A Region-to-Region Trade Deal is Possible – If ASEAN And The EU Can Find Common Ground

10/19/2018

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Chris Humphrey | Friends of Europe

In a world where the multi-lateral, rules-based trading order is being challenged, two trading blocs stand out as beacons of free trade – the European Union and ASEAN.

ASEAN – which will soon be the world’s fourth largest economy – already has several Free Trade Agreements (FTAs) of varying depth and breadth in place and is presently finalising the Regional Comprehensive Economic Partnership, a multi-lateral trade deal that would link all of ASEAN’s existing FTAs. Additionally, four ASEAN member states are also part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, arguably one of the most ambitious multi-lateral trade deals ever concluded. The EU is not falling short either, as it has numerous FTAs in place already, including FTAs concluded – though not yet ratified – with Singapore and Vietnam.

To a large degree ASEAN and the EU are natural bedfellows. In recent years, the EU has consistently been ASEAN’s second largest trading partner and the largest source of foreign direct investment. In 2017, trade in goods between the two reached a record of €227,3bn. ASEAN has also consistently been the EU’s third largest trading partner outside of continental Europe, and this trade and investment relationship has been growing with over 11,000 European businesses operating in Southeast Asia.  Both blocs believe in trade and want to conclude more trade deals.

Earlier talks on a region-to-region trade deal were abandoned for a variety of reasons, with the EU opting to pursue bilateral deals. More recently, however, there have been talks on a framework agreement which could lead to full negotiations on a region-to-region deal. According to the 2017 EU-ASEAN Business Sentiment Survey, European businesses certainly want to see such a deal; in other words, European businesses want the Commission to show more urgency. As for ASEAN, the bloc feels that now there is a window of opportunity for Europe: ASEAN wants to have a counterweight to China, and with the United States’ somewhat unpredictable trade policies, Europe would be a natural choice for a trade partner.

But things are being held back for a variety of reasons. First, the Commission still prioritises bilateral deals: an agreement with Indonesia is being negotiated; one with the Philippines has started though seems to be on hold; re-engagement with Malaysia and post-election Thailand are also distinct possibilities. There is certainly some merit in trying to secure three or four bilateral deals first to gain momentum in the region but securing more deals to go alongside those with Singapore and Vietnam is proving difficult.

Second, there is probably some doubt about the willingness and ability of ASEAN to act as a collective, as opposed to effectively running 10 sets of parallel negotiations. However, ASEAN has acted as one during rounds of Regional Comprehensive Economic Partnership (RCEP) negotiations – there is no reason why this could not work with the EU as well.

Third, there are political concerns: uncertainty over the priorities of the new government in Malaysia; a desire to wait for a return to democracy in Thailand; concerns about certain policies in the Philippines; worries about democracy in Cambodia; and, of course, concerns over the Rakhine State in Myanmar. However, moving ahead with a region-to-region deal might help to avoid such issues holding up progress.

Fourth, disparity in economic development in ASEAN is also seen as a potential stumbling block.  And true, ASEAN is a region that ranges from the highly service-oriented economy of Singapore with a GDP per capita of US$52,963 to the developing economy of Cambodia with a GDP per capita of US$1,266.  But ASEAN has great potential: it has the world’s third largest working population, a rising middle class and astonishing rates of urbanisation.

Finally, there is the question of ambition. The EU uses a standard template for FTAs, including elements that some might argue go beyond the usual scope of FTAs. The EU wants the deepest and most comprehensive deal it can muster and, out of internal political necessity, wants to include things like labour rights, human rights and environmental protection alongside more traditional elements. That might be too much for ASEAN to swallow all at once. But raising ambitions on the ASEAN side and lowering ambitions on the EU side should not be beyond the wit of man given the potentially positive outcome – an outcome that cannot, and should not, be measured in euros and dollars alone, but also in the potential geo-political benefits.

There is no reason why a region-to-region deal could not be reached by 2030, or even earlier. It just requires key people on both sides to invest some political capital in the concept. But with the upcoming European elections, we may have to wait a little bit longer to get started.

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© Friends of Europe

To read the paper originally published by Friends of Europe, click here.