At the beginning of this year, the world’s largest free trade zone, the Regional Comprehensive Economic Partnership (RCEP), came into force. This may sound unwieldy, but the new facts present Europe with one of the greatest economic challenges in its recent history. What lessons does the old continent have to learn from this?
The new free trade zone covers around 30 percent of global economic output and just as many percent of the world population and global trade. RCEP is set to overtake the European Union, which now accounts for a third of global trade.
RCEP, with Japan, South Korea, Australia, New Zealand, China and the countries of the ASEAN association, are extremely different states that nonetheless want to sound out and realize common economic opportunities – although there are sometimes tough political confrontations and even military tensions between them, as the past few months have shown.
The most recent free trade zone confirms an old rule: In the course of the international division of labor, regional markets are always developing at the same time, which are in line with the rules of the World Trade Organization WTO and are becoming increasingly important – not least because of the growing need for more resilient supply chains. This is impressively demonstrated by USMCA, the successor to NAFTA, the agreement between the USA, Canada and Mexico.
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Or CPTPP, the transpacific agreement formerly sought by the United States, which then came about without the United States during Donald Trump’s presidency.
Now China and Britain are also seeking membership. The European Union, on the other hand, has not yet ratified the agreement with Mercosur, the association of South American countries. The comprehensive investment agreement agreed with China in December 2020 is also still on hold due to opposition from the European Parliament.
And even what is probably the most modern free trade agreement in the world between the European Union and Canada, Ceta, has not yet been ratified by all EU member states – especially not by Germany.
The selfishness of the EU and some of its member states is irritating
Europeans constantly have concerns about social and ecological standards. This was also the reason for the failure of the free trade agreement between the EU and the USA.
Making itself the measure of all things, Europe seems to have forgotten that progress in enforcing European standards can only be achieved step by step – and never in one big leap forward.
The self-centeredness of the European Union and some of its member states is downright irritating. Apparently the opinion is valid again that the sun revolves around the earth and here in particular around the old continent.
Perhaps the EU representatives should seek an exchange with Australia and New Zealand. Both states are developed democracies, both have a strong security partnership with the US – and both have just ratified RCEP.
Learn from Australia and New Zealand
Australia and New Zealand have significant differences of opinion with China, for example on political, security and ecological issues. They’re not just “closer” geographically.
Canberra and Wellington also pursue a value-based realpolitik that helps to realize what is possible together, thus opening up new perspectives and thus keeping fundamental differences of opinion “manageable”.
And the US? As much as the confrontation with China has become the focus of American foreign and domestic policy, there can be little talk of a “decoupling” of the Middle Kingdom. Just ten percent of US companies have reduced their economic cooperation with China in recent years.
50 percent work at the same level, 40 percent have even expanded their economic cooperation. The USA is now supplying American climate protection technologies to China because the People’s Republic wants to step up its efforts to protect the global climate.
Last but not least, Washington recently made a “deal” with Beijing: The USA will become China’s second largest supplier of liquid gas after Australia. Washington and Beijing have long been in the process of realistically organizing three areas of their relationship: confrontation where human rights are at stake, Taiwan and freedom of navigation.
Rivalry and competition when it comes to innovation, economic success and technology. And cooperation where global challenges such as the fight against the pandemic, the climate crisis or the control of nuclear weapons require a joint approach.
Finding the right balance between confrontation and cooperation
The “right” balance between confrontation, competition and cooperation has not yet been found. But all indications are that US President Joe Biden and his Chinese counterpart Xi Jinping are looking for it. Against this geopolitical and geoeconomic backdrop, the European Union risks being sidelined. For example, important supply chains will shift.
Products from the new economic area RCEP now have cost advantages thanks to shorter delivery routes and duty-free. Machines or electrical engineering, optical or IT products, vehicles or their parts – things that are manufactured in Japan, South Korea or China are now “easier” than before.
On the other hand, products from the EU tend to lose competitiveness. Existing free trade agreements with Japan, Singapore, Vietnam and South Korea will not change that. This also applies to the ongoing negotiations with Australia, New Zealand and Indonesia.
It would be better for all involved to exit the spiral of mutual sanctions currently blocking further ratification of the major investment deal with China – the EU and China have much to gain, but conversely, much to lose. For example, the rules of the agreement could be applied before ratification – this is how the EU and Canada do with Ceta.
Europe must finally realize its potential
To put it bluntly: It’s not just about an economically and economically sensible approach. It is also about the fact that none of the global challenges – from the climate crisis to weapons of mass destruction to peace or terrorism – can be solved without or even against China.
The EU must represent its own interests more realistically than before. Germany and France, but others are also called upon here.
It is of no use to us and others if we appear as world champions with high human rights standards, but at the same time lose more and more weight in the realities of economic and industrial policy. Europe must now finally realize its potential – the world will not wait for it.
The authors: Sigmar Gabriel is a publicist and member of the supervisory board at Deutsche Bank and Siemens Energy. He was chairman of the SPD from 2009 to 2017 and vice chancellor from 2013 to 2018. Rudolf Scharping is a consultant. He was Prime Minister of Rhineland-Palatinate from 1991 to 1994 and Minister of Defense from 1998 to 2002. He was also SPD chairman from 1993 to 1995.
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