SPEECH/06/309
Peter Mandelson
EU Trade Commissioner The Future of EU-ASEAN trade relations
EU-Malaysia Chamber of Commerce and Industry Kuala Lumpur, 17 May 2006 at 12h30
I am here in Kuala Lumpur after two days with my ASEAN counterparts at our retreat in Manila. My first trip as the EU Trade Commissioner to this region in April 2005 was something of an eye-opener – the dynamism, the pace of change, and the rate of development all made a huge impression on me.
I was also struck by the huge remaining potential in the region and a recognition that its future lies not just in the enterprise of its people but in the progressive opening of its markets and the expanding of its reach into every part of the global economy. Not only the big traditional markets of the US and Japan, but China, of course, and the European Union.
My feeling then, and my feeling now, is that this region is asking Europe to engage. I intend to ensure that we do, both multilaterally and bilaterally.
The EU-ASEAN Vision Group, which reported to Ministers on Tuesday has opened the door to serious thinking about our future relationship. I will say more about that in a moment.
The rise of Asia...
I’m on the record as saying that the economic story of the twenty-first century will be the rise and rise of Asia. All across Asia, economies that are engaging with the global market are producing the kind of growth rates that most of Europe can only dream about. China’s booming export capacity and expanding market dominate the European imagination for now, but the Chinese experience is being followed across ASEAN. And nowhere more than here in Malaysia.
Over the last two and a half decades, Malaysia has been a showcase example of rapid industrialization in Asia. During that period Malaysia has moved rapidly from exports of commodities to a highly successful export-oriented economy based on manufacturing.
Structural and economic reform in Malaysia has paid off. You rebounded quickly after the 1997/98 financial crisis – quicker than almost anyone. Since then Malaysia has recorded strong and stable economic growth of more than 7% per year and has been commended by the IMF for its economic management.
Of course, rapid economic and social change comes at a price, bringing big costs of adjustment. Opening to the global market requires a depth of confidence in the ability to compete in a global economy. Malaysia as well as other ASEAN governments deserve credit for holding their nerve against the backdrop of their financial crisis and the dramatic rise of China.
...and Europe’s response
I believe Europe for its part has not adapted fast enough to this change in Asia and the challenge it offers. In many respects, Europe still has a twentieth century policy for a twenty-first century Asia. Where Europe does engage with Asia it too often focuses on China, overlooking opportunities elsewhere in Asia. One of my first commitments when appointed in 2004 as Trade Commissioner was to start to change that.
I do not see Asia, with its pace of development and its natural low cost advantages in labour-intensive industries, as a threat to Europe. I don’t deny that competitive Asian pressure is bearing down hard on Europe’s manufacturers.
But Europe – or the United States for that matter – have no place resisting or trying to turn back the legitimate exercise of comparative advantage by Asia’ s developing countries, especially not when that advantage is lifting tens of millions out of poverty.
Europe has its own comparative advantages. As the world’s biggest exporter and investor, Europe needs to have more confidence in its potential and its ability to manage change, innovate and stay competitive. I see the growing competitive challenge of Asia and its huge and growing middle class market as a means of sustaining Europe’s strength in high quality, high value manufactured goods and services, not reversing it.
There are plenty in Europe who instinctively understand this. But Europe must not let its engagement with Asia stop at the South China Sea. ASEAN offers a huge market of more than 530 million people whose living standards will rise in the coming years, and who are quickly developing a taste for the kind of quality and design goods that represent Europe’s own comparative advantage.
Rapid development here also means scope for capital intensive infrastructure projects in countries such as Malaysia or other parts of ASEAN and these projects offer major opportunities for European companies. There are, I believe, already more than 1500 European companies operating in Malaysia.
And this is not a one way street. Europe is a huge and growing market for the textiles and shoes and fisheries and electronics and light manufactures and semi-conductors that flow out of Asia’s export market. We are also a huge market for the flows of foreign direct investment from ASEAN that will grow as this region increases further in prosperity.
This provides the imperative we need to ensure that the framework for this relationship reflects its dynamism and its potential. For me, this week’s EU-ASEAN Vision Group report is part of a wider attempt to correct a deficit – a policy gap - in the EU of forward looking, practical thinking on trade policy towards Asia.
Another part of this will be two major strategy papers presented to European Member States in the last quarter of this year on the EU’s external competitiveness and its economic relations with China.
But if we can leave China to one side for the moment, I would like to say a little about the Vision Group report and building closer trade relations with ASEAN.
