The promise of an EU-Asean free trade agreement

Over the past decade, the European Union (EU) has primarily engaged in negotiations on bilateral free trade agreements (FTAs) with member countries of the Association of Southeast Asian Nations (Asean). However, the call for a comprehensive regional FTA between the EU and Asean is gaining momentum.

According to a recent position paper released by the Singaporean-German Chamber of Industry and Commerce (SGC), the need for a regional EU-Asean FTA is more urgent than ever. Launched during the SGC Dialogue with Singapore’s Minister for Foreign Affairs, Dr Vivian Balakrishnan, on Sep 27, 2023, the paper explains that such an FTA would be a game changer for trade relations between the two regions. Regional FTAs offer the benefits of harmonised trade relations, improved flow of goods, diversified supply chains, and increased investment flows between member nations – factors that bilateral FTAs in comparison cannot offer as comprehensively.

The position paper draws on a survey conducted among 169 member companies across the Asean region. A large majority (87 per cent) of the respondents expressed that an EU-Asean FTA would increase their competitiveness in the market. Accordingly, 85 per cent of the surveyed companies stated that an EU-Asean FTA is very important or important for their business.

The EU has already laid the groundwork for a more encompassing agreement through existing bilateral FTAs with Vietnam and Singapore, and there are ongoing talks, scoping and negotiations for bilateral FTAs with Indonesia, Thailand, Malaysia and the Philippines. However, nearly two-thirds of the survey respondents would prefer a regional FTA over bilateral FTAs. Hence, while bilateral FTAs between the EU and Asean countries are useful building blocks that help strengthen ties between the two regions, such agreements should not be seen as substitutes for a region-to-region FTA in the long run.

The survey further highlighted that 86 per cent of respondents face barriers to trade when exporting goods and services to Asean countries. About 85 per cent believe that an FTA would make the region a more appealing sourcing market. An integrated FTA could mitigate these barriers, providing an alternative for businesses looking to diversify their supply chains and customer bases, thus enhancing resilience in an increasingly complex global economic context.

Amid fluctuating geopolitical and economic climates, the SGC suggests that both the EU and Asean could adopt an approach similar to the Indo-Pacific Economic Framework for Prosperity (IPEF) first to establish certain standards or, alternatively, sign a less comprehensive deal initially, comparable in scope to the other Asean + 1 FTAs. Such an approach could yield essential results faster and pave the way for the establishment of more thorough agreements in the future.

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SGC president Shirley Qi said: “An EU-Asean FTA will boost competitiveness for companies in Asean and the EU, including Singapore and Germany, by reducing tariff and non-tariff barriers. For example, the chemical industry is one of the most globalised EU industrial sectors and the second largest contributor to manufacturing output in Singapore. Chemical companies would stand to benefit greatly from an EU-Asean FTA, thus strengthening economic ties and creating substantial growth opportunities in both regional blocs.”