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Thursday 4 July 2013

Europe’s Smart Pivot: The European Union in the Asian Century

The Geo-Trade Blog endorses and reproduces in full an article by Javier Solana, published on 25 Jun 2013 on World Politics Review and on: http://javiersolana.esadeblogs.com. Javier Solana was the EU high representative for foreign and security policy, NATO secretary-general and foreign minister of Spain. He is currently president of the ESADEgeo Center for Global Economy and Geopolitics and distinguished fellow at the Brookings Institution.

Eastern Hemisphere: Europe & Asia
One of the key differences between Western and Asian cultures is their view of time: Whereas history is linear and consequential as seen from the West, Chinese and other Asian cultures perceive time as being cyclical. In the latter view, the emerging Asian century is simply a natural phase within this recurring flow. As renowned economist Angus Maddison showed, China and India were the world’s largest economies for centuries. Only upon the dawn of the Industrial Revolution did Western Europe and the “Western offshoots”—Maddison’s term for the U.S., Australia, New Zealand and Canada—catch up and overtake the Asian giants. The weight of the continents effectively changed as the technological advances of the Industrial Revolution shrank the relative effect of population size with respect to productivity and output.

Today, we are witnessing another such tipping of the scales. Asia is returning to its place in history, “re-emerging,” as it were, with China currently holding second place in the ranking of world economies and poised to take the lead in the near future. The wealth of opportunities and challenges surrounding these changes can only be managed through strategic thinking and cooperation on the part of all parties involved.

After nearly two centuries at the apex of the world economy, Europe, the "old” continent, together with its American counterparts, must now adapt to new realities. Though the United States’ role in Asia has traditionally been higher profile, particularly in security matters, it is undeniable that Europe is already looking east. Trade and investment links between the European Union and Asia are strong and dynamic: Speaking in regional terms, Asia has surpassed NAFTA to become the EU's main trading partner, constituting a third of total trade. More than 26 percent of EU outward investment is currently destined for Asia, while inward investment is also on the rise. China on its own is the EU’s second-biggest trading partner, after the United States.

In a global context of strong interdependence and flux, Europe must work from its strengths. It must draw on its history in order to play a constructive and active role in the transition toward the Asian century. Just last year, the European Union, the key piece in Europe’s institutional architecture, was awarded the Nobel Peace Prize for its accumulated history of reconciliation and its contributions to peace. The EU and its predecessor organizations were indeed the fulcrum that turned a continent of war into a continent of peace and stability: What started as a commercial alliance developed into the most sophisticated regional institution on the planet. The EU and its member states are now facing the most acute difficulties in the union’s existence—but the construction’s historical role in achieving European stability is indubitable.

In contrast, Asia, in its current configuration, is still an unstable continent. Reconciliation was never achieved in a number of painful conflicts between its countries; borders remain contested, and disputes regularly flare up. These unhealed wounds are supremely delicate, particularly in the absence of a strong regional institutional network capable of containing sparks of conflict. Especially critical is the unbreakable nexus between security and trade, which looms large for Asia’s governments, dependent as they are on the endurance of steady, intelligent economic growth in their task of providing their young and dynamic populations with the means to shape their own lives.

A Vertiginous Ascent

The defining characteristic of Asia’s present rise has been its unprecedented, sustained growth rates. After the Industrial Revolution, it took Britain 150 years to double its economic output per capita. While the same doubling took the United States 50 years, China and India have recently achieved this feat in as little as 12 and 16 years, respectively. What is more, the Asian acceleration is affecting populations on an entirely different scale than in the past: The two Asian giants alone have taken no fewer than 2.5 billion people with them in their take-off, over a third of the earth’s population.

This growth explosion has granted a large portion of the global population positive freedoms that were formerly unattainable. China alone managed to lift 680 million people out of extreme poverty between 1981 and 2010, and the proportion of East Asians living on $1.25 per day plunged from 77.2 percent to 12.5 percent over the same three decades. However, there is still a long path ahead. According to the World Bank’s poverty indicators, for example, almost 70 percent of India’s 1.2 billion inhabitants still subsist on less than $2 per day.

Important challenges follow in the wake of these momentous changes. Countries will have to tackle domestic issues such as urbanization and the related issues of pollution and congestion. Resource stress is another cross-border problem that will not dissipate on its own. As hundreds of millions are catapulted into the global middle class, their demands grow—but the resources and energy required to meet these demands are in short supply.

