Prospects for Closer Economic Relations between Europe and East Asia

Prospects for Closer Economic Relations between Europe and East Asia

East Asia has rapidly become the third centre of gravity for global economic activity. North America is relatively well integrated with East Asia, but Europe is not. This paper explores the extent to which economic growth and trade policy developments over the next decade will strengthen European-East Asian economic integration, and what scope there is to facilitate that set of bilateral relationships. Use is made of a global CGE model (GTAP) to project the world economy to 2005 under various scenarios including Uruguay Round implementation, faster economic growth in China, reneging on the promised phaseout of textile quotas, and APEC trade liberalization. The bilateral trade consequences in those scenarios highlight the fact that as East Asia`s relative importance in the world economy keeps growing, so too does its importance to Europe. More surprisingly, the importance of Europe to East Asia also is projected to grow with Uruguay Round implementation, and even APEC trade reform does not reduce Europe`s projected trade with East Asia. (JEL Classification: F11, F13, F14, F15, F17)