ASEAN can show the way for Europe on Trade

From Kuala Lumpur, the global trading system currently resembles a high-stakes poker game played by giants – China, the US and the EU. ASEAN as a region feels almost like an outlier, writes Dato’ Lee Yeow Chor.

Dato’ Lee Yeow Chor is Chairman of the Malaysian Palm Oil Council (MPOC).

Perhaps it was inevitable that electing a businessman as the world’s most-powerful leader would lead to business and trade news moving away from the inside pages, and onto the front pages. That comfort of hindsight does not, however, help one to navigate the current trade & investment climate.

From Kuala Lumpur, the global trading system currently resembles a high-stakes poker game played by giants: China’s Belt and Road initiative bestrides two continents; President Trump announces new tariffs, barriers and deals almost daily; and the European Union, beset by domestic populism, hedges its bets with anti-dumping duties aimed at China, WTO threats against the US tariffs, and continued agricultural barriers to keep out lower-cost commodities from the developing world.

ASEAN as a region feels almost like an outlier: one of few regions globally that continues to actively pursue both regional integration and global trade deals. The Regional Comprehensive Economic Partnership (RCEP) is a significant undertaking for which ASEAN governments will be rightly praised. Internal supply-chain integration, and reduction of behind-the-border barriers to trade continue to make progress; and the business and investment climate is good as a result. For pro-trade advocates in the West, ASEAN’s proactivity is perhaps reminiscent of halcyon days gone by.

Nostalgia, though, will not get us anywhere: ASEAN’s business and political leaders now must deal with the world as it is. The region’s global businesses boast sophisticated supply-chains, such as the integrated commodities firms that deliver palm oil from Malaysia to markets around the world. To these businesses, the global trade headwinds can feel like forces outside of their control. It may be surprising for some in Brussels to learn that for many ASEAN businesses, the European Union’s non-tariff measures and complex politics are the immediate cause for concern – even more so than President Trump’s tariffs.

Two ASEAN bilateral trade agreements with the European Union – involving Singapore and Vietnam – remain unimplemented despite the conclusion of negotiations. A wider regional agreement seems to be stuck on hold, and the EU’s negotiations with Indonesia and Malaysia have made little progress. The reason for this is in no small part due to the EU’s proposed trade barriers aimed at palm oil – a critical commodity for Malaysia, Indonesia and Thailand among others.

The EU Parliament’s recent attempt to exclude palm oil-based biofuels from the EU’s Renewable Energy Directive (RED) represents the biggest current trade threat to the ASEAN region. Palm oil products are top-3 exports for both Malaysia and Indonesia. Over 2 million small farmers across the ASEAN region earn their livelihoods from oil palm cultivation, and the wider supply chain employs millions more.

The proposed exclusion targeting only palm oil but not the domestic vegetable oils has, naturally, sparked a furious reaction across ASEAN nations. The three countries primarily affected have announced counter measures against EU products should the palm oil ban be enforced, Indonesia has put on hold all trade talks, and defense and aerospace contracts with EU companies have been cast into questions.

It is sadly illustrative of the paucity of support for global trade today that few in Europe are prepared to defend the EU-ASEAN trade relationship. As palm oil travels to the West (along with rubber, electronics, foodstuffs, and others), European consumer goods, aeroplanes, cars and professional services flow back into ASEAN, supporting Europe’s export-dependent economies.

Malaysia, Singapore and Thailand in particular have significant FDI outflow to the EU economy: the Battersea Power Station redevelopment in London, financed by Malaysian investment, is currently one of Europe’s largest construction projects.

This all serves to illustrate that the mutual benefits of EU-ASEAN trade should not be sacrificed to the causes of specific domestic interest groups: the greater good is served by continued trade and bilateral investment, not politically-motivated blockades.

Trade and exports, though, are not the only concern of ASEAN decision-makers in the current global climate. Politically, there is a growing trend on the part of US and EU governments to impose restrictions on foreign nationals to travel, study and work in their countries, based on the electorally popular platforms of protecting jobs and income level for the domestic population.   The potential changes to immigration or visa rules from a post-Brexit UK, for example, are a significant worry for people from ASEAN who have strong historical links with that country.

Is there a silver-lining to be found? Perhaps it is in the fact that ASEAN as a region is drawing closer together, including presenting a common defense against external threats – the Council of Palm Oil Producing Countries (CPOPC) is a good example. Perhaps also that ASEAN can emerge as a region illustrating the benefits of placing continued bilateral and multilateral trade ahead of protectionist domestic politics.

For those of us in the region with supply chains that stretch across the world, we can only hope that others in the West will take note, and that together we can carve a way towards a future that is more positive and proactive about trade and global connectivities.