Digital trade co-operation may be building block for elusive EU-Asean free-trade pact

A KEY official of a business council has said that the European Union (EU) and Asean may reveal some big developments to cooperate in the digital economy by the end of the third quarter, on the back of progress in talks by the joint working group of the two blocs.

Chris Humphrey, executive director of the EU-Asean Business Council (EU-ABC), told The Business Times: “If that happens, we will see much more flourishing EU-Asean trade and investment relations beyond the bilateral free-trade agreements.”

He was referring to the ongoing talks under the EU-Asean’s joint working group on trade and investment on sectoral cooperation; apart from the digital economy, the talks also cover potential cooperation in sustainable trade and the resilience of supply chains.

Based on the discussions, he is optimistic that there could be a major announcement on region-to-region cooperation at the EU-Asean Economic ministers meeting in September. “Those discussions have started ... I would hope that some meat to pour into those bones can be announced,” he said. 

Just last month, at a Singapore-German Chamber of Industry and Commerce event, Singapore’s Deputy Prime Minister Heng Swee Keat had remarked that a EU-Asean digital economy pact would boost European businesses’ confidence about operating in this region.

Humphrey expects the ongoing negotiations on the EU-Singapore Digital Trade Agreement, which began in July last year, to be finalised by end-2024.

He said: “An EU-Asean free-trade agreement (FTA) is many years away, but doing something in the digital sphere may be easier. It is just a question of how broadly or how deeply the topics can be covered.”

Despite talks on a region-to-region FTA being in place as early as 2007, negotiations for such a mega pact have made little progress.

Bilateral FTAs, on the other hand, continue to flourish. The EU-Singapore FTA and EU-Vietnam FTA entered into force in 2019 and 2020, respectively; talks with Indonesia, the Philippines and Thailand are in progress.

Since the FTA took effect, Vietnam has recorded a sharp rise in trade volumes with the EU, he noted. This surge in trade is a key reason Asean countries are keen to ink their own FTAs with Europe.

While China remains the largest trading partner with Asean, followed by the US and EU, Humphrey noted that Asean has a substantial trade surplus with the EU, amounting to US$57.6 billion as at 2022. This means Asean is a net exporter of goods to Europe. In contrast, Asean recorded a US$140.6 billion trade deficit with China in 2022, pointing to it being a net importer of Chinese goods.

The EU is also a major source of foreign direct investment (FDI) for Asean. FDI inflows from the EU hit a record high of US$24 billion in 2022, ranking third after the US and intra-Asean investment.

In the 2023 edition of the council’s EU-Asean Business Sentiment Survey, 63 per cent of the 599 companies polled said they viewed Asean as the region with the best economic opportunity over the next five years. Humphrey expects such confidence levels to hold up.

Speaking on the potential impact of the global right-wing movement on the upcoming elections for the European Parliament in June, Humphrey said a shift to the right is unlikely to be extreme enough to quell the EU’s appetite for trade with other regions.

If anything, the slight shift to the right could “mitigate” some concerns regarding environmental and sustainability issues – these being common sticking points in FTA talks with Indonesia and Malaysia, he said.

Negotiations for an EU-Malaysia FTA began in 2010, but were suspended two years later because of the challenges in reconciling the impact of the EU’s deforestation regulations and the ban on palm oil imports from Malaysia. Malaysia is the world’s second-largest producer of palm oil after Indonesia.

Humphrey noted that sluggish economic growth in the EU is pushing companies to seek opportunities elsewhere – and Asean, with its robust fundamentals, has emerged as an attractive option: it has the world’s third-largest workforce, a young, tech-savvy population, and an ambition to climb the production value chain.

The improved ties between the two blocs is also buoying this sentiment. He stressed: “We are now in the best position that I can remember in 10 years, in terms of trade policy and interaction of agreements with South-east Asia. I do not see that changing.”

The EU-ABC was set up in 2014 to advocate for European businesses in Asean by enhancing their investment and trade conditions, and influencing policy-making in both the region and the EU.

For instance, in 2022, the council responded to feedback from its corporate members and successfully lobbied the Malaysian Health Minister to exempt infant formula milk from an expanded sugar tax targeting premixed beverages.

Membership in the business council has grown from 14 to 70 over the years, consisting almost exclusively of European-grown transnational companies. These include household names such as aircraft manufacturer Airbus, Danish logistics giant Maersk and German pharmaceutical company Bayer.

In celebration of its 10th anniversary, the council is organising its first business mission to Singapore. On Tuesday (Apr 23), representatives of 22 European companies will have meetings with several Singapore ministries and government agencies.

“Singapore is an easy market for companies to operate in. The council has not conducted business missions here because there was never a need to raise issues with the ministries,” said Humphrey. He added that the council organised seven such trips to other Asean member states throughout 2023.