A divided agenda
Southeast Asia Globe | 03 May 2010
A divided agenda
Christian Cotroneo
The European Union adopts a piecemeal approach to trading with Southeast Asia.
While Asean attempts to tighten economic bonds between its member nations, the European Union still sees the 10-nation bloc as a dish best served a la carte.
In 2008, the EU was in the thick of negotiations with Asean as a whole, when it suddenly pulled out – the European delegation was unable to bridge dramatic development gaps between countries, as well as conflicting political agendas and an overall lack of cohesion.
“We halted the process because it was not developing in a satisfactory manner,” says Jean-Jacques Bouflet, who heads trade and economic affairs for the EU in Southeast Asia. “There is a lot of diversity in Asean between Singapore and Laos, which is one of the poorest countries in Asia.
“So they have different levels of ambitions.”
Too often, Bouflet notes, negotiations with Asean came down to trying to meet the demands of the bloc’s “smallest common denominator”.
“That is the most conservative and least ambitious position,” he recalls. “It was a disappointment for us. Therefore, we decided to switch – while not closing the door on general agreement – which will come later, when the situation will have changed. In the meantime, we have decided to open bilateral negotiations with a select number of countries.
“It’s less complicated.”
Indeed, since adopting a piecemeal approach to the region, the EU has seen marked progress in trade talks, with trade commissioner Karel de Gucht making a whirlwind tour of the region as recently as March. His trip culminated in a free trade agreement with Singapore and an enthusiastic Vietnam next in line.
The apparent scramble for regional powers to establish free trade with the likes of China, Europe and the US, however leave prominent economists such as Dr Somkiat Tangkitvanich at the Thailand Development Research Institute concerned. He has warned that bilateral trade agreements with powerful foreign economies can undermine Asean’s drive to establish free trade among its own member nations.
The temptation to talk trade with Europe, however, is strong. For one thing, everyone else is doing it. India and the EU are currently in free trade talks, while the US and China have already established pacts across the region. Europe seems the natural choice for many local powers. More than 13% of Southeast Asia’s exports are bound for Europe – primarily textiles, chemicals, machinery and transport equipment – making it the region’s second largest trade market after the United States.
Cementing these agreements – despite the eagerness of both parties – will take time. Although talks with Singapore went off with nary a hitch, there’s more to a free trade agreement than paperwork. The practical details of any deal involve months and even years of determining which goods a particular country wants to exempt from free trade.
“We are optimistic that we can go expeditiously, as we’ve been able to do with [South] Korea,” Bouflet notes of the Singapore deal. “It could take a year, it could take two years . . . the objective is free trade.”
When it comes to ironing out a free trade accord, the devil, invariably, is in the details.
“The only thing you negotiate, at least for goods, is the exemptions,” Bouflet says. “Countries, for various reasons, have some sensitive sectors which they would like to continue to protect.”
These sectors include geographical indications, commonly called GIs, identifying a signature product from a certain region. In Southeast Asia, a flurry of GIs have emerged in recent years with Thailand leading the pack. The Kingdom has filed 23 GIs with its copyright department, including brocade silk, a prestige product from Lamphun province associated with Thai royalty.
As smooth as that silk may be, it also represents a certain thorn for potential trade partners attempting to include as many products as possible under a tariff-free agreement. Thailand will have to overcome even more serious hurdles, though, before the EU can begin trade talks in earnest.
Thailand’s constitution makes any trade agreement a lengthy process, involving extensive studies on whether its domestic industry can stand the challenges posed by tariff-free foreign products.
“What I can tell you is that we have explored with Thailand the possibility of having a bilateral agreement with us,” Bouflet says. “Thailand was interested, and I think it is still interested, but clearly the political situation is a difficulty.”
And there’s the real rub. Thailand’s political stability is not only seen as a red flag for foreign investors, but a no-go for foreign powers. Bouflet doesn’t see talks going forward “if – and that’s a big if – the political conditions are not changed drastically.”
That’s a marked contrast with the EU’s recent success in Singapore, where Bouflet sees full implementation of an accord with the next few years.
Some countries, such as Cambodia and Myanmar, have never been on the EU’s radar. Cambodia, one of Asean’s poorest members, already benefits from its status as a ‘Least Developed Nation’.
The Kingdom receives generous subsidies from the developed world. From a trade partner’s standpoint, there is little to be gained at present from free trade with a country that produces so little for foreign markets. Instead, Bouflet cites the EBA, or Everything But Arms initiative, an agreement that allows Least Developed Nations to export products duty and quota free to Europe. The obvious exception, naturally, is armaments.
“Cambodia already has free access to us,” Bouflet says. “Free trade agreement would imply the necessity for them to give us the equivalent.
“The day will come when they will be able to stand for a free trade agreement with us, but today – I don’t think it’s realistic to expect their economy to have the maturity necessary for standing in a free trade agreement.”
Myanmar, also known as Burma, is a different story. While the country is also struggling with development issues, its rich bounty of oil and gas, as well as its mining reserves, offers a tempting platter for energy-starved nations. China and India have already embraced deals with the country, but the EU remains an ethical observer.
“Myanmar has a military regime which is regarded as undemocratic by the European Union,” Bouflet says. “It is out of the question that we could negotiate a free trade agreement as long as the military regime is what it is now.”
Surging to the front of the line to hold talks with the EU is Vietnam – Southeast Asia’s second most populous country, where a booming economy is energetically courting foreign powers – while hoping to hedge against Chinese economic influence.
During his Singapore negotiations, Commissioner De Gucht made a stopover in Vietnam, where he received a most enthusiastic reception from Prime Minister Nguyen Tan Dung.
“The prime minister of Vietnam clearly indicated his willingness to start bilateral negotiations with us.”
Again, however, a practical deal with the communist government won’t happen overnight.
“First, we need to make a proposal and get approval from our member states. It will take a few months. But I don’t foresee any particular difficulties. Let us hope that we will be able to open bilateral negotiations with Vietnam for the summer.
