EU–ASEAN Trade Relations: Beyond the Impasse

Bárbara Teixeira de Sousa Sénécaut

The EU’s relations with the Association of Southeast Asian Nations (ASEAN) date back to 1977, making it one of the oldest models of interregional cooperation. These relations have since developed to cover a wide array of subjects ranging from trade to security cooperation. In 2006, the EU released its communication called Global Europe which identified, among others, ASEAN as a preferred partner thanks to its market potential and its protection level for EU exporters. In 2007, negotiations for an interregional EU–ASEAN free trade agreement (FTA) were launched. A regionto-region agreement was deemed favourable due to the complexity of establishing multiple FTAs with Southeast Asian countries that already found themselves in the midst of a complex web of trade agreements. However, the talks were halted after seven rounds of negotiations in order to allow reflection on a more appropriate format. While the originally envisaged interregional negotiations have remained suspended to date, ASEAN continues to be an important region for the EU as its third-largest trading partner after the United States and China. As for ASEAN, the EU is its secondlargest trading partner. The EU’s strategy has, therefore, changed towards conducting bilateral negotiations with the individual member states of ASEAN in the hope that they would serve as building blocks for an eventual region-to-region agreement.

Up until recently, the EU–Singapore FTA (EUSFTA) and the Investment Protection Agreement (IPA) remained the sole examples of strong EU–ASEAN trade relations. The focus on Singapore was an obvious choice for the EU in its bilateral arbitrations following the breakdown of interregional negotiations, as it is the EU’s biggest trading partner in Southeast Asia. Similarly to how the ten thousand EU companies present on Singaporean soil function as forward bases set for regional operations, the EU has drawn on Singapore as a stepping stone to further relations with nearby countries. The EUSFTA has also been playing a direct role in economically bridging both regions via the “ASEAN cumulation.” This allows other ASEAN members to enjoy tariff concessions when their materials are incorporated into Singaporean final products. The EU hoped that this would lead to the rapid establishment of other bilateral FTAs within the region, but that has proved to be a misconception. For a long time, many believed this would not be replicable in other ASEAN countries because of Singapore’s high level of liberalisation and its rapidly growing and dynamic market. The stalling and interruption of the other bilateral negotiations—because of multiple nontrade barriers—demonstrated that the EU’s expectations and demands in the negotiations with the ASEAN countries had been rather unrealistic and unattainable.

After an extended lull in Europe–Asia relations, both the European Parliament (EP) and the Vietnamese National Assembly ratified the EU–Vietnam FTA and IPA. Following a dozen rounds of negotiations spanning eight years, Vietnam became the second ASEAN country to sign such agreements with the EU. This illustrates both regions’ interest in furthering ties, particularly at a time of economic crisis after months of lockdown across the globe. A rapprochement would be beneficial for both regions, but the last attempt at finding common agreement in 2019 resulted in ASEAN’s unilaterally and indefinitely postponing the signing of the Strategic Partnership, an informal prerequisite for trade negotiations. The question remains whether the successful

signing of the EVFTA will provide the muchneeded stimulus to revitalise the stagnant EU–ASEAN ties.

In order to assess whether—and how—we can move beyond the current impasse, we must delve into the causes leading to it. While the EU was well aware that negotiations on a regional agreement with ASEAN would be more time consuming and complicated than an agreement with a single nation, it believed the extra effort to be worthwhile. To assess the feasibility of an interregional FTA, the Vision Group on EU–ASEAN Economic Partnership was established in 2005. One of the conclusions the group reached at the time was that, while traditional tariffs do not represent a significant barrier to trade in manufactured goods between the two regions, non-tariff barriers (NTBs) do. Non-trade issues have been included in trade negotiations following the Lisbon Treaty’s entry into force in 2009 and the EP’s subsequent acquisition of new capabilities regarding trade powers. In the EU’s attempts to distinguish itself from other international actors by operating as a promoter of norms, it established a “new generation” of comprehensive agreements with respect to labour and political rights, environmental protection, and universal human rights. However, the inclusion of such conditionalities has impeded its market power to flourish and encumbered its ability to conclude trade agreements, thus limiting the EU’s role on the international scene. As predicted by the Vision Group, non-trade issues played a key role in the breakdown of EU–ASEAN negotiations and multiple bilateral trade talks with Southeast Asian countries.

