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ASEAN: An afterthought in EU trade policy?

Credit: EC

There’s about one year to go before its top leadership gets renewed. Yet the European Commission risks missing out on the early harvest it reaped in its free trade agreement negotiations with ASEAN members in the first years of this legislature, writes Iana Dreyer.

 

The EU’s executive is trying to give new impetus to an old idea of a region-to-region trade pact with the southeast Asian bloc. But most trade negotiations with the region are stuck. The European Commission is  holding back tabling a free trade agreement with Vietnam for ratification, and scrambling to get an FTA with Singapore through the European Parliament before it folds next year.

 

Trade commissioner Cecilia Malmström was in Singapore late last week. “We are building a circle of friends around the world. It is made up of countries that share a belief that open trade is a good thing,” she told a business audience in the city state. “We would like ASEAN to join this circle of friends eventually.” The context of this speech is clear: rising protectionism across the world and the deep deterioration of trans-Atlantic trade relationships.

 

ASEAN established a fully fledged free trade area in 2015 and is negotiating a commerce pact with China and India – the Regional Comprehensive Economic Partnership. European business, the second-largest investor in the region, is nervous about losing out to competitors that would be given better terms.

 

With incomes rising steeply in the 600-million region – see table bel0w – ASEAN is a destination keenly eyed by European business. Some member states and political thinkers also believe that greater engagement with South East Asia is necessary in the face of China’s emergence and the US’s retreat. Issues like the freedom of navigation and territorial stability are at stake. “ASEAN is where Europe needs to be at the present time,” reckons David Martin, rapporteur for the region in the parliament’s trade committee.

 

During an event hosted by the EU-Asia Centre and Borderlex, Rainer Bütikofer, a German MEP overseeing political relations with ASEAN, said: “We [need to be] walking on two legs. While we continue having bilateral FTAs, [we] also [should] pursue a plurilateral, region-to-region FTA.”

 

Politics trumps trade 

 

Going to Singapore in 2018 to meet with the ASEAN countries comes across as a bit of an afterthought from the commission.

 

At the beginning of her tenure, Malmström was clearly enthusiastic about the idea of FTAs with the region, and of the region-to-region idea floated initially in 2007 under then-commissioner Peter Mandelson.

 

The EU quickly dropped that region-to-region idea and moved instead to bilateral free trade agreements, with the eventual aim of getting to a sort of umbrella agreement with the whole region at a later stage. There seemed no rush. “We are as patient as the Asians,” one of the commission’s top negotiators told me last year.

 

The EU successfully concluded two trade agreements which experts say are substantial in their quality and depth. The first was with Singapore in 2014, the second with Vietnam in late 2015.

 

The Singapore accord fell victim to the EU’s turbulent trade politics. The commission picked this pact to fight its fight with member states over commercial policy competences. Waiting for the Court of Justice’s verdict on what is EU-only and what is a mixed competence led to a two and a half year delay to adopting the agreement.

 

While the deal was in court for examination, the commission went back to the Singaporeans to retroactively introduce the bloc’s new investment court system – or ICS. This retroactive step has raised eyebrows.

 

Nine months after the now-famous ‘Singapore ruling’, the commission still hasn’t tabled the text to member states for approval. It is still wrangling with governments over how the deal should be ratified.

 

After the ruling, the EU split the whole agreement into a bilateral investment agreement and a trade pact. That took another extra months. Most member states are ready to ratify the trade part as an EU-only according to the ordinary legislative procedure, and take longer to ratify the investment protection agreement extracted from the deal. France is still balking at sending a trade agreement to ratification as an EU-exclusive agreement that would be signed off by the Council and parliament only. Germany is ambivalent.

 

Sources close to Malmström’s cabinet say she sees ASEAN and swift ratification of the Singapore FTA as a priority. But Jean-Claude Juncker’s office puts the very recently concluded Japan economic partnership agreement first in his order of priorities.

