EU-Asia Trade and Investment Connectivity Conference Report
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ASIAEUROPE ECONOMIC FORUM Conference Report The 16th Asia Europe Economic Forum EU-Asia trade and investment connectivity The Asia-Europe Foundation (ASEF) is a founding partner of the AEEF. ASEF’s share is made possible with the financial support of the European Union. This conference report is a joint effort of: • Asian Development Bank Institute (ADBI) • Asia-Europe Foundation (ASEF) • Bertelsmann Stiftung • Bruegel • Centre d’Études Prospectives et d’Informations Internationales (CEPII) • Korean Institute for International Economic Policy (KIEP) • Shanghai Jiao Tong University Table of Contents 1. Introducing the Asia Europe Economic Forum 4 2. Selected Trends and Characteristics of EU-Asia Connectivity 6 3. Current drivers of EU-Asia connectivity 13 3.1. Trump & Brexit: Increasing economic uncertainty 13 3.2. Between cooperation and competition: The fourth industrial revolution 14 3.3. Economic benefits vs. political concerns: investment and protectionism 16 3.4. Demographic change: challenge for the EU and Asia 19 4. The EU and Multilateralism—Implications for EU-Asia connectivity 20 5. Which way forward? EU-Asia trade and investment connectivity in times of global disruptions 23 Imprint 24 3 INTRODUCING THE ASIA EUROPE ECONOMIC FORUM 1. Introducing the Asia Europe Economic Forum Global economic trends over the last decades have steadily increased the links between BOX 1—DEFINING CONNECTIVITY Asia and Europe. For both regions, a growing economic interdependency represents “Connectivity is about bringing an opportunity to build strong, fair and countries, people and societies closer sustainable relations. Nonetheless, constant together. It facilitates access and is a global economic disruptions, political means to foster deeper economic and uncertainty and a rapid change in economic people-to-people ties. It encompasses dynamics make cooperation no easy task for the hard and soft aspects, including the policy makers. physical and institutional social-cultural linkages that are the fundamental With strong recognition of this challenge, supportive means to enhance the the Asia Europe Economic Forum (AEEF) economic, political-security, and socio- contributes to interregional cooperation with cultural ties between Asia and Europe the diversification and consolidation of the which also contribute to the narrowing links between Asia and Europe. The AEEF of the varying levels of development and was established in 2006 by Jean Pisani-Ferry, capacities.” the then-director of the Brussels-based 13th ASEM Foreign Ministers Meeting think tank Bruegel, as a high-level forum to bring together Asian and European senior policy makers and experts. As such, the As a joint effort from the: Forum is a platform for research-based exchange and discussion on global issues • Asian Development Bank Institute (ADBI), and mutual interests. It is here where Asian • Bertelsmann Stiftung, and European policy experts can learn • Bruegel, from each other, thereby gaining a deeper • Centre d’Études Prospectives et understanding of the economic and political d’Informations Internationales (CEPII), ties between Asia and Europe. The AEEF is • Korean Institute for International all about bringing countries together and Economic Policy (KIEP), building partnerships with regard to shared • Shanghai Jiao Tong University, interests—the AEEF is all about connectivity • and the financial support of the Asia- (see Box 1). Europe Foundation (ASEF), the 16th AEEF brought together more than 50 policy experts, economists and scholars on November 28 and 29, 2019 in Berlin, Germany. Over the course of two days, the participants discussed the patterns of international trade and investment across Asia and Europe, the current drivers of the bilateral relation, and—more importantly— Asia Europe Economic Forum 4 INTRODUCING THE ASIA EUROPE ECONOMIC FORUM about how improving connectivity between Asia and Europe can facilitate customs, trade and investment, and the delivery of economic prosperity to both regions. The following report summarizes the central topics of discussion during the forum.1 It provides an overview of the current trends in trade and investment connectivity between Asia and Europe. It highlights the challenges that the cooperation between both regions may face in the future and summarizes the main takeaways of the forum. The reminder of the paper is structured as follows: in the following chapter, we present the historical development of trade and investment across and between Europe and Asia. In this section, we also shed light on institutional cooperation—key for the economic integration of both regions. In the third chapter, we continue with an overview of four drivers of trade and investment connectivity: macroeconomic uncertainty, the Fourth Industrial Revolution, protectionism and demographic change. In chapter four we briefly discuss the state of multilateralism in the world and the role of Europe and China in a new political and economic international order. Finally, in chapter 5, we provide some concluding remarks. 