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