The need for enhanced EU cooperation with the CPTPP
EU economic integration with like-minded partners in the Asia-Pacific is crucial to diversify trade relations and improve competitiveness. This article presents concrete proposals on how this can be achieved without negotiating entirely new trade agreements.
To achieve its priorities with respect to security, resilience, competitiveness and prosperity, the EU needs a plan for deeper economic integration with reliable partners. WTO negotiations are unlikely to advance fast and the US is unwilling to pursue deep trade integration with the EU. The best option in this case is the one indicated by the European Commission in its 2021 Trade Policy Review communication.
The communication states that “the EU will need to diversify its relations and build alliances with like-minded partners, including through its broad network of trade agreements…The EU’s free trade agreements (FTAs) are platforms for enhanced cooperation pursuing our values and interests. They are the basis for engagement with important markets and countries around the world, particularly in the Asia-Pacific region, in Latin America and the Caribbean.”
Despite this, the 2021 EU Indo-Pacific Strategy contained only modest ambitions for enhanced cooperation based on existing EU FTAs. Most notably, it had no references to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trading block that currently has ten members, nine of which the EU has or is negotiating trade agreements with. Unlike the Regional Comprehensive Economic Partnership (RCEP) that includes China, the CPTPP is made up of countries that the EU already has close trade relations with. In our view, the CPTPP therefore represents the EU’s best option to pursue enhanced cooperation with like-minded partners.
The purpose of this article is to propose concrete steps toward trade integration between the EU and the CPTPP. We see at least four types of benefits for the EU with the proposed agenda.
- Geopolitical: Making EU-CPTPP trade relations the centre of gravity in world trade strengthens the EU geopolitically.
- Competitiveness: Improved access to foreign markets and imports have strong positive effects on the productivity of EU firms.
- Resilience: Deeper trade relations with a wider range of reliable partners diversify EU trade and improve resilience.
- Green and digital transition: As the name indicates the CPTPP supports a ‘progressive’ trade agenda, including with respect to the green and digital transition.
Below, we propose three areas of enhanced cooperation between the EU and the CPTPP.
Linking the EU and the CPTPP via rules of origin
Many EU trade agreements are bilateral. There are advantages to this approach, but it can also limit the benefits as trade becomes increasingly specialised and fragmented. It is therefore an attractive option to link the EU’s network of bilateral trade agreements to each other.
The EU’s Pan-Euro-Med (PEM) cooperation binds together more than 60 bilateral trade agreements within the Euro-Mediterranean area. 23 contracting parties, each with FTAs between them, have agreed on a single rules of origin protocol that covers all FTAs within the PEM zone. The PEM convention is based on diagonal cumulation which requires identical origin rules between all parties involved. Similarly, the CPTPP also has identical rules of origin among its members.
As the PEM negotiations showed, full harmonisation of origin rules is a complicated undertaking. An alternative option would therefore be to view the trading blocs as “origin/cumulation zones”. If both parties have negotiated rules of origin protocols based on established principles, that is arguably sufficient to recognise each other’s origin rules. One could see it as a mutual recognition regime for rules of origin. A potential drawback with this option is that it would include countries which are not all connected via a preferential agreement, however.
Yet another option is therefore extended cumulation. Extended cumulation is limited to third countries with which two FTA partners both have a trade agreement. It can be limited in scope in terms of goods or sectors and does not require identical rules of origin. Many modern FTAs have provisions on extended cumulation, for instance the EU-Vietnam FTA. The EU-Canada Comprehensive Economic and Trade Agreement (CETA) also allows both parties to request extended cumulation with mutual FTA partners.
In this case, extended cumulation could be applied on existing trade agreements between the EU, other PEM countries and CPTPP countries. The practical effect would be that EU firms would have broader access to originating inputs from some CPTPP and PEM countries, along with increased opportunities to import finished goods at a preferential rate. In addition, EU exporters would benefit by being able to source originating inputs from additional countries while using trade preferences. The fact that CPTPP-based firms would be able to apply extended cumulation to EU inputs under this arrangement would also exert an upstream pull-effect on EU exports to CPTPP countries. Ultimately it would open new opportunities for economic integration and possibly even make EU-CPTPP trade relations the centre of gravity in global trade.
Cumulation is a flexible tool
Cumulation is a flexible tool that can be adjusted for products, sectors, agreements, or countries within the cumulation zone. While it would require legislative approval, another advantage is that extended cumulation can be added to existing origin protocols without opening up trade agreements. In that sense, the proposed solution utilises EU FTAs as “platforms for enhanced cooperation” in line with the message in the Trade Policy Review. Since it would represent an additional option, it would also not place extra burden on firms. At the same time, cumulation can be complex to use for businesses. Modern methods to track and prove cumulation should therefore be made available, not the least for the benefit of SMEs. If the procedures are too administratively cumbersome, integration benefits will not materialise.
An EU-CPTPP digital trade agenda
The 2021 EU India-Pacific Strategy announced the intention to negotiate digital partnership agreements “with like-minded partners in the Indo-Pacific", starting with Korea, Japan and Singapore. Iana Dreyer of Borderlex argues that this digital agenda is “too timid”. She also claims that the “problem with the EU’s dithering and hesitations is that it is becoming irrelevant in contributing to set the rules for cross-border digital exchanges in the Asia-Pacific region.”
