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Can the EU Save the CPTPP?

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Pacific Money | Economy

Can the EU Save the CPTPP?

The CPTPP needs more market share. The EU needs to expand its trade leadership in the Asia-Pacific.

Can the EU Save the CPTPP?
Credit: Depositphotos

While the Indo-Pacific Economic Framework (IPEF) was launched with a bang – and the United States is still pretending to believe it would make a big difference – the potential of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in the region’s economic integration remains unmatched. Many experts consider the establishment of IPEF as the second-best alternative to U.S. re-engagement in the CPTPP. Although IPEF appears to be in good shape as it includes most of the ASEAN members and India, the substance of IPEF – where and how deep it can go without offering access to the U.S. market – will be the more crucial challenge. In this sense, the CPTPP, which has already achieved a tangible trade agreement, with the rules self-depicted as “comprehensive and progressive,” looks far more meaningful.

However, the CPTPP also has its limitation, which has sometimes been overlooked: its limited economic scale after the U.S. withdrawal. This problem has become even more glaring after the enactment of the Regional Comprehensive Economic Partnership (RCEP). Even if the members believe its rules are indispensable, one can hardly imagine the CPTPP’s path to becoming “21st-century rules of free trade” with its current modest economic coverage, only a bit more than 10 percent of the global GDP. Moreover, the United States, the original economic driver that was expected to give momentum for disseminating the rules, is still battling political turmoil when it comes to formulating a global trade policy, as the launch of IPEF made clear.

China’s accession bid, which shocked many, can become a game-changer in revitalizing the CPTPP. South Korea and Ecuador followed with their own applications, perhaps considering the economic powerhouse’s inclusion. Many other non-members (Thailand, the Philippines, etc.)  have leaned toward showing their positive attitude toward joining the CPTPP. Nevertheless, China’s accession will have to overcome the salient skepticism about Beijing’s attitude toward rules-based free trade. Australia, a party to the deal, has been facing China’s “economic coercion” for years. In the coming years, a unanimous consensus to welcome China is still highly unlikely, considering the members’ reluctance to offer broad compromises on the established rules.

Considering such deadlocks with the world’s two largest economies, the CPTPP’s original intention seems set to be gradually marginalized. Still, there might be an alternative for reinforcing the relevance of the CPTPP: the European Union’s accession.

Without a doubt, the EU’s accession could bring a profound impact for the CPTPP. It would push the GDP coverage up to 31 percent. As the EU includes large markets with high-income consumers, the economic opportunities of including the EU would be immense for the CPTPP’s current and even future members. More critically – at least for some members – this economic impact can be achieved without undermining the fundamental principles that the CPTPP set. There should be several points of contention between the CPTPP and the EU’s trade practices, as the TPP rules were mainly drafted by the United States. However, for the CPTPP members such differences seem more likely to be negotiable than Beijing’s claims. The EU is a like-minded trade partner for the many CPTPP members who share same basic values: the importance of a rules-based trade order and a market economy based on capitalism. From the CPTPP members’ perspectives, the EU’s accession looks more than welcome.

There are also clear benefits for the European Union. While the EU has bilateral FTAs with many CPTPP members, there are strategic reasons why the EU should seriously consider joining CPTPP negotiations. The CPTPP might be an ideal option to disseminate the EU’s trade principles globally.

First, the EU’s “open strategic autonomy,” its current trade policy slogan, in the coming decades can only be ensured by keeping its presence in the Asia-Pacific region. As Asian trade expands further so too will its economic prosperity, shifting the center of the global economy eastward. Such a shift means that the question of how to govern trade in the region is directly linked to the governance of international trade. Therefore, if the EU intends to ensure its “strategic autonomy” for the coming decades, fast-paced and more in-depth commitments to the Asia-Pacific will be necessary.

There are only three distinct poles in world trade that are able to drive global trade rules by leveraging their market dominance: the EU, China, and the United States. If a mega-FTA is going to alter WTO-based trade orders in the near future, it has to embrace at least two of these poles. Those facts make the EU’s indifference toward the CPTPP a puzzle. China is ahead of the EU as an economic rule-setter in the Asia-Pacific region, as its economy is deeply intertwined with its Asian neighbors. The United States is also attempting to secure its Asia-Pacific economic stakes, despite the sticky domestic backlash. Although the EU has sealed more and more bilateral FTAs with Asian countries over the last decade, the bloc still lacks strong economic foundations in Asia. Such a reality makes the CPTPP the most prominent starting line to enhance Europe’s economic stakes in the region.

Moreover, Brussels may not be aware that the CPTPP is now the best forum where it can promote its own trade agenda. One may assume that some unbridgeable gaps between the EU’s trade policies and the CPTPP rules may account for Brussel’s reluctance. Take data protection as an example. The EU has never offered to bargain on data privacy in FTA negotiations so far, while the CPTPP rules are considered to focus mainly on freer use of data. The EU requires FTA partners to obtain Adequacy Decisions to secure the free flow of data under its GDPR. Only some CPTPP members are entitled to such status currently.

Yet, such differences are not insurmountable obstacles for Brussels to sit at the negotiation table with the CPTPP. Consider instead that the EU’s bargaining power over the CPTPP members is now at its height: It would be irrational to miss the EU’s best opportunity of spreading its trade practices to Asia-Pacific. The EU’s large consumer market and pro-free trade nature are vital bargaining chips over the parties of the CPTPP – at least as long as the other strong counterparts of the EU on the trade front, the United States and China, struggle to step into the deal. The EU would have a solid chance of convincing the current members to adhere to Brussels’ preferred approaches to the emerging trade agenda.

Those strategic considerations clearly signify that applying for the CPTPP would offer a strong opportunity for the EU. The EU has a window to secure its long-lasting “open strategic autonomy” by negotiating with the CPTPP members. Even if the negotiation during the application process does not go as planned, the EU has nothing to lose. It can take plenty of time to convince the members to agree to its rules, unless the other two economic powerhouses succeed in entering into the deal. On the other hand, should it miss the opportunity, the EU’s bargaining power against the CPTPP members would gradually decline if either China or the United States moves to become a member.

Therefore, the EU’s lack on interest in CPTPP accession seems a strategic failure. In an era when its leadership in the rules-based trade order is more than expected, would the EU stand up to save both the rules-oriented mega-FTA in the Asia-Pacific and its own long-term “open strategic autonomy”?