The European Union has for a number of years been trying to consolidate and fine tune strategies aimed at strengthening its competitiveness and its capacity to address the new challenges of the rapidly changing global market. Promotion of trade and investment is clearly a priority for Europe. In 2000, it came up with the Lisbon Strategy, the blueprint for making EU “the most dynamic and competitive knowledge-based economy in the world capable of sustainable economic growth with more and better jobs, greater social cohesion and respect for the environment by 2010.” (1)
Re-launched in 2005, the Lisbon strategy outlined further eight key priority areas: Supporting knowledge and innovation; reforming state aid policy; simplification of the regulatory framework; completion of the internal market for services; global agreement on the Doha Round of WTO negotiations; removal of obstacles to physical, labour and academic mobility; developing a common approach to economic integration; and supporting efforts to deal with the social effects of economic restructuring.
The Lisbon strategy is anchored on strengthening economic integration in Europe as a necessary step to promoting EU competitiveness and comparative advantage in the global market. In other words, much of the economic reforms and restructuring would have implications not just on EU’s trade partners but on the economy of EU member states.
In October 2006, speaking before the European Commission, EU Trade Commissioner Peter Mandelson outlined the key elements of a new EC communication entitled Global Europe: Competing in the World which defines the interrelation between EU’ s internal and external trade and development policies.
Mandelson sums up the new strategy as ” rejection of protectionism at home” combined with “activism in opening markets abroad”. (2) The new strategy underscores the belief that adopting a policy of openness at home that “create the conditions for strong European companies to grow” and pushing openness and liberalization of trade and investment elsewhere are critical in securing the EU’s development interests.
The strategy involves dismantling trade barriers with particular emphasis on non-tariff barriers, promotion of open trading regimes in and outside EU, development of the internal market and continuing the process of EU integration, establishing global rules and standards, protection of intellectual property rights (IPR), the conclusion of the Doha Round, and bilateral and regional free trade agreements (FTAs) particularly in the Asian region, where the EU’s presence is not that strong compared to the United States, Japan and China.
Many European analysts feel that the new strategy represents a serious shift for the EU. For one, while there is still an avowed preference for the multilateral track on trade, there is now an aggressive push for bilateral and regional free trade and economic partnership agreements in Africa, Latin America and Asia. Because the EU projects itself as the champion of the multilateral trading system, the WTO and current Doha Round Negotiations retains the “primacy” at least in the official rhetoric. As Mandelson stressed “There will be no European retreat from multilateralism.” (3) The EU however “holds the world record in bilateral FTAs covering the whole of Europe, the Middle East, Africa, the Pacific and Latin America”. (4) Mandelson justifies the pursuit of bilaterals as part of the over-all strategy to remove trade barriers particularly barriers “beyond the reach of WTO rules”. Mandelson emphasized that “Doha first has never meant Doha alone”. (5)
The EU’s competitiveness agenda is being imposed on developing countries across the Southeast Asia region in many ways and through various complementary policy instruments.
Country Strategy Papers (CSP) and Regional and National Indicative PRograms (R/NIP)
The EU develops a CSP which defines what its priorities are when it comes to development assistance, the receiving countries then adopts this by way of crafting a National Indicative Program or, in the case of ASEAN, a regional indicative program, outlining how the projects will be carried out and spelling out its commitment to the program
The Regional Indicative Program for ASEAN starts with the analysis that EU and ASEAN share many common features and interests: the pursuit of regional cooperation and integration between highly diverse member states; respect for cultural, religious and linguistic identity; commitment to a multi-polar world based on strong multilateral institutions. These common interests and features form the basis of the “new partnership” between the two regions.
Neatly tucked a few paragraphs down the document, however, is the heart of the matter – the strong commercial links between the regions.
ASEAN is sixth largest trading partner of the EU supplying products ranging from palm oil to machinery. The EU (25 countries) accounted for 14.4 % of total exports from and 11.4% of total imports into ASEAN. Trade in services is also increasing.
Over the years the priorities for assistance to ASEAN have been defined as trade facilitation including standards, quality and conformity assessment, IPR, energy, environment, capacity building for the ASEAN secretariat (promotion of regional integration in Southeast Asia), harmonization of statistics on health, education, trade and investments (statistical cooperation), and the fight against terrorism (border management).
For 2005-2006, the EU regional indicative program for ASEAN amounted to 15-20 million euros.
