trade with the Indo-Pacific region

If the European Union wants to broaden its trade while making supply chains more resilient, diverse, and flexible, the Indo-Pacific region encompasses a group of friends that would be ideal economic and strategic partners. The time would appear ripe for such a move. After a pause in the European Union’s ratification process for trade deals amid rising skepticism and concerns about globalization, there are signs that deals with Chile and possibly Mexico may soon be approved. And with a new president in Brazil and a new policy on the Amazonas, prospects are growing for an agreement on the Mercosur deal as well.

The European Union should consider joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trading bloc of 11 countries that may expand within the Asia Pacific region. Such a step would enable Europe to align with countries there to strengthen its trade agenda and become a stronger geopolitical actor.

The European Union has more trade agreements than any other comparable country or legal entity. Free trade deals have been regarded not only as a way to increase trade, jobs, and investment but also as a means of deepening cooperation with partners. That is why European bilateral free trade agreements are often included in a bigger context (security, climate, migration, etc.) with an accompanying partnership agreement.

But after a period of concluding agreements with Canada, Japan, Singapore, Vietnam, Central America, and the neighboring countries of Georgia, Moldova, and Ukraine during 2015-19, the European Union backed away, although some legal scrubbing is underway to speed approval of a trade deal with New Zealand.

The latest themes voiced in Europe and the United States relate to strategic autonomy, deglobalization, and “friendshoring”—forging investment and trade deals with “friends,” a modern euphemism for countries other than China and Russia at a time when dependence on these countries looms as an increasing risk.

In this context, the Indo-Pacific stands out as a dynamic region of potential friends, where regional and bilateral trade agreements are already being made. There would be ample opportunities for the European Union to deepen its relationship with that region, and that is why joining the CPTPP makes sense.

A dynamic region

The CPTPP—originally the Trans-Pacific Partnership (TPP)—was an American initiative promoted by the Obama administration as a way for the United States to pivot to Asia and liaise with allies to be stronger together against China and its rising influence. However, the Obama administration did not win congressional approval for the TPP. Subsequently, President Donald Trump withdrew the United States’ signature in January 2017, one of his first decisions as president. The remaining 11 countries[1] decided to continue the process without the United States, and the CPTPP entered into force in December 2018. Other countries are now queuing up to join, such as the United Kingdom, with whom negotiations started last summer. Also, China, Costa Rica, Ecuador, and Taiwan have applied for membership. Others, such as South Korea and Thailand, are considering. The European Union should do the same.

The CPTPP is yet another indication of the dynamics and high aspirations of regional integration in the Indo-Pacific area. The 11 countries in the CPTPP represent almost 14 percent of global GDP and include 500 million consumers, making it by far the most ambitious trade agreement in the area. But it is not the only group sharing these ambitions. There is also the Regional Comprehensive Economic Partnership (RCEP) with 15 members[2] accounting for around 30 percent of the world’s population. Its members are a heterogenous group, but the aim is to eliminate tariffs and establish common rules for trade and e-commerce. Separately, the Digital Economic Partnership Agreement (DEPA) brought Chile, New Zealand, and Singapore together when they signed the agreement in 2020. The DEPA aims to allow small and medium-sized enterprises to take better advantage of the digital economy by establishing common rules and standards in digital platforms.

The TPP began an attempt to set a bloc that excluded China, with the hope that it could eventually influence Chinese investment and trade practices. In the current context, it may be seen as decoupling a bit from China. But the need to engage with other partners is increasingly obvious.

Europe already has far reaching agreements with most of the CPTPP countries. Its trade deals with Canada, Japan, Singapore, and Vietnam are fully in force and have proven beneficial for both partners. The agreements with Chile, Mexico, and New Zealand are ready but have not yet been ratified. There is a regional agreement between the European Union and Colombia, Ecuador, and Peru that has been provisionally applied since 2013. Negotiations are ongoing with Australia. Talks with Malaysia have paused, although discussions about resuming negotiations have been held for quite some time. Only with Brunei is there no agreement.
Both South Korea and Thailand have expressed interest in joining the CPTPP. The European Union has a trade agreement with South Korea and suspended negotiations with Thailand, though it plans to resume these talks. And of course, there is the United Kingdom, where there is a trade agreement although conflict remains on the Northern Ireland protocol.

What’s in it for Europe?

