EU, US must agree trade deals with Asian economies after China takes lead – Ifo

LONDON (ICIS)–The EU and the US should strengthen their trade relationships with Asian economies, following the China-led free trade agreement (FTA) signed in 2020 with 14 countries in Asia-Pacific, German research institute Ifo said on Thursday.

Germany’s strong industrial base heavily relies on export markets to sell its goods. Its trade policy, however, is under the management of the European Commission, the executive body governing the 27-country bloc.

In 2020, China filled the gap left by the US with the signature of the Regional Comprehensive Economic Partnership (RCEP), which includes Japan, South Korea, Australia and New Zealand.

RCEP encompasses 28% of the world’s economic output, 28% of global trade, and 29% of the world’s population, according to Ifo, which makes it the world’s largest FTA.

The US’s previous Administration withdrew from the nearly finalised Trans-Pacific Partnership (TTP) trade deal in 2017. The move was widely seen as a factor that would end up diminishing US influence in that region.

In 2018, former President Donald Trump expressed interest in rejoining TTP, a move enthusiastically received by the American Chemistry Council (ACC) trade group, but the project never came to fruition.

US chemicals regained prowess on the back of the shale gas revolution, and with the associated abundant, affordable raw materials, have always seen Asia as one of the main targets to export large chunks of its output.

Ifo said that following China’s move with RCEP, the EU and the US are under pressure to act to maintain or increase their trade relationship with Asia-Pacific.

“The EU should strengthen its trade relations with Asian partners. While the EU has already concluded trade agreements with Japan, South Korea, and Singapore, its negotiations with Australia and New Zealand, and with the 10 ASEAN countries, are progressing slowly,” said Ifo researchers Feodora Teti and Hannah-Maria Hildenbrand.

ASEAN is the Association of Southeast Asian Nations, comprising 10 countries.

“The EU and China also reached an agreement in principle on a comprehensive investment deal at the end of 2020, but a trade agreement is currently a distant wish,” added the researchers.

US, INDIA HIT HARDEST 
However, Ifo added that while the EU’s trade with the RCEP countries is still modest, with 9% of the bloc’s exports and 13% of imports, the US and India may be hit hardest by China’s current dominant position in the region.

“In contrast, RCEP countries account for 25% of US exports and 37% of US imports. We expect India and the US to be the hardest hit by trade diversion,” added the two Ifo researchers.

They added that it “ought to be easy” for new US President Joe Biden to revive TPP, since the deal was ready to be implemented when his predecessor withdrew from it.

Otherwise, they said, the US would risk losing market share in a region where RCEP will make it easier to integrate economies and consumers as its scope goes beyond tariffs, eliminating other non-tariff trade barriers.

“Trade relations in the Asia-Pacific region are already very strong, and most trade barriers were largely removed even before RCEP,” said Ifo.

“In addition to moderate tariff reductions, the new deal’s harmonisation of rules of origin, which until now have presented exporters with considerable bureaucracy, will lead to an increase in trade among the countries party to the agreement.”