Page 9 - AEI Insights 2018 Vol 4 Issue 1

AEI Insights, Vol 4, Issue 1, 2018

transport equipment. The main exports from ASEAN to the EU are machinery and transport
equipment, agricultural products as well as textiles and clothing. Besides that, the EU plays an
important role in financing regional trade-related projects such as the ASEAN Regional
Integration Support from the EU (ARISE PLUS); COMPASS (Statistics and Integration
Monitoring); ASEAN Project on the Protection of Intellectual Property Rights (ECAP III);
ASEAN Air Transport Integration Project (AATIP) and the Enhanced Regional EU-ASEAN
Dialogue Instrument (e-READI).

The EU is also by far the largest investor in ASEAN, accounting for 22% of total foreign direct
investment (FDI) inflows to the region. From 2012 to 2014, European companies had invested
an average of €19 billion annually in ASEAN (European Commission, 2017). Three quarters
of the EU’s FDI of US$19.6 billion into the region were concentrated in the services sector
(UNCTAD & ASEAN, 2016), where Australia, the EU and Japan were the largest investors in
wholesale and retail trade activities. FDI into ASEAN extractive industries also had a strong
EU presence. Japan, ASEAN, the Republic of Korea and the EU, in that order, accounted for
64 per cent of total FDI inflows into the manufacturing industry (UNCTAD & ASEAN, 2016).
This high level of European investment in ASEAN is evident through the regional expansion
of European multinational corporations (MNCs) such as BASF, Continental, Infineon, Nestlé,
L’Oreal and GN ReSound (UNCTAD & ASEAN, 2016).

Although FDI flows from the EU to ASEAN declined by 20 per cent from $25 billion in 2014
to $20 billion in 2015 (UNCTAD & ASEAN, 2016), the European share out of the top ten
investors in ASEAN rose from 71 per cent to 75 per cent in the same period. In the 2014 list,
Luxembourg was ranked fourth, followed by the United Kingdom (previously EU member
country) at fifth place. Meanwhile, France and the Netherlands were positioned at number nine
and ten. In 2015, the Netherlands, United Kingdom and Denmark were ranked fifth, sixth and
ninth, respectively, while Luxembourg and France dropped out of the ranking (UNCTAD &
ASEAN, 2016).

In the early years of ASEM, inter-regional trade negotiations between ASEAN and the EU
were considered an important agenda. Following the establishment of a single European market
in 1992, a number of Asian countries expressed their concern that the EU was increasingly
becoming an “economic fortress” with protective barriers for non-member countries. To
overcome the shortcomings of “closed regionalism”, ASEM has the potential to serve as a
multi-faceted platform for “open regionalism” to promote balanced economic and business
activities between Asia and Europe. For Europe, Asia can be an important market for their
products. For Asia, Europe provides alternative sources of investment and advanced
technology. To this end, the Asia-Europe Vision Group (AEVG) had proposed to set up a
comprehensive ASEM free trade area by 2025 (Park, 2004).

There have been numerous suggestions and policy dialogues on a long-term economic
objective to establish an ASEM-FTA. However, a comprehensive FTA has not been discussed
in ASEM meetings for more than ten years. Despite their mutual interest in trade liberalisation,
initial EU-ASEAN negotiations were not successful due to challenges in setting common
standards among ASEAN’s ten-member countries, as a result of their diverse political systems
and the size of their economies and populations (Morales, 2017). On its part, ASEAN is trying
to build an integrated economic market under the name of ASEAN Economic Community
(AEC). Yet again, there are many challenges to be overcome in the implementation of this
ambitious plan. For example, violence and human rights conditions have been a serious
problem in some ASEAN states such as Myanmar and Laos. In other countries, such as

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