While we are more sympathetic to the EU digital partnership agenda, the EU clearly needs a more forward-leaning approach in the future to avoid being left behind. Currently, CPTPP countries such as Japan, Singapore, Australia and New Zeeland are leading the way on digital economy agreements. Our proposal therefore builds on the existing EU digital partnership agenda, while taking inspiration from the Digital Economy Partnership Agreement (DEPA) between New Zealand, Singapore, and Chile, and Digital Economy Agreement (DEA) between Australia and Singapore.
Based on the considerations above, we propose that the EU focus on:
- Enhanced digital cooperation
- Geographic extension of digital partnerships
- A stable framework for the transfer of data
Enhanced digital cooperation
The premise of our proposal is that new steps by the EU should be complementary to and add value to existing EU FTAs and digital partnerships, as well as to a presumed outcome of the WTO’s e-commerce negotiations. Luckily, National Board of Trade has already made a comparative analysis between commitments in EU FTAs, the DEPA, the DEA, and a 2020 draft of the WTO e-commerce negotiations.
Based on this analysis, and consistent with the idea of enhanced EU cooperation with FTA partners, we propose that the EU increase the scope and level of ambition in its digital trade partnerships. Within an overall framework that allows more countries to be added gradually, it could include provisions in all or some of the following areas:
- Paperless trade, including referencing the 2017 UNICTRAL Model Law on Electronic Transferable Records,
- A single window for trade administration
- Digital identity
- Electronic payments
- Cross-border logistics regulation and express shipments
- A permanent elimination of customs duties on electronic transactions
- Emerging technologies such as AI and machine learning
- Digital inclusion
Enhanced digital cooperation would require a mandate for the European Commission, but enhanced cooperation on these issues is critical for the Union’s digital transition and it is therefore time to take these steps. The proposed areas of enhanced cooperation are also not particularly controversial within the EU or the CPTPP.
Geographic extension of digital partnerships
The European Commission has already negotiated non-binding digital partnerships with Japan, Korea and Singapore. At the same time, FTAs that include most of the issues listed under enhanced digital cooperation are being finalised with Australia, New Zealand and Chile.
Ideally, the EU should seek enhanced digital cooperation with all ten CPTPP members, but as a next step we propose that the EU start with two: Canada and Mexico. Together with the five countries mentioned above, that would cover seven CPTPP members. Four of these (Japan, Singapore, Canada and Mexico) would be part of the proposed enhanced digital cooperation, whereas three would be covered by ongoing FTA negotiations.
A stable framework for the transfer of data
The absence of stable frameworks for the transfer of data between the EU and other countries could become a problem for the EU as we enter the digital age. While different countries might require different solutions, it is critical that reliable and effective frameworks for the transfer of data are established between the EU and CPTPP members.
This recommendation obviously applies to all important EU trading partners, but many CPTPP members are among the most progressive and digitally mature and should arguably be next in line.
Mutual recognition agreements between the EU and CPTPP members
Ideally, there should be a best practice for regulatory cooperation in FTAs that the EU could apply in the context of “enhanced cooperation” with CPTPP members. Fortunately, National Board of Trade recently published an “All-Star Approach to regulatory cooperation” that identifies good practice, including how to promote sustainability.
EU FTAs that exist or are under negotiation lay the foundation for enhanced cooperation with CPTPP members. Many “all star” commitments, such as the reaffirmation of WTO/TBT transparency requirements and good regulatory practices, are therefore already covered.
EU should engage with at least Australia, Canada, Japan and New Zealand
The area where we see potential beyond this is mutual recognition agreements. Currently, the EU has mutual recognition agreements with six countries outside Europe. Four of these are CPTPP members - Australia, Canada, Japan and New Zealand. This suggests a high level of mutual trust between regulators in the EU and these four economies. We therefore propose that the EU engage with at least these four CPTPP partners to add sector coverage in EU MRAs.
The level of trust between the parties determines the level of ambition
From an EU perspective, the critical factor in terms of sector selection is that it is a sector with harmonised EU legislation. The level of trust between the parties moreover determines the level of ambition. A further benchmark for the exploration of new or improved MRAs are sectors where CPTPP members share MRAs, indicating an existing level of trust between regulators and conformity assessment bodies. As far as possible, cooperation on conformity assessments should be based on the acceptance of supplier’s declaration of conformity.
Based on these considerations it would be of interest to explore sectors where new EU legislation is under development, notably charging infrastructure and replacement batteries for vehicles, cybersecurity and AI. Personal protection equipment and chemicals are two more sectors of potential interest.
EU should explore MRAs to support green transition
To support the green transition, the EU should also explore MRAs with CPTPP partners in sectors that are relevant for the circular economy. The EU Circular Economy Action Plan aims to make sustainable products the EU norm with products lasting longer, being easier to reuse, repair and recycle. Focus lies on sectors that use the most resources and with a high potential for circularity: electronics, information and communications technology, batteries, packaging, plastics, textiles, construction and food. In these areas the European Commission intends to launch Extended Producer Responsibility (EPR) Schemes. A current proposal aims to establish EPR for batteries in the EU. There is also a proposal for a harmonised EU EPR scheme for packaging. Product harmonisation is unlikely with CPTPP members, but MRAs that pave the way for product and management system certification would add value to the EU’s EPR system. This would also let exporters obtain the documentation they need in their home country and make it easier to set up collection systems.
What is the National Board of Trade Sweden?
The National Board of Trade (Kommerskollegium in Swedish) is a Swedish government agency for international trade, the EU internal market and trade policy. Our mission is to facilitate free and open trade with transparent rules as well as free movement in the EU internal market.