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Europe ponders Asia pivot to fend off protectionism

Donald Trump’s embrace of protectionism and opposition to multilateral trade deals has prompted EU leaders to ask how Europe might deepen ties with Asia as a way of bolstering global commerce and safeguarding export markets.

Some officials have talked about Europe performing its own trade pivot to Asia as well as other emerging markets. But closer engagement, especially with China, at a time of global economic upheaval brings threats as well as opportunities that Europeans are only just beginning to consider.

Europe has been seeking to intensify trade with Asia for more than a decade — signing deals with South Korea, Singapore and Vietnam — but the renewed overtures to the region mark an effort to prevent European trade liberalism becoming hostage to Mr Trump.

“Of course we want to strengthen our position in the rest of the world. It is clear. It is just quite natural. Our classic virtues have been reinforced by the current political uncertainty,” said Jyrki Katainen, a European Commission vice-president, in an interview with the Financial Times. “What we can offer — stability, rule of law, a rules-based system of multilateralism — has more political support than before. We want to use the opportunity and momentum.”

The US president has withdrawn from a Pacific trade deal, the 12-nation Trans-Pacific Partnership, and threatened to punish companies that move production overseas. He also wants to recast the 1993 North American Free Trade Agreement with Canada and Mexico.

By contrast, the EU is redoubling its pursuit of trade deals. Brussels is in talks with 10 of the 12 TPP signatories; is continuing talks with Mercosur, the South American trade bloc including Brazil; and is considering a revival of trade talks with Gulf states that have been stalled since 2008.

“It is hard to accelerate our [technical] efforts in Asian countries because we are already negotiating, but it is right to put more political weight and more political effort into the negotiations. It is not against the US as such, but many of our partners have said that they need clear signals that the whole world is not turning towards protectionism,” said Mr Katainen.

“When I was in the Gulf two weeks ago, many of the leaders said that. This political momentum is important. We have to send strong signals that multilateralism in politics as well as in trade is something that different parts of the world are strengthening.”

European negotiators are also pushing to conclude a comprehensive free-trade pact with Japan, despite frustration in Brussels at the lack of progress in talks.

Germany is to the fore in calling for deeper trading links with Asia. “Europe and Germany need a strategy geared toward Asia and China, and we have new opportunities,” Sigmar Gabriel, the then vice-chancellor, told Germany’s public broadcaster ZDF just hours after Mr Trump took office. Angela Merkel this month backed efforts to expand EU trade agreements if attempts to improve ties with the US “do not go forward or move ahead more slowly”.

Asked about doing new trade deals with Asia and Latin America, Dieter Kempf, president of the BDI, the German industry association, said: “Of course, German business — and the same is true for European business — has alternatives. The flows of commerce we see today do not have to be the same for decades into the future.”

China’s President Xi Jinping launched a forceful defence of globalisation and free trade at the Davos forum in January © AP

Senior Europeans were encouraged when Xi Jinping, China’s president, launched a forceful defence of globalisation and free trade at the Davos forum in January. Mr Xi’s intervention even prompted talk in Brussels as to whether the EU should work with Beijing to lead the global trading system.

But Europe’s trade relations with China are far from smooth, with frequent disputes over the far-reaching powers of an authoritarian state with deep protectionist instincts of its own. The bloc’s member states are in no mood to enter talks on a comprehensive trade deal with China, officials and diplomats said.

Cecilia Malmström, EU trade commissioner, is pressing Beijing for a “new impulse” in delayed talks on a deal to make it easier for European companies to invest. China must do a lot more to open its economy to private enterprise, she said this month, complaining that “many barriers and irritants” still hamper EU-China trade.

The “absolute priority” for an EU-China investment agreement was to improve and expand market access conditions in China, Ms Malmström said.

“This year, the challenge will be to ensure President Xi’s stated ambition is delivered, that the country ‘walks the talk’ and that rhetoric is matched by reform . . . foreign investors face a flood of opaque and obscure barriers: restrictions, discrimination, unfair competition, questionable inspections and audits, discretionary licensing procedures, and more.”

The drive to strengthen European ties with Asia is also seen as a counterweight to any attempts by Beijing to strengthen its own position in the region after Mr Trump’s repudiation of TPP.

European business . . . has alternatives. The flows of commerce we see today do not have to be the same for decades into the future

Western trade officials are concerned that in striking bilateral deals in the region, Beijing would seek lower regulatory and environmental standards. Both the TPP and the stalled EU-US trade deal known as TTIP were cast as efforts by the western powers to prevent China from doing this.

Brexit could also complicate talks on an EU-China investment agreement, says Fraser Cameron of the EU-Asia Centre, a Brussels think-tank. “China may dangle the carrot of a quick free-trade agreement with the UK to press the EU for more favourable terms,” Mr Cameron said.

In Berlin’s view, EU efforts to improve links in Asia and elsewhere are not at the expense of the US or any other country — but could benefit all by boosting overall economic activity.

Still, in stimulating closer links between Asia and Europe, Mr Trump’s stance could “have a positive effect on Germany and the EU even when this is not his intention”, said Anton Börner, president of the BGA German traders’ and exporters’ association.

Via FT