EU-ASEAN: The Beginning of a Beautiful Friendship?

The recent decision to start negotiations towards a free trade agreement (FTA) between the EU and ASEAN is to be welcomed for several reasons:

It greatly reduces the risk of trade diversion for both EU and ASEAN firms as a result of agreements signed by each region with other parties.

Asia has been the 'missing link' in the foreign economic policy of the EU. Agreements already exist or are being negotiated by the EU with various countries and regional groupings in both Africa and Latin America.

Fifty years of experience with regional integration have given the EU unparalleled institutional expertise which it can share with ASEAN. Southeast Asia currently lags far behind the EU in the integration of its regional market. An FTA would give renewed impetus to technical cooperation which has been under way for several years under the Trans-Regional EU-ASEAN Initiative (TREATI).

But good politics do not always make for sound economics:

Multilateral agreements remain the best way forward. In this sense, the outburst of FTA negotiations is an admission of failure to progress at a multilateral level.

With the exception of Singapore, it seems unlikely that the EU will get far in terms of liberalization within ASEAN in the near term. Industrial policies are still very much in vogue in some ASEAN countries.

The best that can be hoped for is that negotiations today represent an investment in the future of ASEAN, a region which - although overshadowed by China - is destined to become one of the world's largest markets. The FTA will provide an institutional framework to negotiate more contentious issues in the future.

Liberalization of sectoral trade and non-trade barriers, particularly in services, as well as of investment regimes, is crucial for ASEAN if it is to create a genuine internal market and hence play a more prominent role in the global economy. Through both negotiation and inspiration, the EU might be able to contribute towards this goal.