- The EU is hoping to revive the negotiations for a region-to-region agreement with the Association of South-East Asian Nations (ASEAN), but few trading partners have faced such inauspicious fate as its members.
- The trade agreement with Singapore is concluded but remains unsigned and the EU Member States do not seem to be in a hurry to ratify the EU-Vietnam agreement due to the prospects of rejection by the European Parliament over labour issues.
- There is a proposal by the European Parliament to effectively stop the use of palm oil in biodiesels under the new Renewable Energy Directive (RED-II), which has caused Malaysia, Indonesia and Thailand to threaten trade retaliation against multiple EU exporters and the termination of both bilateral and regional trade negotiations.
- Given existing jurisprudence any such differentiated treatment or selective exclusion of one crop would not comply with WTO law, exposing the EU to a time-consuming WTO dispute.
- Moreover, military rule in Thailand, reports of human rights violations in the Philippines under President Duterte or atrocities in Myanmar will inevitably complicate both bilateral and EU-ASEAN negotiations.
- In Europe, much of the policy work undertaken in the current political term is dedicated to restoring the mandate and win back public trust for trade policy. The EU is weakened politically and has little wriggle room for concessions internally. The EU is demanding more, while offering less, in its international negotiations.
- The European Parliament shifts EU trade policy towards unilateral and short-term interests rather than a trade policy that could enable long-term political reforms and support the EU’s long-term geo-economic interests.
- Europe’s engagement with the ASEAN countries and the promotion of WTO rules, human rights and sustainability calls for a long-term approach which requires patience.
Excellent research assistance by Cristina Rujan is gratefully acknolwedged.
What is at Stake
Necessity borne out of China
The idea that the Asian counterparts are always the demandeurs of every trade agreement and that the attraction of duty-free access to the Single Market gives Europe invincible powers has been disproved many times over. Europe can drive a hard bargain for what it puts on offer in trade talks – but the idea that Europe could always walk away from any negotiation table ignores the fact that the EU is running short of negotiation partners that are large enough to significantly impact its economy.
Due to its structural problems with low domestic growth and a high export dependency, Europe is bound to seek new growth from overseas markets to address its declining industrial utilisation rates – but only a few economies are large enough or sufficiently fast growing to have a meaningful impact on Europe’s GDP.
The EU has successfully concluded FTAs with medium-sized economies like Korea, Canada or Chile, but given the sheer size of the EU economy, only an agreement with the world’s top three economies or another regional bloc could make an impact on EU GDP. When the EU disembarked on its bilateral strategy in 2006, it deliberately chose to forego China, opting for trying to open up slower growing (but democratic) India. Upon the failure of that venture, the EU moved to the United States through the Transatlantic Trade and Investment Partnership (TTIP) in 2013 – and with its demise, it finally opened up negotiations with Japan, the world’s third largest national economy, and the EU-Japan economic partnership agreement was finally signed in 2017.
As it stands, Europe has only two paths forward in Asia after Japan. It could kowtow to what some see as inevitable: The politically arduous and controversial EU-China trade agreement. The other alternative is the South-East Asian economies either in a package, preferably within the framework of Association of South East Asian Nations (ASEAN), or in multiple bilaterals.
Europe’s export-driven economies (and Germany in particular) have remained the largest investor in the ASEAN region in absolute terms, accounting for one-third of all inward FDI flows, but simultaneously developed a disproportionate dependency on exports to China – with all the volatility and political risk it entails.
Engaging the ASEAN countries is a project consisting of many elements. ASEAN is a grouping that ranges from a services-driven high-income economy like Singapore, to a developing country based on natural resources, like Myanmar. The GDP per capita ranges between US$ 54,000 to a mere US$ 1,300, a ratio of forty to one (compared to thirteen to one between the richest and the poorest EU country).
This is precisely one of the reasons the EU must engage with the wider Asia-Pacific region: The chain of islands covered by the EU FTAs, stretching from Hokkaido to Sumatra, offers a variety in resources, labour specialisation and nearly US$ 5 trillion in demand, which is only eclipsed by China in terms of size and diversity. However, this long-term economic imperative does not necessarily translate into a political commitment in the short-term.
Figure 1. Final consumption (constant 2010 million US$) of Japan, ASEAN and China
Bilateral and regional approaches hang together
Obviously, with such diversity amongst ASEAN members and varying level of ambition, one size cannot fit all. Liberalisation with the ASEAN economies cannot be built on the same template if an optimal outcome is to be found for each of the countries, while the capability to negotiate and implement advanced commitments on regulatory matters differs as well.
