Print Friendly, PDF & Email

In May 2015, the European Union (EU) High Representative for Foreign Affairs and Security Policy and the European Commission adopted a Joint Communication (JC) on ‘The EU and ASEAN: A partnership with a strategic purpose’.

This puts forward concrete ideas for taking relations between the Association of Southeast Asian Nations (ASEAN) and the EU to the next level by providing a more coherent framework for sectoral cooperation and by ensuring sharper political focus.

The JC highlights the opportunities available for the EU and ASEAN member-states, in particular Malaysia, to improve their trading relationship, as well as their positions in the global economy. This article addresses the JC and its effects on the sustainable production of key commodities through four questions.

  1. What are the key sections of the JC that are relevant to Malaysia and its palm oil industry?

The JC is organised into five sections, some with sub-sections. The main sections are:

  1. Introduction
  2. Connectivity: Capturing the essence of regional integration
  3. A greener partnership for a sustainable future
  4. Cooperation on political and security issues
  5. Moving towards a partnership with a strategic purpose

For Malaysia and its palm oil industry, the most relevant sections are sub-section 2.1 (Boosting trade, investment and business) and Section 3.

Sub-section 2.1 emphasises the intensifying trade and investment flows between ASEAN and the EU over the past decade. The JC points out that ASEAN is the EU’s third-largest trade partner (after the US and China); and that the EU is ASEAN’s second-largest trade partner (after China) with bilateral trade in goods and services amounting to EUR 238 billion in 2013. By the end of 2013, ASEAN foreign direct investment in the EU had reached EUR 57 billion.

The JC recognises that ASEAN member-states and the EU have undertaken negotiations on free trade agreements (FTA). In 2007, ASEAN and the EU launched negotiations for a regional FTA. However, in May 2009, after eight rounds of negotiations, the two partners agreed to put the discussions on hold due to the complexity and sensitivity of regional (‘block-to-block’) trade negotiations.

Instead, the EU decided to pursue the conclusion of bilateral FTAs, with a view to using such agreements as ‘stepping stones’ for the regional FTA. Thus far, the EU has concluded FTAs with Singapore and Vietnam; is conducting negotiations with Malaysia and Thailand, although these have been de facto suspended; and recently launched negotiations with the Philippines.

Section 3 on a greener partnership focuses on bilateral efforts to protect the biological diversity found in ASEAN, which provides natural habits for over 20% of the world’s known plant and animal species.

The JC notes that, despite their significant differences in terms of economic development and the nature of their political systems, ASEAN and the EU share a strong commitment to, inter alia, regional integration and sustainable development. However, the JC notes that ASEAN faces a number of challenges derived from increased pressure on such resources.

The JC highlights a number of schemes adopted by the EU to promote sustainability in the ASEAN region, including the Forest Law Enforcement Governance and Trade Action Plan, aimed at improving forest governance and promoting trade in sustainably and legally harvested timber products; and efforts to fight illegal, unreported and unregulated fishing.

In addition, the JC puts forward specific initiatives to be jointly implemented by the EU and ASEAN in the area of sustainability, such as strengthening the collaboration on climate change; providing enhanced support to environment protection; and promoting sustainable production of key commodities, such as palm oil, rubber and coffee.

  1. How can Malaysia and its palm oil industry boost trade, investment and business through the enhanced strategic partnership between ASEAN and the EU?

With respect to the EU-Malaysia FTA, negotiations were launched in October 2010. Following the seventh round of negotiations in April 2012, the two sides conducted meetings between technical working groups in September 2012.

Since those meetings, no additional negotiation round has occurred. Official documents from the European Commission’s Directorate-General for Trade imply that such de facto suspension is due to difficulty in agreeing on the level of ambition of the FTA.

Regardless of the actual reasons for the lack of progress, both sides must act to resume talks as soon as possible. The EU has concluded agreements with Singapore and Vietnam, as well as launched negotiations with the Philippines. It appears that negotiations between the EU and Indonesia are set to resume soon.

