Europe-East Asia Economies Ties: Good for Asia, Good for Europe

Op-Ed / Opinion | 1 February 2010

The Doha Round has stalled but the European Union (EU) is not standing still in the bid for further trade liberalization. And neither are the various economies of East Asia.

The Korea - EU Free Trade Agreement - the first trade deal involving the two regions -is likely to kick in in mid 2010. This will mark East Asia's most comprehensive Free Trade Agreement (FTA) in terms of tariff reductions and coverage of trade in services. As such, it could well prove to be the blueprint for other similar agreements between the two regions. Japan, for one, has already shown strong interest in cementing an FTA with the EU.

The upcoming Korea-EU FTA will provide Asia's fourth largest economy with access to the world's largest trading block.

But the benefits will go both ways. Korea is a highly dynamic nation that turned itself from an impoverished backwater into a leading producer of high quality cars and electronics in a single generation. Korean energy and green industries, in particular, could become a focus for investment by European companies. Trade between Korea and the EU was worth about E100 billion in 2008 and the upcoming agreement could see it expand by at least 20%.

And it makes sense for the EU to forge similar agreements with other Asian governments.

The EU's 500-million-strong consumer base is a key market for Asian goods. The expanded EU is bringing skilled workers, natural resources and greater business opportunities. The EU also has a deep science and technology base and can offer diverse financial, insurance and legal services as well as standardized laws that make it easy to do business there.

East Asia, meanwhile, has enjoyed a spectacular rise over the last 50 years. It can produce labor-intensive products of increasing sophistication in a variety of low-cost locations.

At the same time, the region is now more prosperous than it used to be and will increasingly become a market for consumer goods made by European companies - particularly those that already have strong brand names in Asia such as Armani or Philips and is also a potentially huge market for companies that have a long and illustrious histories at home but have yet to venture too far into Asia; Fiat for example.

With these complementarities, it is perhaps surprising that Asia and the EU have been so slow to sign on to FTAs.

East Asia is already the preferred destination for over one third of EU outward investment, up from under 10% a decade ago. Total trade between East Asia and the EU more than doubled from $492 billion to over $1 trillion between 2003 and 2008.

Interestingly, total trade between East Asia and Italy more than trebled during the same period from about $12 billion to $38 billion. Still, the relatively small value of Italian trade with East Asia compared to the rest of the EU underlines the enormous untapped opportunities that exist for Italian companies in East Asia in, for example, food products, fashion clothing, leather and footwear, automobiles and services such as industrial design, architecture and construction.

So stronger Asia-Europe ties would benefit every one and, indeed, trade-led growth is essential for global economic recovery.

Not that it will be easy. Protectionist tendencies need to be kept in check - particularly lobbies for so-called green protectionism. Equally important is the need for EU investment agencies to provide timely information on regulations governing foreign investment in East Asia and for companies to do comprehensive research on business opportunities. The excellent networking done by EU business associations in East Asia also merits expansion.