The EU and USA should act now!

Seven years ago, it still looked as if megaregional trading blocks could still shape tomorrow’s world trade regime.

  • In “The West,” the USA and EU could have strengthened the transatlantic axis in guise of the Transatlantic Trade and Investment Partnership (TTIP).
  • In “The East,” the Regional Comprehensive Economic Partnership (RCEP) could have accelerated integration between the ten ASEAN states[1] plus China, Japan, South Korea, India, Australia, and New Zealand.
  • The Trans-Pacific Partnership (TPP) would have brought together 12 countries from the Asia-Pacific Region, including the USA and Japan, but not China.[2]

As we know, things turned out very different:

TTIP was proclaimed dead even before the Trump administration took office in 2016, while one of President Trump’s first acts upon taking office was to withdraw the USA from the TPP, which had not yet been ratified at that point.

Subsequent events have shown that other nations involved in the TPP were unwilling to wait for the United States to change its mind and guide them into that agreement. In the end, the remaining 11 TPP members got back at the negotiating table to finish their trade deal even without the world’s economic superpower.

In 2018, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) was launched to replace TPP – without the United States. Even though CPTPP is shallower when it comes to, for example, the protection of intellectual property and labor rights, it still showed the willingness of its members to cooperate and to promote free(er) trade.

Last Sunday (November 15, 2020), RCEP was finally concluded, too, after eight years of negotiations – without India, though. The subcontinent pulled out in 2019 and could not be persuaded to come back. It should be noted here that RCEP has been an ASEAN-led process and not, as stated in some media reports, led by China. Of course, China will naturally play a big role, alone for its size.

RECP

RECP

This is also shown by the fact that neither the USA nor the EU, two world-leading economic powers, are part of the two Asian-Pacific agreements. They appear to have missed their chance to embed far-reaching social, environmental, and labor standards in trade agreements and set the standard to be more inclusive and sustainable in the future.

What does this mean for the USA?

These developments are a “total disaster” for the United States, which under the Trump administration has lost its role as a reliable facilitator in international economic affairs and, for many countries in the Asia-Pacific region, as a welcome counterweight to a rising China. After a short period of being paralyzed with shock, important allies of the USA, such as Japan, moved on. This might have changed the quality of their relations with the United States in the long run, making them more self-confident and not waiting for the USA to give guidance.

When Mr. Biden tries to revive old alliances, which he should definitely do, he might find allies wanting to act on a much more equal footing than before. This does not necessarily have to be a bad thing and might make multilateral approaches more multilateral in the first place. However, it will certainly be unfamiliar for the United States and will not make Mr. Biden’s case at home easier.

Nevertheless, the 46th president of the United States should take a chance on change and re-approach partners in “the west” (Asia-Pacific from a US point of view) and in “the east” (Europe from a US point of view).

Vis-à-vis the European Union, he should even consider picking up on the idea of a transatlantic agreement – possibly not in the guise of the four letters that have come to have a bad reputation – TTIP. However, the United States and the EU still share a range of values and standards that deserve to be embedded in an economic partnership agreement.

On the Asia-Pacific front, the United States cannot afford not to play a role in the long run for strategic reasons. China has been playing an increasingly assertive role in this region, especially since Xi Jinping took office. So for the USA, it should be of utmost importance to re-strengthen their role there and – as Mr. Obama said – revitalize their “pivot to Asia.”

In this regard, it would be possible to consider a (re-)accession to the CPTPP, while at the same time exploring the opportunity of starting talks between the USA and RCEP on potential cooperation. The United States should not worry too much about losing face (again) in Asia. Quite a few countries in the region would probably welcome America’s efforts to re-strengthen its position as a western economic power in Asia, rather than leaving the field to China.

What does this mean for the EU?

The EU should look both ways, too, i.e., engage more strongly (again) with the USA and strengthen its presence in Asia.

The United States will have a new president in January, presumably. Mr. Biden might not really be a free trader, but he is most certainly willing to restore trust in the USA and stretch his hand out towards old allies instead of shaming and blaming them on social media. The EU should make good use of this window of opportunity and bring the idea of an ambitious economic transatlantic pact back to the table – even though some EU member states were the ones to block the last negotiations, it might now be the time for a fresh start to talk about a full-fledged comprehensive economic agreement.

After all, the United States has taken center stage in EU economic relations. Even though the disruptions caused by the Trump administration might not vanish in thin air soon, it is worth remembering that the EU and the USA share a set of shared values and interests. Therefore, the future of the transatlantic axis could start now.

On the other side of the globe, the EU has already made advances in the past few years: Its Trade and Investment Strategy has called for strengthening the EU’s “presence in the Asia-Pacific region” since 2015. Some observers have therefore already been speaking of “Europe’s Asia Pivot.”

The EU-Japan FTA certainly was a success in this regard. However, now that in addition to CPTPP, a second megaregional trade deal in the region has been concluded, the EU should pivot towards Asia even more: the conclusion of the RCEP, all members of which are part of the Asia-Europe Meeting (ASEM), could pave the way towards a larger Europe-Asia trade deal, such as a Free Trade Agreement of Asia and Europe (FTAAE), which would bring together all 51 country-level members of the ASEM in a vast trade zone. As we have argued before, both regions “could make greater use of this platform (ASEM) in order to further expand the framework conditions for European-Asian trade and investment relations.”

Of course, this is not yet realistic at present. So the EU should for now focus on having talks about an EU-RCEP and an EU-CPTPP agreement. As a major player in the world economy, the EU could make sure that Asia, probably the key growth region in the 21st century, is left neither to the USA nor to China.

Outlook

In conclusion, the RCEP should be seen as a positive development and a great opportunity in the first place – not, as some media portray it, as a “declaration of war on the West,” especially since Australia and New Zealand are also part of the “West” and sometimes even Japan when it comes to (Western) industrialized countries. In times of a global health and economic crisis that invites protectionist behavior, 15 countries have joined forces to promote free trade and prosperity. This should serve as a role model – both for the EU and the USA.

As for now, neither the USA nor the EU is part of the world trade order’s most recent shifts. Hence, they should act now and not again miss the chance to embed far-reaching social, environmental, and labor standards into transatlantic trade agreements and set themselves as role models for more inclusivity and sustainability in future agreements. They should actively engage with CPTPP and RCEP members to strengthen their “pivot to Asia.”

[1] Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam.

[2] The other TPP partners were: Australia, Brunei Darussalam, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam.