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Perspectives: The EU’s conflicting trade objectives in the Indo-Pacific region

It is difficult for great trading powers such as the European Union to meaningfully engage with other regions such as the Indo-Pacific, given their increased preference for autonomous measures over trade agreements. There is a need for a broader consideration of EU objectives, and potentially new tools to deliver them.

Former EU trade commissioner Cecilia Malmström ensured a lively start to 2022 trade policy debates with an early January article for the Peterson Institute for International Economics suggesting that “The European Union should also seek to enter the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and convince the United States to do the same.”

The immediate reaction to this suggestion was not positive, triggering rejections of the notion that the EU would sign up to someone else’s rules, or the challenge of persuading US politicians that trade agreements are not middle-America job-killers.

Coming in a year in which the EU’s trade strategy will be under intense scrutiny, particularly towards the Indo-Pacific region, we could however see Malmström’s suggestion to Brussels as a useful provocation. For the arguments for and against joining CPTPP provide an insight into the multiple factors being considered, not just by the EU but also the US and indeed UK.

Much of the Indo-Pacific discussion – in Europe as elsewhere – starts with considerations about China, either in terms of security or promoting alternatives to trading with it. The recent difficulties encountered by Lithuania in exporting to China following a political fallout show that the issue is likely to persist. In the meantime the prospects for the EU China Comprehensive Agreement on Investment ever being ratified seem very low.

Last December we saw the launch of the Global Gateway billed as an alternative to China’s Belt and Road programme. Though there was talk of alignment with the US Build Back Better World initiative, both detail and linkage to other EU programmes was less than clear.

There is of course a long-standing interest in deepening EU trade engagement with the Indo-Pacific region, to be judged by the number of FTA agreement negotiations launched. While those with Singapore, Vietnam, and Japan have been implemented, talks with India, Thailand, and Malaysia and the Philippines are on hold. Meanwhile Australia, Indonesia, New Zealand agreements remain under negotiation.

It is not clear how much progress will be made on the outstanding agreements, faced with a variety of issues from agricultural market access to data rules, sustainability, and human rights. The EU focus on FTAs has also lessened since most of the talks commenced.

In fact, much of EU trade policy will be taken forward unilaterally in 2022, through such measures as a new carbon border adjustment measure and a new anti-coercion instrument.

Given all of this, there is a big question as to whether an increasingly assertive EU agenda – or indeed the very similar one in the United States – can even be reconciled with an effective partnership with the Indo-Pacific.

EU regulatory agenda is not collaborative

Even before the EU trade policy’s turn towards ‘open strategic autonomy’, extending the EU’s global regulatory reach was a clear policy objective. The EU’s priorities set on protecting Geographical Indications and the increased use of ‘sectoral annexes’ in FTAs to promote its technical standards were two illustrations of this.

Trade partners were prepared to sign up to the EU’s regulatory approach as a price of access to the EU market. However, this calculation may be changing as the EU seeks to go further in its regulatory agenda while offering less market access in return.

There are of course long-standing issues over palm oil trade affecting trade relations with Malaysia and Indonesia. Approaches to data governance and cross-border flows differ between the EU and CPTPP countries. The growing importance of the EU environmental agenda around the Green Deal will cause further concerns in the Asia-Pacific, as potentially will increased demands around supply chain sustainability with regard to human rights.

Most importantly in terms of working with the countries of the Indo-Pacific region, there is little sense that this is a conversation. Rather, it increasingly appears that the EU wants to be the ones dictating global regulatory norms. That is a difficult basis for partnership.

Divergence over the role of free trade agreements

The free trade agreement remains the basic unit of international trade policy, but perhaps not for long in the EU and US. There are good reasons for the fall in favour, given limited economic returns set against greater demands from stakeholders to demonstrate that all their issues are covered.

In line with its regulatory objectives, the EU has been diverging from others for some time now, seeking to go further in tackling non-tariff barriers to trade in its latest FTAs.

Although the CPTPP is sold by its advocates as ambitious and ground-breaking in rule-setting, that really doesn’t reflect a text agreed by 11 countries based on the in fact fairly limited US model. China’s genuine belief it could meet the rules suggests the same.

The new Regional Comprehensive Economic Partnership, which for the first time brings together the countries of East and South-East Asia, plus Australia and New Zealand, is similarly unambitious in content, but potentially significant due to its broad membership. Indeed, EU policy makers, particularly those focusing on Indo-Pacific issues, should probably consider carefully what RCEP tells us about our approach to China.

In this context the UK’s approach of signing FTAs including joining CPTPP without worrying too much about the content is at least a clear approach. The EU’s approach for its part may be understandable, but it renders broader aims of Indo-Pacific engagement difficult.

Moving beyond FTAs needs clear objectives

This is clearly a time of change in global trade policy, reflected in both the EU and US, not to mention the WTO. That is causing deep discomfort among many stakeholders, including trade experts, who have known little different in 25 years.

The negotiation and implementation of FTAs has become its own industry, even if there are diminishing returns to the economy as a whole in the EU. That other parts of the world are stepping up their own FTA agendas does not necessarily mean it is wrong to seek new pathways. It is at least arguable that agreements centred on tariff removal are not the right tools for the increasingly complex 21st century trade in which non-tariff barriers and the battle against climate change, to name but two, are intertwined.

If this is the case, however, then we need new thinking on new tools that can reconcile EU policy objectives and international collaboration. For at the moment the EU’s FTA agenda is being overtaken by one of unilateral action, which doesn’t sit very well with any agenda aiming at increasing its influence in the Indo-Pacific.

The EU joining CPTPP doesn’t look in any way likely. It would be nice if by the end of 2022 we were able to describe a better alternative to Indo-Pacific engagement.

 

 David Henig runs the column ‘Perspectives’ on the politics of global trade for Borderlex. He is also a UK director at the think tank ECIPE.

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