Many European economies might be struggling, but when it comes to trade it still counts. A new agreement over trade with South Korea has sent a strong signal, ahead of this week's EU-Korea summit, that Europe is still a serious and important global player.

The saying ‘forget about Europe’ has become common in Asia in 2010. The latest spark was the eurocrisis provoked by massive Greek debt. After the eurocrisis the Chinese financial press largely wrote Europe off or compared it to Latin America after the 1980’s debt crisis. The economic basis for the EU’s power is decreasing. The eternal process that characterised the Lisbon treaty, which is now finally in place, has been perceived as endless procedure for Asian outsiders with little impact while the global order moves on.

Yet the EU still has something to offer in Asia. It is moving ahead on one important area where it has overtaken the US: trade. It is often said that the business of Asia is business. The EU understands this, and has just agreed to a far-reaching free-trade agreement with South Korea.

The agreement was finalised at the ministerial level– after the Italians had been blocking it for some time because of the fears of its automobile industry. The last European hurdle to pass is the European Parliament’s approval – and this is likely to occur in the coming weeks.

The trade deal will take effect from July 2011. Combined EU-Korea trade in goods was worth about 53 billion euros in 2009, according to EU statistics. The agreement is predicted to create about 19 billion euros ($24 billion) of new exports for EU producers.

The agreement is noteworthy for three reasons.

First, it is the largest free-trade agreement since NAFTA in 1994. It is the most comprehensive free trade agreement ever negotiated by the EU. Import duties are eliminated on nearly all products. There is liberalisation of trade in services. It is therefore a clear signal from Europe and Asia about continuing free-trade even in difficult economic times.

Secondly, the EU is ahead of the US. The US Korea free trade agreement, KORUS, is still stalled. Negotiations about this agreement started long before the EU’s. Congress has kept the agreement pending. Obama has promised to give the agreement a push forward and trade ministers will be working hard to achieve a result before the G20 meeting in November in South Korea. Yet protectionist siren songs are being heard louder and louder across the US following a continued jobless recovery. The need for a speedy appreciation of the Chinese yuan is a constant demand. There is no desire for more Asian exports. And even in Asia the, EU comes first. Seoul's trade ministry said that ‘The pact will bring about economic benefit more than a free trade pact signed with the U.S.’

Thirdly, the timing is perfect. The agreement sends a great signal before the upcoming G20 in South Korea of certain commitments by the EU: to free trade, to linking with Asian economic powerhouses and particularly to South Korea. The G20 will for the first time be hosted outside a G8 country and for the first time to be hosted in Asia. Consequently, finalising this agreement shows respect for the new found power of Asia. And this respect is shown not only to China, India and Japan but also to upcoming middle powers like South Korea.

The EU should use the G20 Summit, or the EU-South Korea summit preceding it, to upgrade its relationship with South Korea to that of a strategic partnership. South Korea has an economy worthy of G20 status, adheres to democratic governance and values; and is committed to a multilateral approach. Equally importantly, it is the first nation to have moved from being a developing country (with a GDP per capita similar to contemporary Afghanistan after the destruction of the Korean War) to joining the OECD club of development donors.

The EU disperses more than half of the world’s development aid so a strong partnership with South Korea in that domain is desirable. It would give the US increased leverage with other powers like China and India who still hold that their original developing country status exempts them from global norms in the development area. South Korea demonstrates that just because you were once a poor country doesn’t mean that you can give aid without any conditions as to governance.

The EU now has to prove that the South Korea agreement was not a lucky one-off on trade and push forward with the free-trade agreements with India and with ASEAN.

The EU is still a big rumbling machine moving in odd ways. The economy is not in great shape. There might be more Greek-like debt incidents to come. Still, it remains the world’s largest economic and trading bloc. In a time where it gets harder and harder to keep protectionist voices down, the EU has given Asia just the signal it needs that there is readiness to keep the free trade agenda moving. The EU is starting to show why it shouldn’t be counted out in Asia.

 

 

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The European Council on Foreign Relations does not take collective positions. This commentary, like all publications of the European Council on Foreign Relations, represents only the views of its authors.