1 The forum took place under the Chatman House rule system, the information of this report summarizes, therefore, the overall discussion and main debate points. The information of this report is by no means linked neither to the identity nor the affiliation of the speaker(s), nor to that of any other participant of the forum. 5 SELECTED TRENDS AND CHARACTERISTICS OF EU-ASIA CONNECTIVITY 2. Selected Trends and Characteristics of EU-Asia Connectivity Europe and Asia are highly interconnected Asian countries have seen relatively stronger regions, with $1.5 trillion USD of annual economic growth, resulting in this shifting merchandise trade and nearly $90 billion balance. This trend is confirmed in the graph, USD of annual foreign direct investment as the Asian sample shows much stronger (FDI) between both economies.2 Together, growth than that of Europe, on average Asia and Europe shape the global economy— 7.7 % and 3.6 % respectively over the past 10 see figure 1. Both regions account for more years. While growth in European countries is than 50 % of the world’s GDP and 60 % of relatively closely related, there is also a large the world’s population.3,4 Furthermore, Asia divergence between Asian countries. Most and Europe form over 70 % of the global noteworthy are Japan, which has seen almost merchandise trade and global trade in three decades of low inflation and economic services, as well as over 60 % of FDI flows in growth averaging 1.1 % and China, which tops the world.5 the rankings with a staggering 12.9 % annual growth in GDP during the first two decades of However, these trends are highly dynamic this century. at country level. Not only is economic performance across countries highly When analyzing trade for the same sample, heterogeneous, but also their position in it becomes clear how closely the economies international trade in goods and services, as rely on each other through reciprocal trade well as in FDI flows. flows. As depicted in figure 3, panel A, trade, the evolution of merchandise trade in terms Figure 2 illustrates this heterogeneity by of total volume (imports + exports), is strongly comparing GDP trends for a selection of Asian related. A similar conclusion applies for and European countries. Primarily it explains the trading of services—figure 3, panel B— the trends in global GDP shares, as shown in although slightly more short-term variance figure 1, panel A. Over the past two decades, can be observed. In both cases, China stands out with remarkable growth rates during the last 20 years. Despite these simultaneous 2 Becker, W.; Dominguez-Torreiro, M.; Neves, A.R.; Tacao Moura, C. J. and Saisana, M. (2019). Exploring ASEM trends, a lot of diversity hides underneath Sustainable Connectivity—What brings Asia and Europe the surface—see figure 4. For example, the together? Available online at: https://publications.jrc. ec.europa.eu/repository/bitstream/JRC112998/asem- trade balances of the sample countries vary report_online.pdf (Download: 7.11.2019). strongly, which implies that they also have very 3 UNCTADstat (2019a). Economic trends. different effects on the global economy as well Available online at: https://unctadstat.unctad. org/wds/ReportFolders/reportFolders.aspx?sCS_ as on domestic outcomes. In 2018, China and ChosenLang=en (Download: 7.11.2019). Germany had notable trade surpluses, $351 4 UNCTADstat (2019b). Population. Available online billion USD and $275 billion USD respectively, at: https://unctadstat.unctad.org/wds/ReportFolders/ reportFolders.aspx?sCS_ChosenLang=en (Download: whereas India closed the year with a USD 190 7.11.2019). billion deficit. In comparison to trade, both 5 UNCTADstat (2019c). International trade in goods and inward and outward FDI flows at country level services. (2019). Available online at: https://unctadstat. are highly volatile. Further, there is no clear unctad.org/wds/ReportFolders/reportFolders. aspx?sCS_ChosenLang=en (Download: 7.11.2019). trend for most countries. Exceptions though Asia Europe Economic Forum 6 SELECTED TRENDS AND CHARACTERISTICS OF EU-ASIA CONNECTIVITY FIGURE 1 Regional Distribution of Economic Trends A) World GDP (%) B) Inward FDI (%) 40 60 35 50 30 40 25 20 30 15 20 10 10 5 0 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 1997 2000 2003 2006 2009 2012 2015 C) World Merchandise Trade (%) D) Outward FDI Flows (%) 60 80 70 50 60 40 50 30 40 European Union Northern America 30 European Union Northern America 20 Africa Latin America and the Caribbean