Making European Union-ASEAN ties fruitful

Making European Union-ASEAN ties fruitful

By Grace Sung

BRUSSELS: The figures are telling. Between 1995 and last year, the European Union accounted for 21 percent of the total foreign direct investment to ASEAN, putting it ahead of Japan and the United States.

In 1994, ASEAN exports to the EU and Japan were almost identical, at US$34 billion (S$61 billion). By 1999, exports to Japan had gone up to US$37 billion, but exports to the EU jumped to US$56 billion.

Many in Southeast Asia complain about the insufficient EU economic presence in their countries, but officials here point out that Europe is, in fact, one of the largest investors in ASEAN and trade links between the two regions are considerable.

Many European companies did not pull out of ASEAN during the financial crisis. For instance, total German foreign direct investment (FDI) doubled between 1996 and last year.

"While Asian countries lost the support of Japanese and American banks after the crisis, old-fashioned European banks stood by," Juergen Fitschen, a member of Deutsche Bank's board of managing directors, said at the recent "Europe in Asia" conference here. "Most finance in the last five years has come from European companies," he said.

Indeed, as Philippine Ambassador to Britain Cesar Bautista pointed out: "Europe is an underrated key partner of ASEAN."

But take another set of figures and they tell a different story.

In 1999, EU FDI to Northeast Asia was 16.7 billion euro (S$25.7 billion), four times the amount which went to the Association of Southeast Asian Nations. Total EU investments in Southeast Asia accounted for only 2 percent to 3 percent of its total FDI outflow. Bilateral trade has fallen since the Asian financial crisis.

EU Trade Commissioner Pascal Lamy himself says that European investment in the region is below potential. Why?

First, the headline news is worrying. Corruption, economic turmoil, leadership tussles and political uncertainty.

President and chief executive officer of Haw Par Corporation Hong Hai told The Straits Times: "The news from ASEAN is not rosy, but these countries have lived through history with political change.

"They have taken it in their stride and business has carried on, even thrived, independently of the strife."

ASEAN participants also urged the Europeans to be more patient and less preachy with them.

"Europe's taken hundreds of years to develop. We have had only decades. You should not only focus on the negative aspects of society in Southeast Asia," said Pham Chi Lan, executive vice- president of the Vietnam Chamber of Commerce and Industry.

The ASEAN-EU relationship has been complicated by differences over the linking of economic cooperation with labor, environmental and human-rights issues.

One major conflict of interest is Myanmar. Ministerial talks between the two blocs stalled for more than three years after Yangon joined ASEAN.

Although a ministerial meeting was finally held last year, much of the discussions focused on Myanmar.

Barry Desker, director of Singapore's Institute of Defense and Strategic Studies, said: "The EU has adopted a country-specific or issue-specific approach that can easily derail relations."

Member of European Parliament Elmar Brok sent a positive signal at the conference, saying: "We sometimes have the attitude that our political system must be the example for every country. Therefore, we try to teach other countries -- sometimes too much.

"We as Europeans will always have human rights as one of our political cores, but we have to see internal development towards democracy and the rule of law might be different from what we are used to having in Europe.

"If we come to such an understanding, it would make our lives easier and bring positive internal developments."

European interest in Southeast Asia has also been dampened by concerns over economic issues, including non-performing loans, slow structural reforms and inconsistent investment and financial policies in some countries.

While officials strive to convince European counterparts of their openness to foreigners, said a commission official, "the next day you read something else in the papers. There are dozens of examples like that".

Fitschen said: "The FDI will not come back in a big way unless foreign investors feel there is a comfortable structure for them. Otherwise, the money will go elsewhere. There is increased competition from other countries."

China, as one participant put it, is an obsession for Europeans right now.

But although ASEAN is being sidelined as a result, in the medium and long term it will benefit from China's growth, said Singapore Trade and Industry Minister George Yeo.

"China will unite Southeast Asia not as an enemy but as a partner and competitor. Historically, each time China was prosperous, it also brought prosperity to Southeast Asia," he said.

Not only are ASEAN countries losing out to China, but they also have to compete with central and eastern European states, which are more natural investment locations for EU companies.

To restore investor confidence, ASEAN countries must push through structural reforms quickly. "Investments will only return to potential with a clear, transparent, non-discriminatory and predictable regime," said Lamy.

Former Indonesian foreign minister Ali Alatas told The Straits Times: "We should realize that unless we resolve our problems quickly, companies will not come because they will go to places where they can work."

Participants stressed that the ASEAN Free Trade Area would be crucial, not only in lowering tariffs, but also in giving companies the opportunity to do business with one integrated market, rather than several markets with different rules.

Despite the volatility of political transition and economic reforms, Europe should take a long-term view of the potential of ASEAN, a market of 500 million people.

Among the many areas Europeans could invest in are: information technology, life sciences, food processing, tourism, infrastructure, and regional projects like the Greater Mekong sub-region. Harmut Nassauer, chairman of the European Parliament delegation for relations with ASEAN, said that the last few years had not been easy for ASEAN-EU relations and "we have become over-pessimistic".

The relationship could develop more fruitfully, he said, if "both sides put their houses in order". ASEAN needs to push through liberalization and market reforms, while the EU states need to develop consistent growth while seeing through institutional reforms and enlargement.

BG Yeo said that while European enlargement was important to the EU, it should not reduce to secondary importance the historical changes taking place in Asia.

Desker said that, within ASEAN, there was a perception that the EU's attention to the region was a function of its economic performance.

"This should not be the sole criterion. Otherwise, the EU risks being seen in ASEAN as a fair-weather friend," he said.

-- The Straits Times/Asia News Network