The CPTPP agreement has 30 chapters and includes everything a trade agreement usually contains. In addition, it has far reaching provisions on the environment and labor rights. These sectors are also required by the European Union’s trade agreements, putting emphasis on trade liberalization but also on sustainability and fairness. CPTPP partners are also committed to combatting bribery and corruption in international trade and investment. The agreement is ambitious in the way it outlines cooperation outside the pure trade field—there are provisions to address the ozone layer, marine environment, illegal fishing, minimum wages, health, and safety. It condemns child labor and calls for the formation of a labor council to discuss implementation of that chapter. All of these would be important elements for the European Parliament to consider before agreeing on membership. The European Union would also be able to project its standards and values as the cooperation develops.

It is true that some parts of the CPTPP agreement would cause difficulties for the European Union, including data protection provisions and the presence of investor-state dispute settlement (ISDS) clauses, even if these are strictly limited to cases of clear breaches of investment obligations. The European Union wants to replace ISDS with a more court-like system, a solution reflected in the agreements with Canada, Chile, Singapore, and Vietnam. Also, the European General Data Protection Regulation (GDPR) will have to be considered. Japan is developing a very similar system so this should be solvable.

From the perspective of trade liberalization and increased market access, it is hard to estimate the economic gains for both the European Union and CPTPP partners. The existing EU agreements are in many ways more far reaching when it comes to market liberalization and elimination of tariffs. But cooperating on developing joint standards in future green trade and new technologies would be of strategic and geopolitical importance. Also, the European Union and partner countries can jointly monitor and strengthen the application of the sustainability chapters. The potential membership of the United Kingdom could actually strengthen its troubled relations with the European Union. And of course, pressure for the United States to join would increase.

An agreement last year on an EU-Pacific strategy paves the way for stronger engagement in the broader region, also including China and India. The European Union is already a leading investor, trading partner, and development cooperation actor in the region. Additional areas of cooperation could also address the post-COVID-19 economic recovery and climate crisis, as well as strengthen a rules-based order.

Countries in the European Union and the Indo-Pacific region account for 70 percent of global trade in goods and services and 60 percent of foreign direct investment flows (this includes China and India). Further integrating their economic ties could also strengthen regional stability, security, prosperity, and sustainable development. The European Union’s aim to resume pending negotiations with Malaysia, the Philippines, and Thailand makes no mention of the CPTPP. By joining the CPTPP, however, the European Union can be part of a big market, helping formulate future standards and increasingly engage in the region. The European Union would certainly gain more geopolitical clout. In turn, the CPTPP countries would gain access to a common market of 450 million consumers with joint rules for 27 countries. On the one hand, the European Union can join an organization that serves as a counterweight to China, and on the other, help prevent the agreement from being diluted, should China one day join. Also, the CPTPP partners are all strong promoters of the multilateral global order, and thus allies in efforts to strengthen and modernize the World Trade Organization (WTO).

The EU-Pacific strategy flags the need to seek individual digital partnership agreements with key countries. This would seem superfluous. Instead, the European Union should join the existing DEPA and encourage more countries to do so. This could complement the ongoing WTO negotiations on an e-commerce agreement.

What about the United States?

The Biden administration have clearly stated that its trade policy is not about market access, facilitating trade, or eliminating tariffs. Free trade agreements are certainly not on the agenda. However, the CPTPP countries are an important market for the United States, representing 41 percent of trade in goods and 23 percent in services. If the European Union were to join, its most important trading partner would be in the same group.

The United States already belongs to other arrangements; AUKUS for security cooperation with Australia and the United Kingdom, as well as the Biden administration’s proposed Indo-Pacific Economic Framework (IPEF) for prosperity,[3] which mainly focuses on environmental cooperation, taxes, fighting corruption, and securing global value chains. The administration talks a lot about friendshoring, but in practice it is becoming more protectionist, exemplified by the discriminatory elements regarding subsidies for electric carts in the Inflation Reduction Act.

Washington is not really engaging on trade with its friends. If the European Union also joins the
CPTPP, the price of being an outsider will rise even higher, with American companies denied preferential access to many of their allies’ markets. Washington might want to reconsider.

Joining the CPTPP seems a natural next step in the European Union’s willingness to engage with the Indo-Pacific, one that also satisfies its quest for diversifying markets and meets its geopolitical ambitions. The fact that there are already agreements with most countries is hardly an obstacle. Rather, membership would reinforce the other agreements. The difficulties regarding data protection and ISDS are not unsurmountable. A European impact assessment should start immediately.

The European Union and the Indo-Pacific have a lot to gain by deepening their cooperation. Doing so would truly constitute friendshoring with friends.  

Notes

1. The members of the CPTPP are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. 

2. RCEP members are Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, Philippines, Singapore, Thailand, and Vietnam.

3. IPEF includes Australia, Brunei, Fiji, India, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Thailand, the United States, and Vietnam.