The consumption shift is already taking on geo-economic and geopolitical expressions in the short term. They have recently hit front pages in the West: As America’s Smithfield Foods, the world’s largest pork producer, was targeted by a Chinese meat processing firm in an acquisition effort, the contours of the largest Chinese takeover of a U.S. corporation to date came into view. The long-term consequences, however—which require a type of policymaking that is perpetually subject to the effects of time discounting—are no less daunting. It is unquestionable that the negative externalities of the Asian demand hike and of the overall current brand of growth, such as rising greenhouse gas emissions and their contribution to climate change, will be felt globally.

Injecting Energy Into an Unstable Continent

As Asia heats up through the energy of its economy, its countries become more dynamic, multiplying both opportunities and risks. It is a well-known principle of physics that as energy is applied to moving gas molecules, collisions between them become both more frequent and more powerful. Since Asia lacks a strong network to soften, mitigate and contain potential friction, risk levels surge with the growing kinetic energy of its states.

The Asian paradox is thus as follows: Integration among Asian nations is deep in economic terms, but underlying security and political tensions are also deep and even growing, all without an undergirding set of norms, rules and institutions to manage the countervailing pressures. Asia is, in effect, an unfinished continent, where historical wounds did not fully heal and ragged scars remain where reconciliation was never achieved. Historical mistrust magnifies anxieties stemming from the asymmetric rise of certain countries within the continent.

Worrying signs of this phenomenon abound: Nationalism is on the rise and is repeatedly put on provocative display. Territorial disputes over unsettled borders, whether in barren stretches of no man’s land in the Himalayas or small islands in the South and East China Seas, flare up recurrently. Meanwhile, as military spending continues to decline in Europe and North America, it is on the rise in Asia, growing at 3.3 percent last year, according to SIPRI. Vietnam, in particular, increased its defense spending significantly in the face of the increasing naval assertiveness of its large neighbor. The second-largest military spender in the world, China, has increased its expenditure by 175 percent in real terms over the past decade, the largest increase for the period among the top 15 spenders in the world.

In our globalized and interdependent world, however, trade and security are inseparable. Take the ongoing spat between Tokyo and Beijing over the Senkaku/Diaoyu Islands, for example, in which a territorial dispute saw Japan's auto exports to China plummet 80 percent in just three months last year. The security-economy nexus is one Europe understands all too well: It is indeed the foundation on which the European Union was built. It also forms a solid bedrock for European engagement with Asia: By way of its own experience, Europe is capable of contributing to the gradual construction of rules-based, cooperative security in Asia. The benefits of such cooperation, as well as further regional integration, would extend far beyond continental borders.

A Smart Pivot

Since World War II, Asia’s security stability has largely been based on U.S. guarantees. The United States has acted as an outside underwriter and balancer in the continent just across the Pacific—but today’s shifts in economic weight and the assertiveness that come with them are changing not just the perspectives, but also the stakes. In this context, the United States has commenced a pivot, more delicately termed “rebalancing,” toward Asia. Although President Barack Obama’s plan to focus more on Asia is clearly being hampered by dramatic events in the Middle East that continually clamor for his attention, America remains committed to its strategic reorientation.

In one of her final speeches as secretary of state, Hillary Clinton insisted that the U.S. wanted “Europe to engage more in Asia along with us: to see the continent not only as a market, but as a focus of common strategic engagement.” Following the tides of history, trade is the scout that moves quickly into new territories, generally with further engagement in tow. The EU’s trade relations with Asia already flow strong, and the ongoing bilateral free trade agreement (FTA) negotiations will serve to accelerate this critical stream. Nevertheless, European engagement does not stop at trade.

Herein lies the key to the EU’s reorientation toward Asia, which may at first sight appear illogical: The European Union is not a Pacific power and has never been seen as a great power in Asia. This, precisely and paradoxically, is part of its strength. Europe is engaged in Asia but does not represent a threat. The relations between the two continents are therefore not restricted to the sticky, black-or-white choice between competition and cooperation, but can and have advanced beyond such calculations. In a continent hardwired to focus on hard security and national interests, some might yet question Europe’s relevance. But Europe’s niche lies in outside-the-box thinking, in the kind of smart security that only diplomacy and institutionalized cooperation can bring. Along with its extensive experience in institutional architecture, the old continent has a unique toolbox on offer.

Working From Experience: Regional Integration

Europe’s history has proved that regional integration is a powerful path to a more peaceful coexistence, creating fertile ground for trade to prosper. Clearly, it is also a fruitful area for development within Asia, whose regional network will require strengthening to absorb the shocks that can arise within the energetic continent. In Southeast Asia, one such institution is already firmly in place: the Association of Southeast Asian Nations (ASEAN), which is now almost 50 years old. ASEAN’s institutional architecture bears the closest resemblance to the EU’s structure of any regional organization in the world, making it a natural and like-minded partner for the union.

