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Trade

A free trade between China and EU will increase combined GDP by this much

PUBLISHED : Sunday, 20 March, 2016, 7:00pm
UPDATED : Monday, 21 March, 2016, 11:42am

The combined annual gross domestic product (GDP) of China and the European Union (EU) may grow by an additional US$200 billion by 2030, according to a study on the impact of a EU-China free trade agreement.

That would mean a total increment of GDP the size of Portugal, said Christian Ewert, director-general of Foreign Trade Association, a leading business association of European and international commerce that promotes free trade.

China expressed interest to start negotiations on a free trade agreement when President Xi Jinping visited Brussels in March 2014. Analysts say Beijing has since accelerated negotiations as the US-led Trans-Pacific Partnership (TPP) agreement was signed by 12 countries in October and the talks between the US and the EU on a Transatlantic Trade and Investment Partnership have gathered pace.

Ewert’s association last July commissioned the Centre of European Policy Studies, one of the leading think tanks in the region, to conduct a study on the economic impact of a potential EU-China free trade agreement.

READ MORE: It’s the geopolitics, stupid: US-led TPP trade pact less about boosting economies than about containing China’s rise

One important finding is that the additional GDP as a result of the extra trade would be in excess of US$200 billion over the next 15 years, Ewert told the South China Morning Post. “To put US$200 billion in perspective, that is the annual GDP of Portugal.”

Trade and investment relations between the EU and China have shown tremendous dynamism in past decades but a raft of barriers such as tariffs, technical obstacles and “government-driven distortions” remain, said Ewert.

The EU and China are two of the biggest trading economies in the world. China is the EU’s second-biggest trading partner behind the US while the EU is China’s biggest trading partner.

The economic impact of a free trade agreement was calculated with the help of a complex computable general equilibrium model that uses actual economic data to estimate how an economy might react to changes in policy, technology or other external factors.

Two variants of a potential trade agreement were considered: a modest one with full removal of bilateral tariffs and 25 per cent reduction of the regulatory barriers in goods and services; and a more ambitious one with full bilateral tariff removal and 50 per cent reduction of regulatory barriers on goods and services.

The more ambitious the agreement, the greater would be the gains for both sides, the study found. The USS200 billion estimate is that of the second variant.

READ MORE: Why the Trans-Pacific Partnership deal is no threat to China

The study, which will be presented in Brussels on April 20, also focuses on the major obstacles in trade relations that need to be tackled, such as tariffs, regulatory barriers and intellectual property.

On the potential competition between the regional initiatives such as the One Belt One Road initiative spearheaded by China and the US-led TPP, Ewert said the two are not necessarily in conflict.

“From the point of view of the apparel and fashion industries, both the TPP and the Silk Road initiative will provide new and interesting opportunities for businesses,” he said.

His association represents over 1,700 retailers, importers, brands and national associations that are working to improve the political and legal framework for trade in a sustainable way. The combined annual turnover of the membership is approximately €800 billion.

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