Economic Relations between Europe and Asia in the context of the ASEM

Paul IsbellSenior Analyst

International Economy and Trade

“II Forum Asia” Casa AsiaBarcelona Nov. 22-23, 2004

Background to ASEM

End of Cold War (late 80s-early 90s) Shift from bipolar to multipolar intl. system Three principal pillars of world system (nearly 90% of world GDP)

United States (and increasingly the Americas)

Asia

Europe

Emergence of Regionalisms (EU, NAFTA, ASEAN and broader Asian and American integration processes)

Background to ASEM

Emergence of “inter-regionalisms”Traditional: Transatlantic relationship, renewed in 1990 with the beginning of the Transatlantic Dialogue (TAD) Goals: to eliminate non-tariff barriers to trade and barriers to services tradeNew forms: Asia Pacific Economic Forum (APEC) beginning in 1989 and now with more than 20 member states. Bogor Goals: to achieve free and open trade by 2010 and 2025 in the context of “open regionalism”

Background to ASEM

The Euro-Asian relationship: The “weak link” in the new triangular core of the world system

Transatlantic and Transpacific links denserNo formal inter-regional dialogue or grouping between Europe and Asia Enormously growing potential

Economic emergence of Asia Trend toward regionalisms in Asia Potential for more efficient inter-regional dialogue

Potential Advantages: deeper economic links, political dialogue to help other international fora, mutually beneficially re-balancing of intl. system

The Birth of Asia Europe Meeting

Bangkok Summit of Heads of States/Gov (1996) 15 member states of the EU + 7 members of ASEAN + 3 countries of Northeast Asia (China, Korea, Japan) Goal: Strengthen the inter-regional relationship Bases: Mutual respect and equal partnership

ASEM V at Hanoi: Official enlargement of ASEM to include 10 new EU members states + 3 recent entries into ASEAN (Cambodia, Laos, Myanmar)

Membership now at 38 states + EC (over 50% GDP and international trade)

The ASEM Process

ASEM remains an “informal dialogue”

Multi-dimensional: political, economic, cultural dialogue

Common ground for non-binding, mutually beneficial projects and goals (consistent with national sovereignty and other international commitments)

Incremental in nature and complementary to work and objectives of existing, more binding international fora (WTO, Bretton Woods institutions, etc)

To improve efficient functioning of global governance

To facilitate further deepening and broadening of regional integration in both regions

The ASEM Process

No permanent institutions By choice, lacks a Secretariat (unlike APEC, ASEAN) Rotating national coordinators (existing state officials) Bi-annual Summits of Heads of State and Govt. Annual Foreign Affairs, Finance and Economics and Trade Ministerial Meetings More frequent Senior Officials Meetings (SOMs)

ASEM has “come of age” 5 Summits (Bangkok, London, Seoul, Copenhagen, Hanoi Over 15 Ministerial meetings, numerous WGs, etc.

ASEM’s Economic Pillar

ASEM’s Economic Pillar

The terrain of the Finance and Economy & Trade Ministers, and Senior Officials of Trade and Investment (SOMTI)

Two traditional areas of activity:

Trade Facilitation Action Plan (TFAP) seeks common ground on reducing non-tariff barriers to trade by facilitating and streamlining:

-customs procedures, standards and conformity assessment, public procurement, quarantine and SPS procedures, intellectual property issues, the mobility of business people, distribution issues, and other trade facilitation issues

ASEM’s Economic Pillar

Investment Promotion Action Plan (IPAP)

Investment Promotion Activities

Investment Policies and Regulation

Activities related to the regulatory and legal framework governing the investment environment

ASEM High Level Dialogue on Key Investment Issues

Investment Experts Group (IEG) have held numerous meetings since the inception of the IPAP to monitor progress and set future goals

Weaknesses of ASEM Process Remains Informal (progress incremental) Lacks Concrete Goals (undermines perceived relevance, identity) Lack of Institutional Infrastructure (lacks continuity) “Summit Fatigue” (resource overstretch) Still excludes large parts of Asia (South Asia, Central Asia, lacks a “Eurasian continuity”) Asymmetry in Objectives (deeper institutionalization vs advocates of shallow informal dialogue Lack of Symmetry in Interest

Between regions (EU vs Asia)Within regions (France vs UK, EC vs members, SE Asia vs NE Asia)

The Euro-Asian Economic Relationship

Europe and Asia: each others’ second most important inter-regional trade and investment partner

In each case, some distance behind the United States and its partners in the North American Free Trade Association (NAFTA)

Since Asian crisis and emergence of the Euro, the Euro-Asian economic relationship has become more significant

