Asia Pacific: Test case for a geopolitical EU trade strategy

Even without China, the countries of the Asia Pacific represent 30 percent of the world population, 20 percent of world GDP (purchasing power parity) and 18 percent of world trade. The region has developed into a key region for prospective growth in terms of market size and purchasing power. On top of that, major lifelines of global trade run through its waters. Consequently, the three big economic players, China, the United States and the EU, are vying for power and influence in this important region. “Given the growing systemic rivalry with China, it is vital for the economic and political interests of the EU to pivot more strongly toward the Asia Pacific, especially as to the much-discussed diversification of trade away from China,” says Cora Jungbluth, China expert at Bertelsmann Stiftung.

As the multilateral trade liberalization process under the umbrella of the World Trade Organization is stalling, bilateral free trade agreements (FTAs) are the second-best option to foster deeper trade integration and incentivize trade with the respective partner economies.

According to our analysis, the EU already has bilateral agreements with four of the 14 Asia Pacific states. They all are so-called deep agreements, meaning they go beyond mere tariff reduction and cover issues, such as investment, standards or intellectual property rights, which promises a higher level of economic integration between the respective partners. Three more FTAs of the EU in the region are under negotiation. Another three are on hold.

The EU is not involved in any of the two megaregional trade deals concluded in recent years: the Regional Comprehensive Economic Partnership (RCEP), which brings together the ten member states of the Association of Southeast Asian Nations (ASEAN) plus China, Japan, South Korea, Australia and New Zealand, and the Comprehensive and Progressive Trans-pacific Partnership (CPTPP), which brings together eleven states from both sides of the Pacific, including Chile, Canada, Australia and Singapore. Moreover, negotiations on a region-to-region agreement between the EU and ASEAN were discontinued in 2007.

Link to the infographic: GED Trade Graphics - Global & European Dynamics (globaleurope.eu)

China not only has four bilateral FTAs of varying depth in the region but also has a trade deal with ASEAN and is a member of the RCEP. In 2021, China moreover formally requested to join the CPTPP.

In contrast, the United States is not very active in the region in terms of trade deals: it has only three deep FTAs in place and none under negotiation. This is mainly because FTAs have not been a political priority for the US, since the Trump administration withdrew from the TPP (CPTPP’s predecessor) and negotiations between the US and the EU on the Transatlantic Trade and Investment Partnership (TTIP) were halted. The US is focused rather on partnerships with less binding economic commitment, such as the Indo-Pacific Economic Framework for Prosperity (IPEF) launched in May 2022 with 13 countries in the region, including Australia, India, Indonesia and Japan, as well as military and security-related initiatives.

For the EU, FTAs are currently the key tools to use to take on a more active role in the Asia Pacific. We see four ways to push this:

1. The EU should look more carefully at compliance with and utilisation of FTAs and regularly review whether FTAs need to be updated. In FTA negotiations, the EU should move more rapidly to a conclusion and subsequent enforcement, while considering the respective partner's development level and local needs.
    
2. The EU should put a stronger focus on its region-to-region relations with ASEAN and strive for an EU-ASEAN FTA to get a better footing in the region. 
    
3. The EU should start talks with the RCEP and CPTPP about possible cooperation, ranging from observer status to associated or even full membership.
    
4. The EU should strengthen the Asia-Europe Meeting (ASEM) process and advance it to an important cooperation platform with the long-term vision of establishing a Free Trade Area between Asia and Europe (FTAAE). The increasing politicization of economic relations must be kept in mind but should not permanently hamper enhancing cooperation in the long run.

Our infographic scrutinizes the trade relations and free trade agreements of the EU, China and the United States with 14 Asia Pacific states as of 2020. These include five major economies, whose economy accounts for at least one percent of world GDP: Japan, India, South Korea, Australia, and Indonesia. Moreover, we added the Association of Southeast Asian Nations (ASEAN) as additional “economy” due to its economic and political importance in the region. Indonesia is therefore included in the ten ASEAN member states. The analysis is based on the IMF databases World Economic Outlook (WEO) and Directions of Trade Statistics (DOTS) for data on population, GDP and trade. For measuring the depth of FTAs, it relies on the Design of Trade Agreements Database (DESTA).

Link to the infographic: GED Trade Graphics - Global & European Dynamics (globaleurope.eu)