Nov. 5 (Bloomberg) -- European and Asian leaders called for unfettered commerce and warned against protectionism as the debt crisis threatens to undermine trade ties between the world’s fastest and slowest-growing regions.
“We must open our markets,” French President Francois Hollande said today in a speech in Vientiane, Laos, where he is attending the Asia-Europe Meeting along with leaders from about 50 countries. “The biggest threat is protectionism.”
Europe’s economic woes may exacerbate protectionist tendencies that make it harder to expand trade with its biggest commerce partner at a time when the U.S. and Australia are forging new agreements, according to Fredrik Erixon, head of the European Centre for International Political Economy in Brussels. Apart from a trade deal with South Korea, the 27-member European Union has seen talks lag with China, Japan, India and Southeast Asian countries since 2007.
“Europe needs to improve its policy toward the entire Asian region in order to take up a greater part of Asia’s economic expansion, but we’re not really seeing it,” Erixon said by phone. “The train is about to leave the station and Europe certainly isn’t on it.”
Europe’s leaders face pressure to boost ties with Asia after U.S. President Barack Obama declared a pivot to the region and Australian Prime Minister Julia Gillard unveiled a strategy last week to make her country “a winner in the Asian century.” At stake is safeguarding links that European economies are increasingly counting on, with the 19 Asian nations participating in a summit starting in Laos today accounting for 38 percent of the EU’s total trade last year, up from 30 percent a decade ago.
The International Monetary Fund expects the euro area’s economy to contract 0.4 percent this year, while China is forecast to grow 7.8 percent and the U.S. may expand 2.2 percent. Trade growth between the EU and Asian countries attending this week’s meetings slowed to 6 percent through the first six months of 2012 from a pace of 8 percent last year, according to the bloc’s data.
Asia’s exports to the EU will drop “quite significantly” in the near term as countries deleverage, Changyong Rhee, the Asian Development Bank’s chief economist, said by phone. Closer policy coordination is needed between leaders from the two regions to ensure a global recovery, he said.
“The U.S., Canada and Australia are more aggressive in Asia than Europe,” Rhee said. “The EU may be slow because you have to harmonize all countries together to have a free trade agreement, but once you have one FTA between the EU and another country it’s actually 27 FTAs.”
Trade Talks Stall
The EU suspended trade talks in 2009 with the 10-member Association of Southeast Asian Nations, a bloc with about 600 million people, and is now negotiating separate agreements with individual countries such as Singapore, Malaysia and Vietnam. Similar talks with India that kicked off in 2007 are stalled.
During a visit to Brussels two months ago, Chinese Premier Wen Jiabao urged the EU to “exercise restraint in resorting to trade-remedy measures.” The EU was the biggest market for Chinese exports last year, according to Chinese data, while China is the bloc’s No. 2 commercial partner, after the U.S.
“Free, open, and fair international trade is an important driving force for world economic growth,” Wen said in a statement released today in Vientiane, where he is also attending the summit.
‘Made in France’
Earlier in September, the EU started a probe into whether Chinese makers of solar panels sell them below cost, the largest European trade dispute of its kind covering 21 billion euros ($27 billion) of imports. China faces more EU anti-dumping duties than any other country, covering about 1 percent of its exports to the bloc.
China’s official news agency Xinhua published an editorial two weeks ago that criticized protectionist rhetoric in Europe. It singled out French Industry Minister Arnaud Montebourg, who has urged consumers to spurn cheaper imports and buy goods “Made in France.”
Wen agreed that commerce with France must be rebalanced to narrow the European nation’s trade deficit, Hollande told reporters after the two leaders met. He added that China must continue re-evaluating its currency.
“Currencies must represent more faithfully the state of our economies,” Hollande said. “States whose trade are in surplus must necessarily accept a re-evalutation of their currencies. There must be some correction to re-balance exchanges and if we want to support growth.”
More than 30 heads of government and state, including Gillard, Italian Prime Minister Mario Monti, Russian Prime Minister Dmitry Medvedev and Japanese Prime Minister Yoshihiko Noda are attending the summit in Laos. Germany, Spain and the U.K. sent foreign ministers, while Greece is represented by its ambassador in Vientiane.
“Asia is not able to settle Europe’s issues, but Asia can do its part to help Europe,” Singapore Prime Minister Lee Hsien Loong said in a speech. Measures include boosting consumption, broadening safety nets, liberalizing the financial system and by promoting trade, he said.
Negotiations for free trade agreements between the EU and counties including Singapore, Malaysia, and Vietnam can be “building blocks” towards an eventual deal between the EU and the Asean, Lee said.
Norway’s sovereign wealth fund has invested $80 billion in Asian equities and bonds, Prime Minister Jens Stoltenberg told leaders at the summit today.
“Our ships are built in this region and more and more business is in Asia,” he said. “Today this region is a driving force in the global economy.”
Japan is ready to start free-trade negotiations with the EU if it can get a mandate from member states, a Japanese official told reporters last week on condition of anonymity because he was not authorized to speak publicly on the matter. Noda will meet with EU President Herman Van Rompuy and European Commission President Jose Manuel Barroso in Laos.
Noda also wants to improve ties with China and South Korea after territorial spats increased tensions in recent months, Kyodo reported, citing comments he gave before leaving Tokyo. No formal talks are scheduled between the leaders, it said.
Gillard last week called for Australia to do more to take advantage of Asia’s economic boom. She aims to boost trade with the region to at least a third of gross domestic product by 2025, compared with a quarter today.
“The scale and pace of Asia’s rise is staggering,” Gillard said in a report. “There are significant opportunities and challenges for all Australians.”
Obama’s top trade priority has been the Trans-Pacific Partnership, an agreement involving nine Asia-Pacific countries that will undergo its 15th negotiation round next month. Canada and Mexico are preparing to join, while Japan may also sign up.
The slowdown in developed economies has prompted China in recent years to increase trade ties with Asia, the Middle East and Africa, Lim Cheng Teck, who heads China operations for London-based Standard Chartered Plc, said in Bangkok last week. The bank expects use of the yuan in international trade settlement to triple within three years to $1.03 trillion, he said.
“For Europe we believe it’s kind of a structural challenge that will not be so quickly solved,” Lim said. “China is kind of saying ‘OK, let’s turn to other markets.’”
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