Europe facing potential disconnection in Southeast Asia
In the major cities of Southeast Asia, the European Union is often considered morally pretentious. This can be extremely harmful to European interests. To avoid putting too much pressure on trade negotiations with non-trade requirements, we need to act.
The diversification of supply chains is crucial for the EU's attempt to lessen its economic dependence on China. This is especially vital for Germany, as the German economy is more interconnected with China than any other nation in Europe. The crucial question is: Which nations and regions should German and European companies shift towards in order to become less reliant on China?
Southeast Asia is often the focus. After all, the rising economies of the ASEAN region, with their sometimes substantial growth rates, are currently the world's most dynamic economic area. The total economic might of the area is a fraction of China's. Yet, it offers numerous possibilities for European businesses because of low wages, young populations, vast markets, and a growing middle class eager to consume. Southeast Asia may not substitute China for the European economy, but it can certainly complement it.
Although the potential is considerable, trade between the EU and ASEAN has grown at a sluggish pace over the years. Contrarily, China's trade volume with the area has nearly doubled in the last five years. China has significantly increased its influence in Southeast Asia. The nation is not only the most significant trading partner for the ASEAN states, but is also increasingly dominating essential supply chains in the region. Consequently, the European economy faces the risk of pseudo-diversification if it relocates from China to Southeast Asia, with a value chain that remains heavily Chinese-controlled moving beyond China's borders.
European companies face fierce competition from the heavily subsidized Chinese businesses. The EU must conclude trade negotiations in the region to help European businesses compete. While they successfully agreed on a free trade agreement with Vietnam in 2019, negotiations with Indonesia, Malaysia, Thailand, and the Philippines remain stagnant. The main impediment to finalizing talks is the EU's obsession with enforcing non-trade demands such as stringent labor and environmental standards. Nations like Indonesia criticize the EU for cloaking its protectionism in the guise of environmentalism and human rights. At the current rate of global economic interest in the area, the emerging ASEAN states will soon have the upper hand in negotiations with the EU. This would be a severe setback for the EU - both in terms of its diversification efforts and its dwindling geopolitical influence in the region. The EU needs the ASEAN states to accomplish its lofty objectives, such as climate protection, reformation of multilateral trade rules, and safeguarding free trade routes.
Avoid Overburdening Trade Treaties with Non-Trade Demands
The EU must cease overburdening trade agreements with non-trade requirements. For this to occur, they should separate matters that are directly relevant to trade from other issues. The EU has alternatives for pushing through human rights and environmental safeguards. One such initiative is the Global Gateway Initiative, which will provide €10 billion to countries in the region for green transformation and sustainable infrastructure over the next few years. As for Global Gateway, EU should not impede potential investment projects in Southeast Asian countries with excessive conditions. Since China offers itself as an investment partner for Southeast Asia and will overlook issues concerning labor and environmental protection, the EU risks being rejected as a viable option.
Offering Support to European Firms
It's crucial that the European Commission and the German government offer greater support to European and German companies venturing into Southeast Asia's diversification efforts. The introduction of favorable conditions by the German government in October 2023 for the assumption of investment insurance in countries with high diversification potential was a promising move. Enhancing political support for European companies' involvement in the ASEAN region should also be on the agenda. This could involve a significant rise in high-level political visits to ASEAN countries, along with accompanying business representatives' presence at these meetings.
The Southeast Asian economies are growing more self-assured on the international stage. They anticipate the EU to embrace an egalitarian partnership approach. Southeast Asian territories have limited patience with an EU seen as arrogant. The EU will not succeed in the region by pointing fingers and demanding European standards. Instead, China and the USA are among numerous countries vying for influence in the region. Europe is in danger of being left out.
Dr. Denis Suarsana, the head of the Konrad Adenauer Foundation's (KAS) international office in Jakarta, Indonesia, is the author. The content stems from the study "De-risking, but where to?" which focuses on the emerging economies of ASEAN as an alternative to China.
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- Germany, along with other European nations, should consider expanding their business operations in countries like Thailand, the Philippines, Malaysia, and Indonesia, which are part of the ASEAN region, to reduce economic reliance on China.
- The Konrad Adenauer Foundation, in its study titled "De-risking, but where to?," emphasizes the potential of these emerging ASEAN economies as alternatives to China, given their dynamic growth and vast markets.
- The EU's trade negotiations with ASEAN countries, such as Indonesia, Malaysia, Thailand, and the Philippines, have been stalled due to its strict enforcement of non-trade demands, including labor and environmental standards. This has led to criticism from nations like Indonesia, which view the EU's approach as protectionist and disguised under the guise of environmentalism and human rights.
- To enhance its geopolitical influence and diversify its economy, the EU needs to successfully conclude trade negotiations with ASEAN countries and prioritize a supportive approach towards European businesses in the region, as they face harsh competition from heavily subsidized Chinese businesses.
Source: www.ntv.de
