EU-Asean trade: A counterbalance to US and China

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“We want strong partners in Asean. Especially given the rising pressure from China.” This blunt remark is not the handiwork of a US government official. It came from EU Trade Commissioner Cecilia Malmström last Friday. She was attending a business conference in Singapore on the sidelines of consultations with counterparts from all 10 members of the Association of Southeast Asian Nations.

Engaged in a war of words with US President Donald Trump, who wants to slap steep and blanket tariffs on imported steel and aluminium (along with Canada, the European Union is the major exporter of these metals to the United States), the EU bloc is doubling down on free and fair trade.

While protectionism could skyrocket as a consequence of Trump’s policies, the EU looks to “open economies” in the Asia-Pacific region as natural partners. Its free-trade agreement with Canada entered into force provisionally last September. One with Japan could do the same this year.

The EU hopes a free-trade deal with Singapore will come into force in the foreseeable future. The same goes for a commercial pact with Vietnam. Trade negotiations are under way with Indonesia, and are expected to open with Australia and New Zealand later this spring. As well, Malmström confirmed that the EU and Asean would work to revive talks on a region-to-region free-trade deal.

While protectionism could skyrocket as a consequence of Trump’s policies, the EU looks to “open economies” in the Asia-Pacific region as natural partners

Economic relations between the two blocs are very strong. The European grouping is Asean’s largest commercial partner after China, while Asean is the EU’s largest one after the US and the Chinese giant. Brussels’ trade with the Southeast Asian bloc stood at US$281.8 billion in 2017, a 9.1% increase compared to the previous year. The EU is also the top foreign investor in Asean countries. European investments in the region reached $32.7 billion in 2016.

However, the finalization of a free-trade agreement between the EU and Asean is questioned by the Malaysian government, which opposes Brussels’ plan to ban the use of palm oil in biofuels – Malaysia, Indonesia and Thailand, three Asean heavyweights, are the world’s biggest producers of this edible oil.

In their joint statement, the EU trade commissioner and Asean economic ministers emphasized that the two regional blocs would work together on global issues, not least on free and open trade. Asean nations know that Trump’s tariffs could stir a global ripple effect, negatively affecting their trade-oriented economies. In this respect, they could support European initiatives at the World Trade Organization against the US president’s protectionist moves.

With its focus on free trade, the Southeast Asian grouping is a breeding ground for the EU. Four Asean nations (Brunei, Malaysia, Singapore and Vietnam) are part of the Trans-Pacific Partnership (TPP) on free trade and investment, which was sponsored by former US president Barack Obama. After Washington’s withdrawal from it at the start of Trump’s presidency, the TPP project, which also sees the participation of Australia, Canada, Chile, Japan, Mexico, New Zealand and Peru, has been resuscitated, though in a less ambitious form.

Asean is also committed to the Regional Comprehensive Economic Partnership (RCEP). This prospective trade agreement is backed by China, while India, South Korea and three TPP partners (Japan, Australia and New Zealand) are the other key participants involved.

The European bloc is betting big on Southeast Asia. Asean’s most dynamic countries can benefit from Brussels’ generalised system of preferences, which ensures lower tariffs on two-thirds of products exported to the EU. What’s more, the least developed Asean nations are helped by the Union’s “Everything But Arms” scheme, which grants free access to EU countries for all their goods except weapons and ammunitions.

In the EU’s calculus, trade integration with Asean could help make Southeast Asian countries stronger and a solid counterbalance to China’s rise, viewed by some European chanceries as a potential threat to the Western-backed liberal international order.

In the EU’s calculus, trade integration with Asean could help make Southeast Asian countries stronger and a solid counterbalance to China’s rise

The EU believes that Asean’s development could prop up security in Southeast Asia, fostering a more balanced geopolitical environment in the region. But this will be impossible without the active cooperation of the US, which will become a chimera if Trump continues to alienate Washington’s allies and partners with his protectionist agenda.

Alliances and partnerships cannot be based only on military ties. Obama had this in mind when he endorsed the original TPP initiative. The economic leg of his “pivot to Asia,” it was aimed at boosting America’s trade connections with Asia-Pacific countries and, accordingly, countering China’s advances. Now the EU will try to pick up his torch. Without the heft and strength of a global superpower, however.

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