As ASEAN continues to evolve, striving toward its goal of three-pillared integration—political-military, economic and socio-cultural—by 2015, EU support to the project will be invaluable. Recent experiences have reminded us, however, that experiments in regional integration are anything but effortless. These structural building exercises are novel in world history, and as in any innovation process, each failure represents a lesson learned and a way forward. ASEAN, for one, operates in a particularly challenging environment, where many of its interlocutors prefer traditional bilateralism over multilateralism, to a degree that can be damaging to the regional integration process.

From its side, the EU is working through a range of difficult issues brought front and center by the storm winds of the global economic crisis. These struggles are likely to have a twofold effect on the region-to-region association. On one hand, some of the challenges to regional integration have been exposed. As is the way of European integration, however, these hurdles too will ultimately be overcome, doubtless providing fruitful lessons for future integration blueprints—in Europe and elsewhere.

On the other hand, Europe’s dire economic situation highlights and enhances the need to harness growth. One of the main channels of opportunity is the emerging markets of Asia. Here too, the ASEAN-EU link, which represents a combined market of more than a billion people, is paramount. The bloc of 10 ASEAN member states is the EU's third-largest trading partner outside Europe, with more than $270 billion in goods and services traded in 2011. For ASEAN, the EU is the second-largest trading partner after China and the largest provider of investment by far, averaging some $12 billion annually from 2000 to 2009.

Reinforced relations with ASEAN will also prove critical if the EU is to continue on its path to becoming an official participant in the East Asia Summit. An encouraging sign in the relationship upgrade came last year, when the European Union was finally legally able to sign ASEAN’s Treaty of Amity and Cooperation, and an additional stumbling block was removed from the equation when Myanmar recently shifted to political reforms and opening.

The Security Niche

Beyond the two-way institutional bonds, Europe brings further concrete experience to the table in Eurasian relations. Not too long ago, Europe was a war-torn continent crisscrossed with deep wounds and trenches. It has since then been uniquely successful in reconciling the once-warring parties, making it well-placed to share its conflict resolution experiences. This is one aspect of a second axis to Europe’s smart pivot, which builds on instrumental cooperation in such nontraditional security areas as maritime security, humanitarian assistance, disaster prevention and response, and peacekeeping.

The EU’s first-ever European Security and Defense Policy (ESDP) mission in Asia is a concrete demonstration of Europe’s contribution to strategic stability in Asia. It was Jakarta that formally invited the EU to lead a monitoring mission in Aceh after signing the Helsinki Memorandum of Understanding with the separatist Free Aceh Movement (GAM) in 2005. In cooperation with five ASEAN countries—Thailand, Malaysia, Brunei, the Philippines and Singapore—as well as with Norway and Switzerland, the EU’s Aceh Monitoring Mission monitored the implementation of various aspects of the peace agreement, including disarmament, demobilization and reintegration of GAM fighters and the implementation of the legislative changes in the MOU. While Asia’s circumstances are undeniably very different from Europe’s, the “old” continent’s expertise has already shown its value in the East.

There are many other concrete security areas that connect even more directly to trade. The South China Sea, for example, sees the passage of more than half of the world’s commercial shipping. Asia’s seas and straits are therefore extremely sensitive. One concrete danger, as recognized by Singapore, Malaysia, Indonesia and Thailand in their Malacca Strait Patrol initiative, is piracy. In the adjacent Indian Ocean, the EU has been implementing successful counterpiracy measures since 2008. The lessons from Operation Atalanta are already bearing fruit, leading to joint military operations between the EU and its strategic partner India in the Indian Ocean.

Increasing Flow Rates: Trade Liberalisation

Today’s global crisis has provided irrefutable proof that the link between economic growth and stability is bidirectional: Both for Europe’s advanced economies with their corresponding demographics and for Asia’s extremely young, burgeoning populations, growth is vital. Despite its present difficulties, Europe continues to hold great opportunity as the world’s largest economy, with half a billion consumers in a $16.7 trillion market. Asia is the European Union’s largest trading partner, accounting for 42.5 percent of total trade in 2011. South and East Asia’s exports to the EU may have fallen by 7.2 percent last year, but trade ties remain robust, and the incredible economic potential for both parties is obvious. It is critical to fully grasp that potential, by stepping up trade and investment initiatives and continuing ongoing trade liberalization.