A flagrant and extensive gap exists between the EU’s expectations in its pursuit of trade policy and Southeast Asia’s perceptions of the EU and its non-trade objectives. With regards to its FTAs with the EU, ASEAN aims to strengthen its market share to boost exports and attract foreign direct investment. While non-trade issues can be discussed, its priority lies in the economic benefit to be reaped. European demands for the inclusion of such clauses are widely perceived as unduly cost-raising, and claims appeared that these Western standards were unattainable for the ASEAN countries’ developing economies because of the limited availability of infrastructure and expertise. These specific requirements could also hamper ASEAN’s market access and competitive edge, suggesting that the EU’s push for the inclusion of these chapters is merely a smokescreen for protectionism.

The high diversity amongst the ten ASEAN member states in terms of economic development, structural approaches, and political regimes was recognised during the negotiation talks: “one difficulty . . . arose from significant structural differences within ASEAN.”1 Even excluding Singapore, disparities in the levels of liberalisation, development, and income per capita vary strongly. The diversity of priorities and perspectives was only further highlighted by the lack of a robust and sound institutional framework. ASEAN, as a regional organisation, is not nearly as integrated as the EU and is limited in budget, human resources, and competences. As the EP emphasised in its reports, there were “difficulties (on the ASEAN side) in developing a common position and a lack of political will.”2

The above, coupled with the lack of understanding of the importance ASEAN members attribute to national sovereignty and non-interference in domestic affairs, led to the breakdown of the bloc-to-bloc negotiations. It should, however, be noted that ASEAN has managed to successfully negotiate and sign several preferential trade agreements with key trade partners such as China, Japan, and India. This demonstrates the potential for an interregional EU–ASEAN FTA, the aforementioned issues being the only obstacles to overcome in pursuit of the European aim of an ambitious agreement. Currently, as the differences within ASEAN are too large to be bridged, it is unlikely for an interregional agreement to transcend the lowest common denominator. While settling for lower standards could be perceived by some as a European failure, it must be noted that ASEAN has a track record of tackling negotiations and agreements on a step-by-step basis. For

The EU’s free trade agreement (FTA) and investment agreement negotiations in ASEAN

PHILIPPINES FTA negotiations (launched in 2016)

CHINA LAOS

MYANMAR (BURMA) Investment protection agreement (IPA) negotiations (launched in 2014) VIETNAM FTA (concluded in 2013, signed in 2018)

THAILAND FTA negotiations (launched in 2013, on hold)

CAMBODIA EAST TIMOR

BRUNEI

MALAYSIA FTA negotiations (launched in 2010, on hold) INDONESIA Comprehensive Economic Partnership Agreement (CEPA) negotiations (launched in 2016)

SINGAPORE FTA (concluded in 2015, signed in 2018)

example, the ASEAN–China framework agreement was only supplemented by services and investment agreements later. Although the initial ambitions cannot be fully achieved at present, provisions would be laid down for a future “deepening” or upgrading of the agreements.

In order to establish fruitful future negotiations, it is crucial that all parties’ perceptions and expectations be taken into consideration and tackle non-trade issues prior to the negotiations rather than include them into the already complex negotiation talks. It might even be more productive and effective to tackle such conditionalities in separate frameworks, rather than as a part of the process of FTA negotiations.

Amongst the multiple issues impeding the improvement of relations, a notable sticking point is the issue of palm oil. Crucial for many ASEAN countries, especially Malaysia and Indonesia, the palm oil industry is a large contributor to their economies. Specifically for Malaysia, for it provides direct employment to 570,000 people. The point of contention lies in the EU’s Renewable Energy Directive (RED). This grants tax credits to renewable fuel sources when they meet the target of 35% less greenhouse gas (GHG) emissions than traditional fossil fuels. As the palm oil biofuel GHG emissions rate is merely 19%, it failed to qualify for the tax credits under RED, implying they cannot compete with European rapeseed oil biofuel which does qualify under these criteria.3 The EU’s directive, rendering palm oil commercially unviable, accompanied by the Malaysian government and state’s presence in the sector via equity ownership, precipitated the stalemate we find ourselves in. Such differentiated treatment infringes existing jurisprudence and Malaysia has threatened to bring the case to the World Trade Organisation (WTO). In order to avoid a time-consuming WTO dispute and to move forward, a compromise must be reached. However, given the importance of this industry, it is very unlikely that Malaysia and Indonesia will concede.