So, a critical mass of ASEAN member-states (most of which can be considered Malaysia’s competitors in the EU with respect to several products and commodities) are in the process of acquiring a comparative advantage in market access.

Importantly, negotiations on the Trans-Pacific Partnership Agreement (TPPA), to which Malaysia is a party, have concluded. This is relevant for two reasons: once operational, the 12-member trade bloc is estimated to displace up to 50% of EU trade with the Asia-Pacific; and it shows Malaysia’s willingness to take part in a modern, highly ambitious trade agreement.

To offset the effect, the EU must pursue additional favourable trade relationships – just as with the ASEAN region, and as it recently began with Australia and New Zealand. All interested Malaysian business stakeholders should advocate the urgent relaunch of FTA talks with the EU.

  1. Are there other initiatives that may have an effect on the relationship between the EU and Malaysia?

An ongoing plurilateral agreement of relevance – negotiations for which are expected to conclude in 2016 – is the Environmental Goods Agreement (EGA). It aims at promoting green growth and sustainable development by liberalising trade in environmental goods.

Negotiations are being conducted by 17 WTO members – Australia, Canada, China, Chinese Taipei, Costa Rica, the EU, Hong Kong China, Iceland, Israel, Japan, New Zealand, Norway, Republic of Korea, Singapore, Switzerland, Turkey and the US.

Although the EGA will apply on a ‘most favoured nation’ basis (meaning that all WTO members will benefit from the agreed tariff reductions), participating in the negotiating process allows members to drive the liberalisation process, including deciding which products will be covered by EGA’s advantageous provisions.

The list of proposed goods to be covered by the EGA is not publicly available, but reports suggest that it focuses primarily on high-tech industrial products such as devices for air pollution control, waste management, cleaner renewable energy and noise abatement.

There are questions as to whether the proposed coverage includes traditional goods that are ‘green’ by definition, such as commodities (palm oil, soybean, sugarcane and rapeseed) that are available in nature and which can be used, inter alia, for renewable energy production and for a multitude of other sustainable applications in industry and trade.

Nonetheless, despite the significance of natural resources such as palm oil to Malaysia’s economy, the Malaysian government has so far chosen not to join the negotiations. This will limit Malaysia’s ability to play a direct role in the definition of the EGA’s product coverage or commitment levels at the plurilateral and multilateral level.

For this reason, the EU-Malaysia FTA must be seen as an opportunity for sustainable palm oil to achieve this degree of tariff preference and trade facilitation at least at the bilateral level, and to establish sustainable palm oil as a ‘green product’ within the EU. It is up to Malaysia to propose this and to negotiate accordingly.

  1. What is the general ‘take-away’ from the JC on an enhanced strategic partnership between ASEAN and the EU?

At the bilateral level, the JC appears to pave the way for ASEAN member-states to secure, in the context of their bilateral FTAs with the EU, specific schemes concerning sustainable production of key commodities.

It is for this reason that it is imperative that the EU and Malaysia resume negotiations on an ambitious FTA. It could include dedicated chapters on key commodities, addressing, in relevant part, trade obstacles hindering access of such goods to the EU market.

Given Malaysia’s decision not to take part in the EGA, these chapters should provide the opportunity for product-specific certification schemes on the sustainable production of commodities (like palm oil and rubber), ideally centred on regionally-agreed criteria or on schemes that are already in place at the national level.

Such efforts should take place as soon as possible. The TPPA stands to have an enormous impact on trade flows throughout the world, and the EU is positioning itself to counter any negative effect that such agreement may have on its trade flows.

With the launch of the respective FTA negotiations between the EU and Australia, New Zealand, the Philippines and soon Indonesia, Malaysia cannot afford to lag behind. There are many issues and market access conditions that need to be tackled within the FTA with the EU, and this is an opportunity that should not be missed.

Fratini Vergano
European Lawyers

Please share and spread