 

On Friday, the commission finally promised to put the Singapore pact to member states for screening and approval at the same time as the Japan accord in April. This doesn’t guarantee that the deal will make it in time to the parliament in the autumn for ratification and provisional application.

 

The EU’s new trade politics have also affected other trade agreements. One such processes is the parliament’s muscle-flexing on partner countries signing on to International Labour Organisation conventions. The trends started with CETA, when Canada was discreetly strong-armed to finalise its ratification process of two ILO conventions.

 

The process is obvious and out in the open with Vietnam. The commission made this an official policy in a working document on trade and sustainable development chapters released last week.

 

The country took on obligations to abide by eight core ILO conventions. It has yet to sign pacts on freedom of association and expression for labour and on the abolition of forced labour. The commission fears that the Vietnam agreement could fail to obtain a majority in a parliament that is also very not happy about the prospects of more rice and fish imports from Vietnam.

 

This kind of protectionism plays less in the case of Singapore, which hardly exports agricultural goods. Observers expect to easily get a majority vote in the parliament, despite the fact that Singapore has also not signed three ILO conventions. “It’s a state based on the rule of law. It’s the consistent application of law that makes them such an attractive, stable partner,” Martin told Borderlex. “That said, we expect them to sign the three [ILO] conventions.”

 

Politics also play with other countries. The EU suspended negotiations with Thailand in 2014 after the military coup there. The Thai junta is mounting a global charm offensive in trying to get into trade agreements across the worlds (see here) – the EU is still holding off as long as promised elections aren’t held.

 

The commission suspended negotiations towards an investment agreement with Myanmar following the country’s repression of its Muslim Rohingya minority, and it put talks with the Philippines on hold. Last Monday, member states threatened to suspend unilateral trade preferences destined for the world’s poorest countries – the Everything-but-Arms scheme – for Myanmar and Cambodia.

 

Palm oil

 

Palm oil is another elephant in the room. The parliament’s recent vote in favour of not counting palm-oil based biofuels as qualifying for support in the EU’s revamped renewable energy directive also raised the ire of Malaysia. Kuala Lumpur is threatening a WTO dispute should this parliament request – now up for negotiation with member states – go through.

 

FTA negotiations with Malaysia never got off the ground. “We hope to very soon be able to resume the agreement,” said Pedro Velasco Martins, a member of Malmström’s cabinet overseeing ASEAN relations. “The issue of palm oil is an irritant.”

 

FTA negotiations with Indonesia, launched two years ago, are advancing slowly. The EU lost a trade dispute against Jakarta in the WTO in January for mishandling dumping duties against its biodiesel exporters. The EU switched to launching an antisubsidy investigation. Indonesia also isn’t keen on taking on obligations to open up its public procurement markets – a potential deal-breaker for Europe.

 

Time is flying. “Things are moving very fast,” noted Suthad Setboonsarng a board member of the Bank of Thailand. “With the digital era, change in technologies, change in the government also. Do we have time to negotiate this FTA, get it ready, pack it nicely, complete everything, sign, ratify? Or is there any other option whereby we can move forward and try to be more practical and resolve some of the issues that we encounter actually and advance common interests going forward?”

 

“I am worried about where we are,” Martin said. “Some of the countries are losing interest by watching us.”

 

The time has come for the European Union to develop a more convincing strategy vis-a-vis ASEAN that can look beyond the EU’s internal politics and deal with the region on its own merits.

 

ASEAN – population and income growth

 

Population

(mn – 2016)

 

Gross national income

Per capita

Year 2000

(current US$)

Gross national income

Per capita

Year 2016

(current US$)

Brunei Darussalam 0.42 14.700 32.900
Cambodia 15.8 300 1140
Indonesia 261 580 3400
Laos 6.8 280 2150
Malaysia 31 3460 9860
Myanmar 52 170 1190
Philippines 103 1220 3580
Singapore 5.6 23670 51880
Thailand 68.9 1980 5640
Vietnam 92.7 410 2060
Source:

World Bank

TOTAL : 637

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