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

1. Economic Relations between Europe and Asia in the context of the ASEM Paul Isbell Senior Analyst International Economy and Trade “II Forum Asia” Casa Asia Barcelona Nov. 22-23, 2004

2. 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)

3. 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 trade • New 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”

4. Background to ASEM • The Euro-Asian relationship: The “weak link” in the new triangular core of the world system • Transatlantic and Transpacific links denser • No 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

5. 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)

6. 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

7. 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.

8. 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

9. 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

10. 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)

11. 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%

12. 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

13. 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

14. 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)

15. Euro-Asian Economic Relationship • Transatlantic economic link appears weakest – in merchandise trade terms – with only US$478bn combined trade flows 2003 • Predominance of transatlantic economy in services trade and FDI - most important world link • Asian ASEM FDI stock in EU nearly €70bn • EU FDI stock in Asian ASEM members totals some €110bn • EU stock levels in the US are now approaching US$1trillion • US FDI stocks in Europe are about US$700bn • EU-US services trade comes to some €225bn, while EU-Asian ASEM services trade sums to only €75bn

16. ASEM Attempts to Deepen Economic Relationship • Asian Crisis and Creation of Euro: catalysts • London 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 2025 • Macroeconomic policy coordination and reform of intl financial system • Institutional 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

17. ASEM Attempts to Deepen Economic Relationship • Copenhagen 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

18. 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

19. 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

20. 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 Ministers • The Task Force conceived of European Asian economic relations in broader terms, beyond flows of trade and investment, to commonly-held strategic interests

21. Future of ASEM • Common Interests, Complementary Needs • Asia: development, stability, more efficient use of Asian savings, facilitation of SME activity • Europe: broader use of the euro in Asia, development of SMEs, continued opening of world trade and investment markets • Energy 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