EU-ASEAN cooperation at the multilateral level
One obvious - and indispensable - forum of closer cooperation is the multilateral WTO system and the current Doha Round. This remains my top priority for very good reasons. I am a convinced multilateralist, and I believe in international cooperation and rule making to tackle the challenges of our time, whether in globalisation and international trade or climate change. No number of country to country bilateral deals can address these issues or spread trade benefits as widely and evenly as agreement at the WTO.
We are at a crucial moment in the multilateral negotiations that requires our full focus and attention. Probably eighty percent of my discussions with Ministers this week have been about Doha.
Since the main parameters for a deal are on the table, I remain convinced that if the political will is there we can achieve a balanced result before the US Trade Promotion Authority of the US expires next year.
However, for this to happen everyone has to show further flexibility and to take some risks. We need to remain ambitious to develop the opportunities for trade among WTO members, including South-South-trade between developing countries.
ASEAN partners with their growing industrial sectors or their agricultural export interests will benefit a lot from further market opening, not only in relation to the developed world but with each other. The stripping out of trade distorting agricultural subsidies and the elimination of all forms of export subsidy as the result of a successful Doha Round would greatly increase the export opportunities for agricultural products from ASEAN countries. But first, we need to conclude the negotiations. If we fail to do so we lose everything. That is a very large opportunity wasted.
Europe will continue to negotiate keenly and in good faith; others should do the same. I called upon my ASEAN counterparts to show leadership in the G20 and to make a serious move on industrial tariffs that affects real trade on the ground and not just national policy space. I hope this group of countries will show boldness to match the EU’s offer in agriculture and what I hope the US will also offer in agriculture.
We all agreed in Manila that either we find a feasible, balanced grand bargain to meet our respective economic needs, mixing ambition with realism, or we face the consequences of putting off an agreement for some time to come. The world, and developing countries in particular, cannot afford such an outcome.
Bringing EU and ASEAN closer as regions: the Vision Group
Beyond Doha we need to start thinking about how we can complement the WTO system through deeper bilateral trade relations – not as an alternative to multilateral openness but as a way of adding to what we are able to achieve at the WTO level.
For some time now, ASEAN countries have been seeking to include the EU in their ever-expanding network of preferential trading arrangements. At Halong Bay last year I proposed an EU-ASEAN Vision Group to explore ways of deepening our trade relationship, including investigating the feasibility, scope and modalities for a potential Free Trade Agreement.
The Vision Group report is striking for its breadth and scope and for the constructive and positive way it has been produced. Its pragmatism is balanced with imagination and it reflects our huge common experience of trade liberalisation. I believe that being able to establish such a sound foundation at an early stage augurs well for a future negotiation.
The Group’s report offers a strong case for closer links in trade and wider economic cooperation. It is clear that there are many possibilities for boosting trade in goods and services and helping attract new EU investment to ASEAN, as well as encouraging ASEAN’s increasing investment in the EU.
Free trade is almost never a zero sum game. Obviously there are those in ASEAN who could be expected to benefit more than others – most notably Malaysia - but all stand to gain something from such a future agreement.
The Vision Group report also suggests a range of ways to strengthen our trading relations: improving protection of intellectual property rights to help attract investment, creating a fairer, level playing field for businesses through cooperation on competition policy, simplifying customs procedures and aligning some of our regulatory approaches to make it easier for businesses to trade. We can also free up new trade by taking a hard look at some of the non-tariff barriers behind our borders, in the ways we make and impose standards and regulations.
One of the report’s most important conclusions is that while there are benefits from eliminating tariffs for trade in agriculture and industrial products, the area which is likely to generate nearly three quarters of the welfare gains is services. I know that the subject of services liberalisation is sensitive for some in ASEAN, including some in Malaysia. But the Vision Group results reinforce for me once again, as I have constantly noted in the Doha negotiations, that the international services economy contains a huge reservoir of potential investment and employment to unlock.
And because services trade strengthens the banking, telecommunications and transport sectors that are at the heart of any economy, it is unequivocally a major source of development.
With development in mind it is important also to note that the Vision Group also proposes a twin track process that would match trade liberalisation with investment in capacity building, particularly for those ASEAN countries that have LDC status.
ASEAN encompasses many points on the development spectrum: from Cambodia and Laos, to Malaysia and Singapore. So any possible FTA would be more than just a classical Free Trade Agreement. It would have to weigh and provide for those differences.
This means providing assistance not only during the negotiation of any agreement, but also to support its implementation. The whole exercise will have to be one of partnership.
So we now have a strong basis for a future programme. With my ASEAN colleagues and the EU Member States the two regions are now in a firm position to map out next steps – which we have agreed to do swiftly during the remainder of this year.
A region to region agreement is complex and we need to get it right. Substance matters as much as speed, but I believe the case for an FTA is a strong one and I will put it to the European Member States.
ENDS