In last 25 years, the share of EU imports coming from the economies of Asian ASEM has risen from less than 10% to nearly 25%

Euro-Asian Economic Relationship

Share of EU exports to Asian ASEM has also increased from less than 7% to nearly 15%In last 10 years, Euro-Asian merchandise trade flows have nearly doubled in both directions, from a combined total of US$377bn in 1994 to US$567bn in 2003

Euro-Asian Economic Relationship

From perspective of Asian ASEM, the relative importance of Europe has declined somewhat relative to the US since creation of APEC Still, on average some 15% of A.ASEM exports go to EU while on average some 10% to 15% of imports come from EU Excluding intra-Asian ASEM trade, these EU shares would increase to approximately 30% and 25%, respectively

Euro-Asian Economic Relationship

Despite recent gains in Euro-Asian trade, the Euro-Asian economic link remains the weakest of the three major legs of the Transatlantic-transpacific-Euro-Asian geo-economic triangle

Transpacific Asian-North American merchandise trade is the most significant (US$647bn combined trade 2003 vs Euro-Asian link with US$567bn)

Euro-Asian Economic Relationship

Transatlantic economic link appears weakest – in merchandise trade terms – with only US$478bn combined trade flows 2003Predominance of transatlantic economy in services trade and FDI - most important world link

Asian ASEM FDI stock in EU nearly €70bnEU FDI stock in Asian ASEM members totals some €110bnEU stock levels in the US are now approaching US$1trillionUS FDI stocks in Europe are about US$700bnEU-US services trade comes to some €225bn, while EU-Asian ASEM services trade sums to only €75bn

ASEM Attempts to Deepen Economic

RelationshipAsian Crisis and Creation of Euro: catalystsLondon Summit (1998)-Seoul Summit (2000) – ASEM Vision Group

Headed by South Korean economist Il Sakong, along with 25 experts A Strategic Vision Report with Recommendations for the Future of ASEM (over 10 major recommendations)

Free Trade in Goods and Services by 2025Macroeconomic policy coordination and reform of intl financial systemInstitutional recommendations, including an ASEM secretariat and a number of theme-specific ASEM centers

Results disappointing, little concrete action taken, diversions of 9-11 and initiation of Doha Round

ASEM Attempts to Deepen Economic

RelationshipCopenhagen Summit (Sept. 2002)

Preparations overshadowed by sense of drift Yet optimistic over successful launch of euro Creation of the ASEM Task Force for Closer Economic Partnership between Asia and Europe

10 Asian and 7 European independent experts Tasked to present concrete action-oriented recommendations for closer economic partnership to Hanoi Summit Role of Spain: Rodrigo Rato, European Secretariat (Elcano Royal Institute, Alfredo Pastor Task Force Member

ASEM Task Force for Closer Economic

Partnership Nearly two years of discussions and debate Revisited many of the themes of the Vision Group (free trade goal, institutional issues) Concentrated on Themes referred to in the Copenhagen Chair’s Statement (wider use of euro in Asia, further development of Asian bond markets)

Ambitious concrete recommendations in finance Broader recommendations aimed at capitalizing on the Euro-Asian strategic potential Insistence on institutional dimension

ASEM Task Force for Closer Economic

Partnership General Recommendations

Goal of Free Trade by 2025 Inclusion of discussions of energy issues as a priority within the Economic Pillar Adoption of a common strategic agenda to promote stability and prosperity in the Euro-Asian landbridge

Concrete, Action-Oriented Recommendations ASEM Secretariat (even if “virtual”) ASEM Trade, Investment and Tourism Promotion Center (even if virtual, to be hosted by Vietnam) ASEM Business Advisory Council (to increase ASEM’s relevance to business communities)ASEM “Yes” Bond Market and Fund

ASEM Task Force for Closer Economic

Partnership

At the Hanoi Summit, ASEM “Yes” Bond Fund and ASEM Promotion Center captured most attention of leaders, along with the new proposed energy and Euro-Asian landbridge priorities.Task Force Recommendations now in hands of the Finance and Economy MinistersThe Task Force conceived of European Asian economic relations in broader terms, beyond flows of trade and investment, to commonly-held strategic interests

Future of ASEM

Common Interests, Complementary NeedsAsia: development, stability, more efficient use of Asian savings, facilitation of SME activityEurope: broader use of the euro in Asia, development of SMEs, continued opening of world trade and investment marketsEnergy Issues, Prosperity of Central Asia

Reform in Europe, integration in Asia ASEM link relevant for international stability and balance, for strengthening global governance and multilateralism