RCEP: A wake-up call for Europe to increase competitiveness

EU-ASEAN Summit
The European Union is ASEAN’s third-largest trading partner. By being more competitive, European countries could tap into the potential of these economic ties (source: Getty Images)

Although Pacific and Southeast Asian countries are concerned by China’s military presence and assertive bid for hegemony, it did not prevent them from concluding a free trade agreement with the Middle Kingdom, creating the world’s most powerful trading zone. The Regional Comprehensive Economic Partnership (RCEP) was signed by Australia, Japan, New Zealand, South Korea, and ASEAN – a free trade association between Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. By agreeing to the deal, the signatories have shown political pragmatism; they prioritized the economy. 

The RCEP area is home to some 2.3 billion people, with an economy worth $27 trillion. China is by far the largest, with an estimated gross domestic product (GDP) of roughly $14.3 trillion and a population of 1.4 billion. Japan’s GDP stands at around $5 trillion and it has 126 million citizens. ASEAN’s economy and population are on the rise – its GDP is worth close to 5 trillion and there are 650 million inhabitants living in the 10 countries. There are still obvious disparities in terms of population to GDP, which will allow the area to grow extremely rapidly. RCEP is not only the largest trade zone in the world, it also has the strongest growth potential.

In comparison, the European Union has a GDP of $ 15.6 trillion, and the United States, Canada and Mexico’s combined GDP is $24.4 trillion. ASEAN, however, is not a union like the EU. The countries have different ethnicities, religions and cultures but are bound by trade. China is the largest trading partner, but it is also considered a potential political threat. 

Western protectionism

Over the last 200 years, Europe and the U.S. set the standards of global trade. This laid the groundwork for an increase in prosperity, especially in the West but also worldwide. Now, there has clearly been a gravity shift from the North Atlantic to the Pacific area – which is quite natural, given the demographics. In itself, this is not an issue. The problem for Europe, mainly, but also the U.S., is that excessive principalism and hypocritical protectionism – as outlined below – have weakened the Western position on the global stage. This does not mean that emerging countries or China are not protectionist. However, because of demographics or their lower starting point, they will grow further and gain importance.

The TTIP gradually lost momentum and was buried in 2017 – killed by Europe, not the White House
Trade and competition are needed to spur innovation and productivity. Unfortunately, short-term thinking often tempts leaders into seeking low-hanging fruit through protectionism. The EU pays lip service to free trade, but promotes protectionist measures in certain contexts. Under the guise of protecting consumers, several foreign suppliers are being prevented from entering the European market through regulatory barriers. This leads European businesses to limit investments to innovate and improve.

The Transatlantic Trade and Investment Pact (TTIP), under negotiation from 2013 to 2016, would have created a huge free trade zone between North America and Europe, boosting economies on both sides of the Atlantic. The initiative was slowed and ultimately killed by European panic-mongering over the supposed threat of flooding markets with cheap, unhealthy American products, especially food. Many political movements in Europe requested that disputes be settled by national courts instead of a neutral arbiter, as would have been the norm with any trade agreement, since national courts are partisan. The TTIP gradually lost momentum and was buried in 2017 – killed by Europe, not the White House. President Donald Trump, a realist, only dug the grave. The European hope that a Biden administration will be more accommodating is an illusion. The only certainty is that the new White House will be much tougher with regard to sanctions on Russia, a potentially important trading partner for Europe.

Value standards

Europeans want to improve the world by setting moral standards for market access from abroad. However, this geopolitical weapon will lose effectiveness as other consumer markets increase in importance. In parallel, European products risk becoming less and less innovative and competitive as a result of the Union’s concealed protectionism. When it comes to values, it is already common for European manufacturers and distributors to keep their supply chains at levels that respect social and environmental standards.  

A trade deal between the European Union and Mercosur, a free trade zone in South America, is ready for ratification But Europe is delaying the proceedings out of concerns that Brazil is not doing enough to stop deforestation. Whether this is correct or not, refusing to sign the agreement will not help the Amazon rainforest. The Mercosur deal would benefit economies on both sides of the Atlantic, and help raise prosperity through increased trade. This in turn, would provide resources for environmental protection.

Europe needs to realize that international trading standards will increasingly be set in the Pacific
Washington is blunter when it comes to its long-standing protectionism. The U.S. uses tariffs as a tool to protect jobs. But whether in Europe or North America, Western protectionism is creating stagnation and decreasing productivity, not only in enterprises but throughout the entire economy. Short-term, it will inflate public administration, creating a jungle of byzantine regulations administered by bloated institutions.

The situation shows that Europe has no reason to be so self-satisfied and needs to become more competitive. Despite its “value standards,” the old continent has been aiming to become a big player on the Chinese market, while putting somewhat less emphasis on Japan, Korea, Taiwan, and especially the ASEAN states.

The EU is ASEAN’s third-largest trading partner. By being more competitive, the Union could increase its trade in areas other than China. In this regard, RCEP is an opportunity and a good example.  

It is surprising how little RCEP was discussed in the capitals of Europe. The continent needs to realize that international trading standards will increasingly be set in the Pacific. Europeans need to be part of this process. 

Above all, Europe has to become more competitive by being open and pragmatic in its trade agreements and by reducing the regulatory and administrative overheads created by governments. European businesses already possess the technical, managerial and scientific know-how that will allow them to succeed in the right environment.

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