Examining the case for a free trade agreement between the EU and China

Examining the case for a free trade agreement between the EU and China

As two of the largest economic powers in the world, the trade relationship between the European Union and China is one with broad-ranging significance for businesses across the world.

The importance of these two players on the global stage has given rise to growing calls from the business community for stronger trade links to be formed between the regions, with particular attention paid to the potential benefits that a free trade agreement (FTA) between the EU and China could bring.

This issue is the subject of a recent study from the Foreign Trade Association, which commissioned the Centre for European Policy Studies to perform an analysis of the economic impact of such a deal. Based on its findings, the organisation - which represents 1,700 retailers, importers and brands in Europe and worldwide - has described the prospect as a "win-win" for all involved.

Overview
According to the association's analysis, an EU-China trade deal has the potential to increase the combined GDP of the EU and China by $200 billion by 2030 - an amount equivalent to the GDP of the entire Czech Republic. China's economic growth would increase by 1.87 per cent through this deal, while the EU would see a 0.76 per cent uplift.

Within the framework of a bilateral deal, it is anticipated that EU exports to China would maintain more than 2.5 million jobs in Europe, including 1.1 million in Germany and a further 1.1 million across France, Italy, the Netherlands and the UK combined. A number of crucial European sectors that export to China - including the automotive and machinery industries - currently face steep tariffs that an FTA would help to eliminate.

To achieve these outcomes, it would need to implement key reforms on state-owned enterprises and open up public procurement to broader access. At present, China operates a closed public procurement market, which is a source of substantial frustration for EU business, particularly given that Chinese companies are able to bid for public contracts in Europe.

As such, a trade deal could help to underline China's efforts to project a more open and reformed image, while unlocking numerous opportunities for European companies in the dynamic East Asian market.

Key advantages
A number of other potential benefits of the proposed FTA were outlined by the report, including:

  • the opportunity to address some of the deep-rooted and systemic technical barriers to trade that exist in China, as the standardisation that would be needed to make such a deal a reality would make profound reforms necessary
  • the chance to take a unified stance on intellectual property rights, thus addressing the problems with enforcement in China and stemming the quantity of counterfeit products shipping to the EU from the Asian nation
  • the real wage increases that could be unlocked by all EU member states following the deal, ranging from 0.24 per cent for Greece to 1.66 per cent for Slovakia. The greatest gains would be seen for low-skilled workers at 1.13 per cent, though this would vary by nation
  • the impetus it would give China to address the problems of bloat and inefficiency affecting its state-owned enterprises, which have played a significant role in causing the recent slowdown of the country's economic growth
  • the fact that most of the goods imported from China - with the exception of machinery - are consumer products for the mass market that are mostly sold in supermarkets and department stores at highly competitive prices, meaning the FTA would be advantageous for regular consumers

Christian Ewert, director general of the Foreign Trade Association, said: "The possible benefits in terms of growth and employment from a free trade agreement between Europe and China are substantial. The presented study will serve as an excellent tool to initiate a broader discussion about the future EU - China trade relations. A deep and comprehensive free trade agreement is good for the EU and good for China."