Country Strategy Paper – Philippines
For the Philippines, the priorities in the EU’s Country Strategy Paper include: health sector reform, support to peace process in Mindanao, and trade related assistance.
On health, the main concern raised by a number of Philippine groups is the drive for health sector reform in the context of commercialization of health services, the push for public health institutions to adopt principles of “cost recovery” and “revenue generation”.
On trade related assistance, while the avowed objective is capacity building for government agencies, the groups raise the issue that the main motivation behind the EU’s trade related assistance is to boost trade and investment flows particularly between the EU and the Philippines. All the other aspects of the assistance therefore are geared to complement this underlying objective. So while it calls for “paying due attention to the social dimensions of globalization” the CSP/NIP does not spell out support or even an advocacy for policies and programs to address this.
The NIP, for instance, recognizes the possibility of short-term negative effects of liberalization and the need for “properly sequenced complementary policies”. It stops short however of identifying (i) what the actual and potential negative effects are (for instance the loss of revenues resulting from the reduction of tariffs and the implication on public expenditures, the negative effects on farmers incomes resulting from the influx of cheaper agricultural products or potential job losses in manufacturing sector with NAMA) and (ii) what are the kinds of mitigating measures that are necessary to address these effects?
Compared to the previous trade related technical assistance (TRTA), which was more explicit in providing support to business promotion and capacity building to help implement existing WTO rules and meaningful participation in the Doha Round, the goal of the new TRTA is to facilitate trade through a dual strategy of capacity building of main public and private stakeholders and alleviating the technical barriers to trade in order to make better use of Philippine rights under the multilateral trading system and opportunities by the EU.
Over the course of the Doha negotiations, the Philippines has been trying very hard to articulate these rights by taking a position, which is shared by many developing countries, to defend development policy space or the right of countries to use trade policy to chart their own development objectives, and demanding greater flexibilities for developing countries in the negotiations. The NIP however seems to view this position with concern. The capacity building component should also strengthen the capacity of the Government to facilitate a process of review of its trade policy.
While the CSP-NIP aims to build stakeholder capacity in trade negotiations, it completely ignores the clamor of various affected stakeholders such as small farmers and fishers, women, workers and indigenous communities for access to information and greater participation in trade policy formulation.
Representatives from the delegation of European Union to the Philippines, argue that our criticisms on the trade related assistance stem from our misunderstanding of the nature of EU’s assistance. According to the EC bureaucrats, the EU is there to help the Philippines improve our standards to facilitate Philippine exports into EU. They also point out that our position on the Doha round is obviously something that is contrary to the position of the EU.
Association Agreements and Cooperation Agreements
There is a host of cooperation agreements between EU and ASEAN on trade and investment facilitation and promotion, standards and conformity assessment, development of efficient services sector, institutional cooperation on mechanisms and policies for regional integration, and sectoral cooperation on agriculture (food and beverage sector, exports and manufacturing of machinery); fisheries (capacity building for coastal resource management), mining and energy (oil and natural gas, power generation and supply), manufacturing (automotive, drugs and pharmaceuticals, petrochemicals and food processing)
The EU corporate agenda is evident in these cooperation agreements where the emphasis is on creating a more conducive business environment for the benefit of EU corporations in such areas as processed food industry and chemical sector and pharmaceuticals where EU companies dominate the international market.
EU-ASEAN Free Trade Agreement
“I believe Europe for its part has not adapted fast enough to this change in Asia and the challenge it offers. In many respects, Europe still has a twentieth century policy for a twenty first century Asia.
Where Europe does engage with Asia it too often focuses on China, overlooking opportunities elsewhere in Asia.” Peter Mandelson in Malaysia in May 2006
The Path to FTA
As early as 2002 the EU was already floating the idea for a free trade agreement (FTA) with Singapore. This idea was put on hold because of the concern that a bilateral deal with Singapore would alienate the other members of ASEAN.
In 2003, EU proposed TREATI – the Trans-Regional EU-ASEAN Trade Initiative — as a new initiative for economic co-operation on a region-to-region basis involving dialogue and joint activities in areas of mutual economic interest. The goal is to establish a foundation supporting dialogue and regulatory co-operation on various trade facilitation, market access, and investment issues between the two regions to expand trade and investment flows.
TREATI would allow the EU to substantially improve its relationship with the region as it prepares the basis for a potential FTA in the future. TREATI is not intended to replace an FTA, but represents a substantive commitment by the EU to intensify its economic partnership with ASEAN over the coming years.