In 2007, the EU and ASEAN member states started negotiating a region-to-region FTA but talks stalled in 2009 due to what some even called ‘insurmountable economic and political differences’, and the EU moved to negotiating bilaterally with individual member states of ASEAN.
In bilateral negotiations with individual countries, the EU could abandon those countries with considerable humanitarian concerns (as was the case of Myanmar under a martial regime.). There was a belief that key economic markets could be dealt with easier in bilateral FTA talks. Also, due to the nature of their integration, the ASEAN countries had a common position on matters concerning goods trade, but not on services and regulatory issues of importance to the EU.
In fact, there are already a number of different bilateral approaches which will coexist with the imminent restart of region-to-region negotiations:
- The six largest economies by nominal GDP – namely Indonesia, Thailand, Philippines, Malaysia, Singapore, Vietnam – have opened negotiations with Europe.
- Three of the countries – Cambodia, Laos and Myanmar – already qualify for one-way duty-free quota-free trade for least developing countries under the Everything But Arms (EBA) program. A bilateral investment agreement was also in the works with Myanmar.
- Meanwhile Vietnam, Indonesia and the Philippines can fall back on their market access to the Single Market under the Generalised Scheme of Preferences (GSP) if their bilateral FTA negotiations do fail.
Obviously, the bilateral and regional approaches are complementary. Similar to other regional agreements (such as the TPP), the architecture of the ASEAN-EU agreement would have a common umbrella of rules and disciplines, while market access schedules (in particular thorny areas such as tariff-rate quotas and public procurement or services) would be negotiated bilaterally with each country. Similarly, countries like Japan, Korea and Australia/New Zealand, who have regional FTAs with ASEAN, use bilaterals to update the baseline commitments on rules in their regional agreements.
Demandeurship of the negotiations
Only a few may recall that the start of region-to-region talks between the EU and ASEAN dates back to the 1970s when an informal dialogue started, which was followed by parliamentary and ministerial dialogues in the 1980s and 1990s, before the formal FTA talks were launched in 2007.
Throughout the process, Brussels always assumed that Asian counterparts were always the demandeurs of each negotiation, which is not necessarily the case. ASEAN as a collective entity is already the fourth largest trading partner of the EU, growing faster than Europe’s stagnant trade with China or India, namely at the rate of 6.8% per year on goods and 10.6% in services since 2010.
Asia is also turning its focus to intra-regional initiatives like the establishment of the ASEAN Economic Community (AEC), which created a single market of 600 million consumers, or agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP). Thus, for the EU, deep agreements with countries like Malaysia, Vietnam or Singapore are more about regaining the economic and regulatory power it has lost in the region.
Therefore, Europe has much more to lose in case it fails to open up the Asian economies bilaterally or regionally. The “no deal” scenario leads to a loss of comparative advantage for the EU vis-à-vis regional competitors like China, Japan or the US. Meanwhile, the ASEAN countries are turning their attention to more compatible and apolitical partners within their own region and could simply default back to one-way alternatives, such as GSP or EBA.
Unlike in the collective trade policy making process in the EU, ASEAN members do not exercise the same level of peer pressure in the case of dissenting opinions in trade negotiations. Since ASEAN trade policy making is more autonomous, each of the ASEAN countries can walk away more easily from the negotiation table and therefore holds an effective veto against the EU-ASEAN agreement if it perceives the agreement violates its core interests. Therefore, the interests of some of the ASEAN member states will be discussed more closely in the following sections. Addressing these issues is critical for Europe’s prospects of concluding FTAs with not just ASEAN, but developing economies overall.
 Own calculations based on ASEAN stats data.
 World Bank, World Development Index, 2016
 Loc Doan, X. (2012), Opportunities and Challenges in EU-ASEAN Trade Relations, EU-ASIA Centre: Brussels, accessed at: http://www.eu-asiacentre.eu/pub_details.php?pub_id=60.
 Meissner, K. L. (2016), A case of failed interregionalism? Analyzing the EU-ASEAN free trade agreement negotiations, Asia Europe Journal, 2016, vol. 14, issue 3, 319-336, p. 332.
 Ibid., p.319.
 Own calculations based on data from Eurostat.