It was Asia’s opening to international trade, first implemented by the Asian tigers and later advanced by China, that propelled Asia forward in its cycle of re-emergence. This opening has continued in the form of a three-dimensional proliferation of trade liberalization agreements: From intraregional agreements whose number—counting both established and developing agreements—has quintupled over the past 12 years, to bilateral agreements with non-Asian nations and larger-scale projects such as the Trans-Pacific Partnership.

Last year’s EU-South Korea FTA, which was the first bilateral EU-Asian FTA to enter into force, was the first of a new generation of free trade agreements. The deal is comprehensive in scope, rapid in implementation and high in ambition: 98.7 percent of EU-Korean commerce is set to be tariff-free after five years. With the EU-Singapore FTA scheduled to enter into force this year, negotiations with Malaysia, India and Vietnam ongoing, and formal negotiations recently commenced with Japan and Thailand, the EU is providing an unequivocal signal of its commitment to free trade and its openness to business with exterior markets. This momentum must continue and be fit securely into a strong, long-term EU strategy in order to harness the economic growth that is so critical to all sides.

The Global Dimension: Shared Interests

Throughout history, the world’s economic heavyweights have carried corresponding and sometimes oversized shares of global political and strategic power. Great powers’ influence works most efficiently when it is enshrined within globally accepted frameworks and channels. Unilateral actions, by actors large and small, can provoke dangerous effects that carry with them the risk of collateral damage. On the other hand, the legitimacy and effectiveness of the world’s global governance structures depend on constant evolution to suit the shape of their participants. Only continuous development can ensure that the world’s stabilizing systems do not fall into disuse and irrelevance; this is another challenge the international community urgently needs to face.

Given China’s growth rates and the size of the population it is bringing along with it on its rise, Europe clearly would like to see a more engaged and constructive role for China in global governance issues. Moreover, Europe is an excellent partner for Beijing, which feels more comfortable on the global front in a G-3 constellation with the Europeans than alone with the United States. In a possible G-2 relationship with the U.S., the hegemon that shaped the current international system, the forces of competition presently prevail over the possible benefits of cooperation. This international panorama sets an optimal scene for the fourth aspect of Euro-Asian engagement, the global dimension.

One of Europe’s unique advantages is its experience in bringing together diverse coalitions of parties to get things done. This instrumental diplomacy and the international legitimacy it brings could suit China well. By identifying key areas of alignment on the global front, China and Europe could intelligently combine their complementary forces to move affairs along swiftly, sending constructive international signals. The seven local emissions-trading schemes poised to launch in China, which drew lessons from the EU’s pioneering initiative, in addition to reports of possible moves toward a Chinese carbon cap in 2016, make climate change an excellent starting point for Sino-European strategic cooperation on the global stage. Such targeted alliances, with their high impact factors, would improve more than just the meteorological climate.

Asian and European interests may also converge in the Middle East. The region is as combustible as ever, but now there are strong signals of circumstantial change. While the U.S. is attempting to shift its focus to the East in light of both domestic energy developments and global economic shifts, Asia is growing ever more dependent on the Middle East for its growing energy needs. According to International Energy Agency forecasts, 90 percent of Middle Eastern oil exports will be destined for Asia by 2035. This kind of dependence can turn toxic without a degree of strategic engagement. With its international focus and presence, Europe, the Middle East’s direct neighbor, is a natural and instrumental partner to Asia.

The Way Ahead: Resolutely Pivoting Forward

As the world’s trade flows consolidate their new directions, political and strategic power must naturally follow. The final destination of these flows, however, is for now an unstable place. As energy pools in Asia, its networks are tested and its unhealed wounds strained. What Asia needs is strategic stability, the kind Europe has achieved through cutting-edge design projects of regional integration unique to this world. This is at the heart of the EU’s smart pivot East, a pivot that commenced with trade but must be sustained and redirected based on strong ingredients of the “old” continent’s history.

Present-day events show with increasing intensity that Europe cannot navel-gaze as the world transforms. It badly needs the growth that Asian markets can provide. It is critical, however, that European nations refrain from building familiar roadblocks on this route to growth. A renationalisation of foreign policy toward the world’s most vibrant actor is understandably tempting, but it will ultimately damage both national and EU interests.

With dynamics unmarred by the disturbances of great power struggles, the EU is well-placed to engage with Asia. The cooperative dynamics described here, which target concrete areas of synergy and instrumental collaborations, both intercontinental and global, stand to bring both continents great returns.

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