ASEAN -EU Vision Group
The Vision Group on ASEAN-EU Economic Partnership was established by the ASEAN Economic Ministers and the EU Trade Commissioner at their 6th Consultation on 27 April 2005 in Vietnam. The Vision Group was to look into the feasibility of a possible ASEAN-EU Free Trade Area (FTA) and other new initiatives for enhancing economic cooperation and ties between ASEAN and the EU. Inaugural meeting of the vision group in July 2005 in Viet Nam
The report of the Vision Group giving the go signal for an EU-ASEAN FTA was submitted in May 2006 in Hanoi. Chapter 3 of the report deals with the EU-ASEAN FTA, outlining potential benefits and laying down the negotiation framework.
The quantitative study concludes that 1. The gains accruing to ASEAN are very large adding up to more than 2 % of GDP in 2020; although the gains for individual member countries are different, with modest gains for LDCs.; 2. The bulk of the gains (75% of the gains for ASEAN) are associated with liberalization in services (assuming a 50 % cut in trade barriers to services); 3. The gains are strengthened within the environment of third country FTAs by EU and ASEAN. [EU-Mercosur, ASEAN FTAS with dialogue partners]
The qualitative study reports that the FTA would generate a wide range of impacts both positive and negative. These include moderate gains from tariff reduction since tariffs are no longer the main barrier to trade in goods and with more significant gains in high-tariff sectors like agriculture and the automotive sector. The study identifies complementarity between the two regions in a number of industries with ASEAN’s relative strength in manufacturing and the EU in knowledge-based services. Non tariff barriers have also gained importance as a trade impediment. For ASEAN exports to the EU, technical standards and requirements and tariff quotas for sensitive products, while for EU exports to ASEAN the barriers are seen as restrictions in the services sector particularly foreign ownership requirements and limitations and national policies aimed at supporting selected industrial sectors.
Based on these studies, the Vision Group report recommended a differentiated approach to the FTA negotiations. Cooperation or reinforced partnership will be based on three objectives: cooperation, facilitation and liberalization. The FTA would include measures of technical assistance and capacity building in addition to standard liberalization provisions.
The EU presented draft mandates on December 6, 2006. The draft mandates confirm the new standard approach as it was announced on 4 October with the Global Europe Communication of the EU Commission: a strong focus on the overall regulatory environment, with special focus on non-trade barriers, and a number of new mechanisms for prior consultation and flexible mediation.
On April 23, 2007, the General Affairs and External relations Council (GAERC) approved all five mandates for FTAs with ASEAN, Korea, India and association agreements with Central America and the Andean Community.
ASEAN Economic Ministers and the Trade Commissioner of the EU met in Brunei on May 4, 2007 and agreed to enter into FTA negotiations. The negotiating process will be based on a region-to-region approach, which recognizes and takes into account the different levels of development and capacity of individual ASEAN member countries.
A joint committee comprising senior officials from all ASEAN member countries and EU shall be established to develop the details of the modalities and work programme and time schedule for negotiations.
Major Issues and Concerns
The lack of transparency and public participation in ASEAN. This highlights a double standard whereby the EU pursues more participatory processes within its regions while perfectly happy with the lack of transparency in ASEAN.
2. COUNTRY COVERAGE
ASEAN wants to negotiate as one using the “10 as 1” framework, while the EU is intent on excluding Burma/Myanmar. At the same Council meeting that approved the mandates, a common position was also adopted renewing restrictive measures against Burma/Myanmar until 30 April 2008 and updating the list of persons subject to those measures.
3. SUBSTANTIVE ISSUES
3.1 Disparities within ASEAN economy- who will corner the potential benefits
The Southeast Asian region has been characterized as a growth area for trade and investments.
The region, comprised of Burma/Myanmar, Brunei, Cambodia, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Lao-PDR, and Vietnam, has a total population of about 550 million. The countries within the region have a combined Gross Domestic Product of US$ 700 B. The region has an average growth rate of 5.5 % (2005).
ASEAN foreign direct investment (FDI) flows reached US$ 38 billion in 2005, which was an increase of 48% from the previous year. The outlook for 2006 is also bullish as preliminary data for the first quarter of 2006 indicated that FDI flows have already reached US$ 14 billion, an increase of 90% from the US$ 7.4 billion registered for same period in 2005.
