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Comment: EU ASEAN trade – how to make a strategic partnership work

The EU and ASEAN have yet to bring to life a strategic partnership overshadowed by deep-rooted trade irritants. The EU needs to thoroughly engage with its Southeast Asian partners on its new environmental legislation, recognise their own efforts in tackling climate change and speed up its FTA agenda, writes Chris Humphrey.

ASEAN is decidedly back on the map for the EU, and it should be.

Not only is it a high-growth, dynamic region, but ASEAN is also a natural bedfellow of the EU when it comes to upholding a rules-based global economic order.

Diplomatic relations between the two regions were reaffirmed and strengthened following the success of the ASEAN-EU Commemorative Summit last December.  On the trade side, the strong show of support from government officials on both sides at the 10th ASEAN-EU Business Summit further drove home the point that there is commitment to deepen economic ties.

Unfortunately, despite their elevation to a “strategic partnership” this relationship is often rocky with several irritants at play.

Key amongst these irritants’ are the EU’s suite of laws and policies around climate and sustainability that have extraterritorial reach – think the Carbon Border Adjustment Mechanism, the regulation on deforestation-free products, the forced labour ban, and measures around corporate sustainability due diligence.

These have been described by politicians and senior officials from the ASEAN region as ‘regulatory imperialism’ and ‘anti-competitive practices disguised as sustainability’.

These are harsh words, but reflective of a prevailing view in Southeast Asia, even if some of it is playing a domestic gallery at times of forthcoming elections, or the need to shore up support bases within coalitions.

No one in Southeast Asia disputes the need to do more to tackle climate change or protect the natural environment.  This is a region that is prone to climate-induced natural disasters.

Understanding South East Asia’s development needs

But Southeast Asia is not Europe.

Unlike in Europe, which is economically well developed, ASEAN is still developing. The region’s priorities are in helping its people find jobs – better jobs – investing in healthcare and education, improving living standards, and most importantly, feeding themselves.

Southeast Asia recognises that greening their economies is a must but doing that whilst dealing with more basic needs is not an easy process, especially with limited fiscal space to move within.

Transitioning towards renewables whilst simultaneously dealing with increasing energy demands is not straightforward: existing infrastructure is inadequate, and in some cases, non-existent.

It is not surprising therefore that the various EU sustainability initiatives are viewed with suspicion at best, and outright hostility at worst.

They are seen as added costs to economies and businesses, a means of closing off European markets to ASEAN businesses, and a means of protecting domestic European production from external competition.

This narrative needs to be dealt with through improved communications, better explanations of the compliance requirements, and improved understanding that these measures are not simply targeted at Southeast Asia but also the world and will impact all businesses including European ones.

While there is much for the EU to do, it is also important that ASEAN member states do not simply complain. They need to start engaging constructively because the EU’s drive towards climate-neutrality is not only here to stay but will also accelerate. That much is clear.

We all need to find workable solutions: solutions that allay the fears and concerns of a region that should be the economic and political friend of Europe, and solutions that meet the ideals and objectives of Europe.

Concluding EU Indonesia CEPA negotiations

Failing to do so could lead to a result where the EU-Indonesia CEPA is not completed, where the EU-Thailand FTA negotiations become stillborn, and other prospective FTA negotiations with ASEAN countries do not recommence.

All of that would be to the detriment of not only Europe’s interests, but also those of ASEAN.  Europe needs more trade deals with one of the few economic bright spots in the world.  ASEAN countries need more opportunities to grow and develop their economies, with Europe a prime trading and investment partner for them.

We are now at a crucial point in the EU-Indonesia negotiations.  Time is running out.  Realistically the negotiation teams only have until October to complete a deal that is already seven years in the making.

As ever, it is the tough things that remain to be resolved: government procurement, local content requirements, treatment of state-owned enterprises.   These are further complicated by two WTO disputes and the reaction of the Indonesian authorities to the EU’s Deforestation Directive.

Cut through the politics and hyperbole though, and there is a clear willingness and desire on both sides to get a deal done.  Both know it will be good for them – just look at the boost in trade and investment that Vietnam has enjoyed since the implementation of its FTA with the EU.  But to get the deal done, there need to be some concessions.

Finding solutions on palm oil sustainability certifications

Indonesian politicians will need to show to their electorate that they have been tough with Europe and done something to counter concerns on the Deforestation Directive. In return for concessions in other areas, Europe will need to give them something.

We think a commitment to work with Indonesia on improving their sustainability standards in palm oil, with the ultimate aim of EU recognition of Indonesian Sustainability Certification, would be a major step in the right direction.

That would serve the interests of both sides: alleviating concerns over the potential loss of the European market for palm oil producers, and helping the EU maintain access to a valuable crop whilst being certain of its sustainability credentials.

It will not be easy; there will still be opposition on both sides to this, but other vested interests should not be allowed to derail a bigger deal that will serve the interests of governments and citizens on both sides.  It is also a formula that could be used elsewhere to help drive other agreements forward and meet the objectives of both Europe and its partners.

EU FTAs: Philippines should be next in line

Once the EU-Indonesia deal is done, it is imperative that the European Commission push on with negotiations elsewhere in the region.

We already have the prospect of a recommencement with Thailand, assuming that a new government is installed and is stable.

Next should be the Philippines.

The Marcos Jr administration has made it abundantly clear they are ready to do a deal: they have need to do so, and are making the right moves on economic reform and opening up their economy.  And, as this is not the regime of the president’s predecessor, old concerns should be dissipated.

In FTA negotiation terms, this should be a relatively easy and quick one to do, and one that would give added impetus to ASEAN-EU relations.

And the Philippines should be closely followed by Malaysia. That will not be as easy. Many of the concerns we have seen with Indonesia will be resurrected in discussions with Kuala Lumpur, but we have faith that it is doable.

Having all of those deals in place will clearly place Europe-ASEAN relations on its rightful footing: True and close friends with each other, mutually benefitting and respecting.

 

Chris Humphrey is Executive Director of the EU-ASEAN Business Council in Singapore. Opinions expressed are his own.    

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