A lot can happen in a year, as events of the last 12 months have so resolutely shown.
A year ago, two months before the U.S. elections, I outlined the reasons why the European Union could clinch a golden opportunity on international trade deals in the Asia-Pacific if the Trans-Pacific Partnership (TPP) trade agreement fell apart. I said at that time that “…by rejecting TPP, the United States is likely to lose its position in leading and designing future trade arrangements, leaving the EU as the natural successor.”
In many ways, this vision seems to be bearing out.
The EU has been proactive – and some might say even aggressive – in its approach to trade deals since the United States pulled out from the TPP. Some of the negotiations that are now being fast-tracked by the EU are with countries that had been part of the now largely defunct TPP. While the EU does not currently have any free trade agreements with Southeast Asian countries, it is working quickly to establish those relationships. Despite the concerns of Brexit, it is increasingly clear that the EU wishes capitalize on America’s retreat from the international trade stage to gain access to newer markets in its absence.
After finalizing its trade agreement with Canada through the EU-Canada Comprehensive Economic and Trade Agreement (CETA) that becomes effective in September, the EU-Japan political accord on trade was politically agreed upon in July. As embodied in its title – with an “economic partnership agreement,” rather than a deep and comprehensive free trade agreement,” the intention of the Commission here is clear: to get a broad political accord in place as a first step in finalizing a trade agreement. In so doing, they are trying to ensure that the EU would be the new trading partner of choice above the U.S. but also to politically fly the flag of free trade.
In addition to Canada and Japan, one of the biggest expected beneficiaries of the TPP has also now deepened its relationship with the EU. The EU-Vietnam Free Trade Agreement (EVFTA) – which will eliminate almost all tariffs (99 percent) between the two parties, was concluded in 2015 and the deal is expected to enter into force soon. Vietnamese Prime Minister Nguyen Xuan Phuc has been seeking ways to accelerate the entry process following the fall of the TPP. He has even sweetened the pot recently by announcing in the Netherlands, while meeting with Prime Minister Mark Rutte, that Vietnam would lift restrictions on foreign investors in areas from telecommunications to financial services. Later this year, the stalled trade talks between the EU and Malaysia are also meant to resume, as publicly announced in June.
Other trade negotiations point to the potential pitfalls of Brussels’ attempt to sign such political accords quickly without addressing the important blockages to more wide-ranging trade agreements. For example, the EU-Singapore Free Trade Agreement has been awaiting ratification for some time, much to the consternation of those wanting this agreement to be signed as a launchpad to other future agreements with ASEAN members. These ratification delays have also cast doubt over the ability of the EU to agree on future trade deals. The European Court of Justice, in the EU-Singapore Opinion (2/15), clarified the division of competences between the European Union and the member states. It confirmed that it is only in respect to two aspects of the agreement (non-direct foreign investment and regimes governing dispute settlement between investors and States) that the European Union shares its competence with the EU member states. In practice, this means that when an agreement does not include these chapters, its ratification process is swifter as the deal does not have to go through national or indeed local parliament approval processes.
In addition, with talks originally starting back in 1999, negotiations between the EU and the Mercosur bloc – which includes Brazil, Paraguay and Uruguay – have gained traction in the last year. Again, some might point to Latin America’s particular worry over the U.S. trade retreat in looking more seriously at deals with the EU. Completing its 28th round of talks in early July, they have reported key advances in many areas, though continued roadblocks on agriculture and market access. To leave no question that this full-steam ahead approach is at least partly driven by the U.S. (though no doubt aided by political changes in Argentina and Venezuela’s suspension from the bloc), EU Trade Commissioner Cecilia Malmström noted the need to counter “voices in favor of protectionism” in other parts of the world, while touting her belief that this deal could be signed by the year end. Further talks are scheduled in September and October.
Due to some of these issues, there are questions surrounding the worth of a trade agreement if compromise cannot be found on the more contentious issues. Many of the same stumbling blocks with Mercosur – from beef to ethanol from the European side, and intellectual property related standards and manufacturers’ goods from the Mercosur end – still largely appear to be off the table. Countering this, however, it has been estimated that removing trade tariffs between the two blocs could eliminate €4.4 billion a year in costs for European exporters, not to mention the potential increase in exports on both sides.
While the EU pursues these opportunities, business interests with the United States are increasingly urging for a sensible approach on trade and greater links with Asia-Pacific, particularly given the tense rhetoric that has existed between the Trump administration and China. For example, the two largest grain bodies – the National Grain and Feed Association and the North American Export Grain Association – recently submitted to a call by the new administration regarding the performance of free trade agreements. In that response, they called for more trade agreements with countries in Asia-Pacific in particular.
The EU, therefore, must be careful to live up to its commitments in the region and also that sands could shift in the United States to push on with international trade agreements, bearing in mind that the UK will soon be starting its own trade negotiations race. While much has changed in just one year, the EU’s movement into Asia-Pacific in the wake of the TPP is notable and will no doubt solidify both diplomatic as well as economic relationships for years to come.
Aline Doussin is a partner at Squire Patton Boggs, the global law and public policy firm, specializing in International Trade as well as EU Regulatory and Public Policy.