Examining the EU - ASEAN Free Trade Agreement (FTA)

30 March 2009
Article

This is an introduction to A partnership among equals?
Examining the EU - ASEAN Free Trade Agreement (FTA)

In May 2007, the European Union launched its New Partnership for the 21st Century with Asia. The initiative consisted of simultaneous negotiations for free trade agreements with India, Korea and ASEAN.

With this move, the EU, which leads the world in number of signed FTAs and EPAs, now effectively covers the entire globe and in a better position to compete against fellow economic superpowers- the US, Japan, and China.

The Association of Southeast Asian Nations (ASEAN) is likewise already entangled in a web of bilateral and regional free trade agreements. Individual member countries of ASEAN are involved in a total of 128 FTAs in varying stages of development. ASEAN as a bloc is involved in six other FTAs with Australia and New Zealand, China, the EU, India, Japan, and South Korea. An East Asia Free Trade Agreement, covering the Plus Three countries (China, Japan, Korea) and the other East Asian Summit countries (India, Australia and New Zealand), has also been proposed.[1] According to another estimate, the larger East Asian region has signed a total of around 70 bilateral trade and investment deals.[2]

The proposed EU-ASEAN FTA aims for reciprocal and progressive liberalization of substantially all goods and services, and the inclusion of the so-called Singapore issues – of investment, competition policy, government/ public procurement, and trade facilitation- already rejected by developing countries in the WTO Doha Round negotiations. The proposed agreement would also target regulatory frameworks and establish standards and conformity assessments, which aim to create a more conducive environment for business. The negotiations are targeted to be completed in two to three years time.

Trade and Regional Integration Strategies

The negotiations for a regional FTA represent a key component of both the global and regional economic integration strategies of both the EU and ASEAN. For the EU, its ambition to become the most globally competitive economy is outlined in the Global Europe Strategy which is the Union’s over-arching framework for trade and regional integration. The strategy involves dismantling trade barriers with particular emphasis on non-tariff barriers, promotion of open trading regimes in and outside EU, development of the internal market-continuing the process of EU integration, establishing global rules and standards, protection of intellectual property rights (IPR), the conclusion of the Doha Round, and bilateral and regional FTAs particularly in the Asian region, where EU’s presence is not that strong compared to the United States, Japan and China .

Over the last decade, ASEAN has also endeavored to consolidate an agenda for regional integration. ASEAN Vision 2020 charts the path for an “outward and forward looking ASEAN, living in peace, stability and prosperity, bonded together in partnership in dynamic development and in a community of caring societies”. A series of action plans and programmes- the Hanoi Plan of Action (1999-2004) and the Vientiane Action Programme (VAP) (2004-2010) - have been developed to operationalize the vision. The VAP outlines the goals and strategies towards the establishment of comprehensive ASEAN Community founded on the three pillars of political and security cooperation, economic integration and socio-cultural cooperation.

ASEAN Charter and Economic Community Blueprint

Two major developments took place in the ASEAN Summit in Singapore in November 2007. The first was the signing of the ASEAN Charter, which confers legal personality to ASEAN and institutes mechanisms for decision-making and closer coordination among Member states. With regard to trade negotiations however, the Charter only went so far as providing the mandate to the ASEAN Coordinating Council (comprised of Foreign Ministers) to prescribe the procedure for ASEAN to conclude agreements with countries or sub-regional, regional and international organizations and institutions.

The second important development was the adoption of ASEAN Economic Community Blueprint (AEC), which will establish ASEAN as a single market and production base guaranteeing free flow of goods and services, investments and capital, as well as greater mobility of skilled labor.

The AEC blueprint also aims to strengthen ASEAN’s economic competitiveness thru the adoption and strengthening of policies on competition, consumer protection, intellectual property rights, and strengthening cooperation in such areas as transportation, infrastructure, energy and mining as well as ensure equitable economic development thru the development of small and medium sized enterprises (SME) and the Initiative for ASEAN Integration (IAI), which is aimed at accelerating economic development of the less developed ASEAN Member countries and narrowing the development gap in the region.

The fourth component of the blueprint is defining and fine-tuning approaches and strategies towards ASEAN’s integration into the global economy. The blueprint aims to establish a system for enhanced coordination, and possibly arriving at common approaches and/or positions in ASEAN’s external economic relations and in regional and multilateral fora.