The EU needs to come up with creative solutions to find a way out of this deadlock, not only for the case of palm oil but also regarding other sticking points such as its reluctance to engage with the Duterte administration in the Philippines and the democratic backsliding in Cambodia and Myanmar. On a brighter note, Thailand, which has long struggled with illegal fishing, managed to overcome the multiple hurdles erected by the EU, and negotiation talks are slowly restarting. It is crucial for the EU to consult with ASEAN members before setting criteria in the future; otherwise, disputes will continue to preclude important cooperation agreements.

Trade policy is defined and limited by domestic politics and short-term interests, whereas FTAs are tools for long-term economic relationships. The ratification of the EU–Vietnam FTA is likely to have a ripple effect, pushing various countries to move towards (re-)starting negotiations, even if it is so to simply minimise their companies’ loss of market access vis-à-vis Vietnam. If the EU wants to ride the potential wave of opportunity created by the conclusion of the EVFTA and EVIPA, it must learn from its previous mistakes. The inclusion of non-trade chapters being the biggest obstacle to negotiations, the EU needs to adapt its strategy. Considering that FTAs need to be ratified by each EU Member State, some of which, in addition, need to get approval from regional governments, it would be impossible to backtrack and give up the important inclusion of sustainability, labour, and human rights standards. These conditionalities are crucial for various lobby groups and the European industries which they represent due to a loss of competitiveness in comparison to many unregulated ASEAN goods. The EU should set up thematic working groups to deal with specific issues bilaterally prior to (re-)starting any official negotiations.

Following the experiences of its own member states, the EU should allow time for ASEAN to develop its regional cooperation structures and for its members to tackle their major economic disparities. This includes greater emphasis on positive integration, institution-building, and ensuring that trade expansion is not hindered by differences in regulations, standards, and tariffs. The EU should support the convergence of ASEAN on behind-the-border issues.4

The ratification of the EU–Vietnam FTA serves as a vehicle for furthering the economic engagement between the EU and ASEAN, allowing greater interregionalism. The principle of regionalism is not formally enshrined in the treaties but is heavily present in the EU’s rhetoric and communications. With ASEAN, an interregional agreement could only be accomplished after the conclusion of bilateral agreements with the individual member states first, allowing the EU to tailor its approach to the respective nations. As odd as it might sound, an interregional agreement with ASEAN can only be achieved through bilateralism. The EU’s approach to the negotiations must be based on realistic objectives and built on pre-existing thematic negotiations on non-trade aspects. The ultimate goals of ambitious and comprehensive agreements can eventually be achieved through gradual development. This would allow the complexity and sensitivity of the trade negotiations to be eased, and a simultaneous discussion on strategic regional interests in settings such as the ASEAN Regional Forum or the Asia Europe Meeting. All in all, an EU–ASEAN interregional FTA is possible, but only if the EU is ready to adapt and learn.

ENDNOTES

1

Jacques Pelkmans [et al.]: Trade and economic relations with ASEAN. Policy Department, Directorate-General for External Policies, Luxembourg, 2013. <doi: 10.2861/29859 >

2

Glyn Ford: Report On Trade and Economic Relations with the Association of Southeast Asian Nations. European Parliament. 14 April 2008. <https://bit.ly/3jWkS9J >

3

Ludo Cuyvers [et al.]: EU–ASEAN FTAs. Does One Size Fit All? Centre for ASEAN Studies–Centre for International Management and Development Antwerp, CAS Discussion paper No 91. April 2013.

4

Finn Laursen–Christilla Roederer-Rynning: The New EU FTAs as Contentious Market Regulation. Journal of European Integration. 2017/7. 763–779.

5 REGIONAL ISSUES