The United States will soon announce plans for an Indo-Pacific economic framework as part of its new strategy for the region. Europeans have also developed their own Indo-Pacific strategies. There is scope for transatlantic cooperation on trade and economic issues of common interest. Asia Society’s Wendy Cutler shares some thoughts with Borderlex on how this could be done.
Are the EU and the US aligning, including on Indo-Pacific issues?
The Indo-Pacific Economic Framework will be a very different initiative than past economic initiatives the United States has pursued in the region. It will cover many important issues that are of concern and of interest in the region – but it will notably not include trade liberalisation.
A lot of this can be attributed to our domestic politics. But trade issues are not the totality of the economic challenges that we are facing globally and regionally.
Issues such as supply chain resiliency, export controls, investment restrictions, dealing with non-market economy issues, setting standards for new technologies, whereas touched upon in trade agreements to some extent, are not their main focus. And yet they are becoming more and more important in the Indo-Pacific region.
The year 2021 was an incredibly successful in re-establishing EU-US relations and establishing structures of coordination and cooperation going forward, most notably the Trade and Technology Council. The challenge in 2022 will be to show that the structures can produce meaningful results and that they are not just talk shops.
We are seeing increased alignment in views between the EU and US on the importance of the Indo-Pacific, of economic engagement in the region, as well as a more realistic assessment of the China challenges.
We are anticipating an ambitious digital component in the new US strategy – that will be the US effort to offer an alternative approach to digital from China’s approach, based on our principles and our values, which in many respects are overlapping with the EU’s.
Many of the matters addressed in the TTC are also addressed on the agenda of US and EU initiatives in the Indo-Pacific. This opens many opportunities to thread them together and to work collectively with a range of like-minded partners.
What are the areas of common interest in the Indo-Pacific?
There are a number of areas where we can work together.
Standard-setting
Standard-setting for new technologies is extremely important and an area that is ripe for cooperation.
Standards have been very thorny issues between the United States and Europe in the past, and efforts to harmonise our standards failed in the TTIP negotiations. But I hope that if both sides can adopt a forward-looking approach to standards for new technologies, our early cooperation can be expanded to other countries and international standard-setting organisations. If we don’t work together, then China will set the standards.
It’s easier to agree on standards when they are still being developed, when neither side are dug in with their own approach. This has a chance of working.
The US and EU bring a lot of collective weight to any standard if they come together for a range of new technologies including telecommunications infrastructure, artificial intelligence and next -generation vehicles.
Supply chain resilience and sustainability
We are all dealing with the challenges that supply chains experience in respect to the COVID-19 pandemic, geopolitical developments and climate change-related incidents. This is a very important focus for all our governments and companies as they seek to reduce their vulnerabilities.
The US and Europe are already providing incentives to bring home the production of some critical and essential products. But there is a growing recognition that it’s unrealistic that we can make everything within our borders.
The development of trusted supply chain networks with like-minded countries is an area ripe of US-EU cooperation.
The first step in any trusted supply chain arrangement would be information sharing between the parties and what I would call ‘having each other’s back’, so that when there are shortages or disruptions, there are processes in place for getting together and working collectively to overcome the challenge at hand.
Ideally, such arrangements could go further and involve co-production or pooling of capabilities in important links up the supply chain.
Beyond the high-profile sectors of semiconductors, batteries, medical equipment and supplies, pharmaceuticals and critical minerals, there are other product areas where both governments can do more in anticipating other vulnerabilities.
We can do a better job in understanding what scenarios we need to be prepared for, and plan for the potential of disruptions in sectors that aren’t on our plate today.
China and non-market economy issues
On the rule-making side there are opportunities for us to work together.
Trilateral work with Japan was started during the Trump administration and recently Washington has reiterated it support for that work. This work goes beyond industrial subsidies, and focuses on state-owned enterprises, forced technology transfers and intellectual property. I think this trilateral work is critical.
We should give the WTO an opportunity to deal with some of these issues but at the same time, we need to be realistic and consider other approaches, both offensive and defensive to deal with these trade-distorting practices.
The question will be whether China will participate in any of this rule-making. I believe that there is an opening now with China’s expressed interest in joining the CPTPP.
Chinese president Xi, speaking at the 4th China International Import Expo last November indicated that China is more open to new rules on state-owned enterprises, subsides and digital.
My view is we should see if those statements coming from up high can be operationalised outside of CPTPP. If Beijing is interested in the CPTPP, shouldn’t it also be open to discussing these issues in the WTO, even if there was lower ambition?
Export and investment controls
It’s in our mutual interest to step up our coordination on export controls and investment screening practices.
I would also add the issue of outbound investment restrictions, an area of increasing focus in Washington. But this is a complicated area and transatlantic discussions could help fashion a more targeted approach to these and other similar restrictions.
In all these areas, if we are going to achieve our objectives, [the US] need[s] a strong partnership with Europe including the United Kingdom, and other parts of the world.
Can something be done to tackle economic coercion?
Developing effective responses to economic coercion must be a priority for bilateral coordination, with Brussels and Washington working to spread the cooperation to other like-minded countries and those that have or are experiencing such coercion. This is something that needs to be fast-tracked. This is a real-life problem.
I am worried about the growing phenomenon of trade coercion. China used to be lot quieter and less transparent about what they were doing. But with the imposition of broad import restrictions on Australia and now Lithuania, as well as products in its supply chains, the issue is coming to the forefront. Who would have ever thought that Europe would be subject to trade coercive measures by China?
It’s a new age. These measures threaten the multilateral trading system.
There are no easy answers for responding to trade coercion, particularly for Brussels, when it is trying to find common ground among its member states.
The WTO option taken by Australia and now the EU is welcome. I am pleased to hear the United States, Australia, Japan, the United Kingdom and others have already expressed an interest in being third parties to the EU’s new dispute regarding Chinese restrictions on Lithuanian imports.
To be effective, a WTO dispute settlement case should be combined with other steps that involve other international organisations, or other measures the EU takes internally to financially support companies that are being hurt.
It is also about coordinating and discussing how collectively countries can try to stop a specific coercion incident by raising the costs of such action. This involves working together to develop deterrent measure that will make China or any other country taking such measures think twice before they go ahead and use trade and other restrictions to punish countries for what they view to be unacceptable actions in the non-trade world.
One such step can be a collective commitment not to try to fill the needs of the country that is trying to take these coercive measures. Diversification of trading relationships is also critical.
How should any transatlantic Indo-Pacific cooperation work in practice?
Depending on the issue at hand a different group of countries could be invited in.
In the Quad for example, working groups have been established on many of the same issues that are under the jurisdiction of the Trade and Technology Council. There are plentiful opportunities to coordinate the work in these fora, and even holding special meetings with all of the involved parties.
What is key are the outcomes, less the structure.