Shifting approach from regional to bilateral

A distinct feature of the negotiations between the EU and ASEAN is the region to region approach to the negotiations. In an attempt to fast track the EU-ASEAN FTA negotiations, four “exchange of views” meetings were held last year. These talks however failed to generate the needed momentum prompting the increasingly frustrated EU to announce a possible shift to a bilateral approach to the negotiations. The EU has been known in the past to employ such tactics in order to achieve its goals in trade negotiations. Just last year, it threw out the prospects of a regional deal with the Community of Andean Nations (CAN) opting instead to move ahead with bilateral deals with Peru and Colombia, sidestepping the opposition of Bolivia and Ecuador.

Whether or not the EU will make good its threat to go bilateral with ASEAN is something that should be closely monitored especially in the wake of ASEAN’s own assertions of regional unity with the historic adoption of the ASEAN Charter.

EU-ASEAN Partnership

EU and ASEAN are determined to pursue their respective goals of greater regional economic development. Both see the expansion of markets for trade in goods and services and the easing of restrictions on investments as central strategies towards the attainment of their goals. There is a consensus among EU and ASEAN states to anchor regional integration on the free market corporate-driven paradigm with the pursuit of free trade and economic partnerships agreement as key element of the strategy.

Behind the numbers

As the country researches in this publication show, at least based on the economic numbers, the relationship between these two regions is significant. The EU is an important dialogue partner of ASEAN. The EU is ASEAN’s third largest trading partner with over-all trade valued at around 100 billion euros. The EU is the major source of investment in ASEAN representing 25 % of total investments in the region valued at around US $13 billion. Economic relations between the two regions are also complemented by a host of cooperation agreements that are anchored on EU Aid to the region.

The aggregate economic figures however mask another reality. EU and ASEAN are two economically diverse regions facing a range of different economic, social, cultural and environmental challenges. In Southeast Asia alone, the asymmetry is already stark. The richest country in the region for instance which is Singapore has a per capita GDP of US $25,207 compared to Myanmar (Burma) with a per capita GDP of only $166 (only 0.6 percent of Singapore’s per capita GDP).

Singapore likewise corners the FDI flows in the region. Of the $25 billion FDI that flowed into ASEAN,$16 Billion or 64 % of FDIs went to Singapore. Malaysia is a far second cornering $4 billion or 16 %, followed by Vietnam with $1.6 billon or 6%. The Philippines is in 6th place with FDI amounting to $469 million or a mere 1.6 % of FDIs in the region.

In terms of merchandize exports, Singapore tops the list again with exports in 2004 amounting to $197 billion and Lao-PDR on the tail end with merchandize exports of only $363 million or a mere 0.1 % of the level of Singapore’s exports. Philippine exports amounting to $38 billion or 19 % of Singapore’s export level.

In terms of migrants, the region has both migrant sending (like Indonesia and the Philippines) and migrant receiving (Thailand, Malaysia and Singapore) countries. Irregular migrants number 2.6M, 82% of whom are Indonesians and Filipinos. Malaysia and Thailand receive 83% of these migrants.

What will be the effect of the FTA on economic development in Southeast Asia? How will the proposed agreement affect the asymmetries within the region? Will it help address the development gaps that exist within the region or will it only exacerbate the disparities and widen the development divide?

The EU-ASEAN FTA Campaign initiated in 2007 a research project that would examine the nature and scope of EU-ASEAN Relations. The first phase of that project was the conduct of country-level studies. We have so far been able to complete studies in Indonesia, Philippines and Thailand and we expect reports from Vietnam and Malaysia very soon.

The country level reports are intended to provide campaigners with background information on the extent of EU relations with particular ASEAN member countries. The reports outline the key areas of interests for both EU and ASEAN and therefore would correspond to key areas in the FTA negotiations. We hope that through solid research work and critical analysis anchored on strong participation and inputs from various sectors and communities that the campaign could contribute towards an informed public debate on the EU-ASEAN FTA across Southeast Asia and Europe.

We would like to thank the following donors for their generous contribution to the work of the EU- ASEAN FTA campaign: ICCO and Trocaire for their support to the April Week on EU FTAs in Europe, the research work and to this publication, Our World is not For Sale Network and ISVARA Foundation for supporting the national and regional sectoral caucuses, Irish aid for their support to the Vietnam Roundtable, the Vietnamese participation in the regional campaign and the research and upcoming publication on Vietnam, and finally Christian Aid and 11.11.11 for their support to the over-all regional campaign .

Notes

[1] Jenina Joy Chavez, Building Community: The Search for Alternative Regionalism in Southeast Asia from Revisiting Southeast Asian Regionalism. Focus on the Global South. December 2006

[2] Richard Baldwin. Managing the Noodle Bowl: The Fragility of East Asian Regionalism. ADB Working paper series on regional economic integration no. 7. Asian Development Bank. February 2008