The EU in Asia: Free Trade Reanimation?

_ Dmitry Streltsov, head, Department of Oriental Studies, Moscow State Institute of International Relations, leading researcher, Institute of Oriental Studies, Russian Academy of Sciences. Moscow, 20 July 2018.

The European Union leaders took part in two Asian summits in a row: on July 16 with China and on July 17 with Japan. In Tokyo a free trade agreement was signed between the EU and Japan, and China reached an agreement with the EU on WTO reform. Why Europe turned back from the US to the Asian region and what other changes are expected.

Cheese, wine and chocolate

The July 17 agreement is a major event in world politics. And not only because this free trade zone (FTZ) will cover countries that together possess one third of world GDP. When the world free trade system is in crisis, the signing of such an agreement is a kind of step in the direction of reviving this system and its liberal principles.

At the heart of the crisis lies the fact that the US, resorting to protectionism, undermines the free trade. Moreover, China is very active in the world trade system. Japan and the EU have great doubts that China can become the locomotive of this system, since it does not adhere to the principles of liberalism and democracy and its strengthening can lead to the destruction of the free trade liberal principles. Signing of the FTA agreement on July 17 has a strong political moment – it is a demonstration of the unity of Japan and the EU toward China and the United States.

Second, for Japan and the EU such an agreement is surely beneficial, as it is a strong impetus for the development of the economies of the two regions. Japan’s GDP is likely to grow by 1% and will give an additional 290 thousand new jobs. To a large extent this is due to the gradual abolition of import duties on Japanese cars in the European market. At the same time this is a plus for the EU, as it can increase the supplies of agricultural products to Japanese markets – in particular, cheeses, wines and chocolate.

WTO and no honeymoon between the EU and China

During the summit in Beijing China concluded with the EU a WTO reform agreement. This is also a significant event, as it demonstrates that these forces are now promoting the idea of WTO reform and are its guarantors. The WTO is experiencing a deep crisis, and world trade is moving along the path of preferential trade and economic agreements – these were either bilateral or multilateral trade blocs, but the parties could not reach an agreement on strengthening the WTO and its development. The agreement between China and the EU has a landmark character, since both sides are major beneficiaries of world trade.

At the same time, neither the EU nor China are ready to present the agreement as a challenge against the US. The EU is now actively negotiating with the US about WTO reform on a bilateral basis. Moreover, in the EU there is growing concern about the politicized nature of Chinese investments in Europe. For example, some EU countries are favorable to China on many politically sensitive issues – in particular, on the problem of the South China Sea. Moreover, as in case of Northern Europe, the Chinese investments go into areas where the PRC’s benefits are linked to access to the latest military technologies. The EU investors also complain that China discriminates against them, often preferring tenders to Chinese state-owned companies. Therefore, the European investments in China are now significantly reduced.

Thus, it is not worth talking about some “honeymoon” in relations between China and the EU. It is rather a pragmatic-oriented transaction designed to reanimate the international trading system. China and the EU also want to be leaders in the development of the international trade system. This is also a signal for the United States that they join the process of the WTO strengthening. It is possible, that the US sooner or later will refuse protectionism (for example, Trump’s successor may change the course in this area), feeling that protectionism is damaging to America itself and pushes it to the periphery of the world economic system.

Globalization: the rumors of death are exaggerated

As for the prospects of globalization based on the development of international economic relations and international trade, there is a cautious optimism.

Although the development of world economic relations has recently taken the path of regionalization and fragmentation into regional economic blocs, the world still has an interest in creation of comprehensive trade and economic blocs and free trade systems. If earlier they aspired for the bilateral deals and agreements, in 2010 major projects started to prevail: for example, the Trans-Pacific Partnership, which, however, is now falling into crisis in connection with the US withdrawal.

At stake is the creation of the largest regional FTZs, based on the principles of open regionalism. The enlargement of FTZs will someday once again lead to the need of globalization. Therefore, the rumors about the death of the world trade system are exaggerated. The world is moving towards some common clear rules. This is confirmed by the fact that the world’s largest economic actors – the EU, Japan and China – are in favor of the WTO preserving.

Source: http://valdaiclub.com/

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