Businesses in the European Union ( EU ) are seriously considering possible accession to the Comprehensive and Progressive Trans-Pacific Partnership ( CPTPP ) amid the current trade war between Brussels and Washington.

“The way we see the US market today is different from the way we were seeing the US market five months ago and this has consequences as well in the medium to long term,” says Luisa Santos, deputy director general of BusinessEurope in Brussels. “The trust is no longer there. So that's also why the EU now is trying to diversify its markets.”

“Of course, we are not going to abandon the US market. But we are definitely looking for alternatives because we are not sure how stable the relationship will be even if we get a deal …

“The biggest question we have these days is how stable this deal is going to be, how much can we trust it to move the relationship forward in a more predictable manner, and this we don’t know.”

Santos, who used to be the Portuguese textile industry’s chief representative in Brussels, was speaking at the “Brave New World of Tariffs” seminar, hosted by the Peterson Institute for International Economics  in Washington on July 16.

‘Pragmatic solution’

“We will not be shocked again,” she says, referring to on-again, off-again unilateral tariffs threatened by Washington this year. “We will need to have a pragmatic solution, and the pragmatic solution may be at one point to swallow something that is difficult for us to swallow.”  

On the EU’s potential accession to the CPTPP, “we know this is very difficult because, of course, the rules in certain areas are very different from the ones that the EU normally defends”, such as information technology and data.

But she notes that the 27-member EU has bilateral agreements with most of the 12 members of the CPTPP. “Some of them we are still negotiating, but we are confident that we will be concluding them soon.”

Signed in Santiago, Chile in 2018, the CPTPP has for its members Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. The United Kingdom acceded as the 12th member in December last year.

According to Santos, “We can cooperate further in two main areas.  One is more on the economic gains, and it's important for business – how we integrate further our supply chains. This has to do with trying to make our rules of origin compatible and … potentially accumulation of those rules of origin that can maximize the benefits in terms of market integration.”

Santos, who chairs a group monitoring the EU-UK trade agreement,  also sees scope for multilateral cooperation beyond the World Trade Organization ( WTO ), whose dispute-settlement system has become  dysfunctional.

New world trade rules?

“If the WTO is indeed stuck at the moment in defining new rules, will we – through countries like the ones that are part of the CPTPP – start to put building new rules in areas where the WTO for the moment is not able to put those rules?

“So we see the approach in these two areas and we see that as a very positive sign that Europe is ready and open to work with other regions in the world … where we have a huge footprint to try to maximize that footprint.”

According to Penelope Naas, who leads the Allied Strategic Competitiveness initiative of the German Marshall Fund of the United States in Washington, the EU could present itself as an alternative export platform to the US.

Speaking at the same seminar, Naas reckons this is an area where Europe could lead. “There are those who are now looking, where do I export from? Where do I serve the rest of the world from? Is it Mexico? Mexico has a lot of trade agreements. Is it Asia? Is it some place in Europe? That's another really great opportunity for Europe to take advantage of this situation and present itself as an export platform for the world.

“But it does need to work on some of those competitiveness issues first before they can change the narrative that's out there that sometimes Europe is a little hard to do business in.”

According to veteran WTO spokesman Keith Rockwell, an EU-CPTPP agreement “will not emerge overnight. Negotiating issues like data, agriculture, energy, and finance is politically sensitive for both sides. But there is a real incentive for these countries to work towards a deal.”  

 ‘Outburst in Brussels’

Such a partnership “would be a major force in trade and investment, an incubator for innovation in trade policy, and a catalyst for growth in mature economies – and would send a sobering message to Beijing and Washington”, he says.

Rockwell’s commentary, published by the Singapore-based Hinrich Foundation on July 15, recalls that the EU Commission president made the suggestion at a dinner with EU heads of state and government on June 26.

"We can think about this as a beginning of redesigning the WTO,” Ursula Von der Leyen was quoted as saying. Such a partnership would “show to the world that free trade with a large number of countries is possible on a rules-based foundation”.

Rockwell notes that her support for closer links is not new – she had phone calls with both Singapore Prime Minister Lawrence Wong and New Zealand Prime Minister Christopher Luxon in April.

“But it touched off consternation at the WTO. Already beleaguered by the US retreat from the multilateral trade body, news of the comments coming out of Brussels set off alarm bells at the WTO’s headquarters in Geneva.”

According to Rockwell, “frantic calls” seeking an explanation led EU trade commissioner Maros Sefcovic to issue a statement on June 27 highlighting a “very good” call he made that day to WTO director general Ngozi Okonjo-Iweala.

The two expressed a “shared ambition to preserve a rules-based trading system and to work together on ways to revitalize and strengthen it”.

Rockwell sees the “outburst” in Brussels as reflecting “growing European exasperation over the floundering efforts to reform the organization”.

“Many European leaders now believe it will be years before the WTO is reformed and that serious negotiations to establish new global trade rules will be impossible while President Donald Trump remains,” he says.

“European and Asian officials believe US tariffs will be higher for the foreseeable future and certainly higher than the tariff ceilings to which Washington committed in the WTO.

“Given this scenario, the idea of joining forces with the countries of the CPTPP holds appeal for many Europeans. Support for such a trade and investment agreement is rising in the Pacific region as well.

“Australia, New Zealand, Singapore, Canada, Japan, and others have turned their sights toward setting new rules for trade, if necessary, in smaller groupings without the US.”

‘Geneva bubble’

Rockwell, who was a WTO director when he retired three years ago,  reckons that EU impatience with the “Geneva bubble in which WTO operates” has been building for years.

“Sabine Weyand, the EU’s top trade civil servant, is a longtime sceptic of the WTO’s ability to reform and produce meaningful results. Others in the Commission’s Directorate-General for Trade and Economic Security harbour the same doubts,” he says.

”The organization is not working. We can’t negotiate new rules, and we can’t ensure that existing rules are followed because the dispute-settlement system is broken,” one Commission official is quoted as saying.

The CPTPP grew out of free-trade arrangements Brunei, Chile, New Zealand and Singapore forged two decades ago.

Former US President Barack Obama championed the broader agreement, originally known as the Trans-Pacific Partnership ( TPP ) from which the US withdrew during Trump’s first term in office. 

The TPP was revived without the US as the CPTPP, largely due to efforts by the late Japanese Prime Minister Shinzo Abe. New Zealand is the depository, including for notifications and requests made under the agreement.  

New applicants range from Asia-Pacific Economic Cooperation ( APEC ) members China, Hong Kong, Indonesia, and Taiwan to non-members Costa Rica, Ecuador, Taiwan, Uruguay, and Ukraine. CPTPP ministers agreed late last year to start the accession process for Costa Rica.

China, which submitted its application in 2021, has conducted an in-depth analysis and evaluation of the agreement's content, Ministry of Commerce spokesman He Yadong told a news conference last month.

He said China had prepared bids for market access in areas such as goods, services, investment, and government procurement, and had undertaken extensive exchanges with all other members.

“The ministry hopes CPTPP members will accelerate China's accession process, support multilateralism and free trade through practical actions, and inject more certainty and momentum into global economic and trade development,” according to a statement.