ASEAN continued to sustain positive a trend for its trade performance as total exports for 2005 increased by 13.5% from US$ 569.4 billion in 2004 to US$ 646 billion in 2005. The trend continued up to the first quarter of 2006 with a 17.7% growth of ASEAN exports, as compared with export figures for the same period in 2005. The share of intra-ASEAN trade as a percentage of total ASEAN trade remained relatively constant at 25% in 2005, slightly higher than the 24.3% share in 2004. (6)
The aggregate figures however mask the reality that “Southeast Asia is an economically diverse region, with countries having variable levels of development and capacities to respond to globalization and change, and to the needs of its citizens.” (7)
The richest country in the region is Singapore has a per capita GDP of US $25,207 compared to Burma/Myanmar with a per capita GDP of only $166 (only 0.6 percent of Singapore’s per capita GDP). Even the Philippine’s per capita GDP of $1,042 is just around 4 % of Singapore’s per capita GDP.
Of the total FDI flows in 2004 in ASEAN of $25 billion, Singapore gets the lion share with $16 billion or 64% of FDI in the region. Malaysia is a distant second cornering $4 billion or 16 %, followed by Vietnam with $1.6 billon or 6%. The Philippines is in sixth place with FDI amounting to $469 million or a mere 1.6 % of FDI in the region.
In terms of merchandise exports, Singapore tops the list again with exports in 2004 amounting to $197 billion and Lao-PDR on the tail end with merchandise exports of only $363 million or a mere 0.1 % of the level of Singapore’s exports. Philippine exports amounting to $38 billion or 19 % of Singapore’s export level.
In terms of migrants, the region has both migrant sending countries (like Indonesia and the Philippines) and migrant receiving countries (Thailand, Malaysia and Singapore). Irregular migrants number 2.6 million, 82% of whom are Indonesians and Filipinos. Malaysia and Thailand receive 83% of these migrants
3.2 Liberalization in trade in goods and services while beneficial to EU corporate interests could be detrimental to jobs, livelihoods, and government revenues.
In agriculture, the policy adjustments or reforms could lead to increased “commercialization” of ASEAN agriculture and could lead to serious negative consequences on incomes of small farmers. It could likewise lead to greater pressure to transform land ownership structures, land use priorities, and the ways by which food is produced in favor of more commercial food production.
In the industrial goods sector, the EU already represents the world’s largest exporter. The EU agenda on NAMA underscores its position to reduce drastically the tariffs in the developing world on industrial and fishery goods. This would have devastating effects on the economies of the poor countries and their ability to utilize trade policy as EU did in the past to pursue their own development agenda.
Philippines estimates show that under an ambitious NAMA formula with coefficient of 15 for developing countries the bound rates for non-agricultural products would be reduced by 63% on average. While new bound rates for the following products would still be above the applied rates, the following sectors would absorb substantial erosion of policy flexibility. Bound rates for textiles would be reduced from 30% to 10 %. With applied rates of 9 % this reduction of bound rates constitutes a 96% loss. The top five sectors that would adversely be affected include rubber products (95%), fabricated metals (87.7%), wood and wood products (87.3%), and paper and paper products
The following sectors would face the biggest erosion of policy space absorbing actual cuts in applied rates: The furniture sector would absorb a 9% cut in applied rates, plastic, leather products and footwear sectors would absorb 13% cuts on applied rates, and the apparel sector would absorb 33% cuts in applied rates. But the sector that would be most affected would be the automotive (motor vehicle) sector which would absorb a 61% cut in applied rates.
Revenue and Job Losses
According to the recent report by Sam Laird, Advisor to the United Nations Committee on Trade and Development (UNCTAD) the tariff revenue of developing countries as a whole will fall from the base of $156 billion by 41% under an ambitious tariff reduction scenario.
Furthermore, under the ambitious scenario, the projections show significant job losses, especially in the motor vehicles sector, which would be the main sector in which the developing world would suffer losses.
In South East Asia, job losses are projected for non-ferrous metals (6.4%), other manufacturing (2.3%), motor vehicles (6.6%) and electronics (1.7%).
In the Philippines, job losses could be expected in the motor vehicles sector, which employs around 39,000, the apparel sector with an even bigger employment of 370,000, the leather and footwear sector with 69,000 workers, furniture sector with 143,000 workers and plastic products which provides jobs to 54,000 workers.
In the area of services the major concern is on the issue of domestic regulation. It is feared that regulatory mechanisms including those enshrined in constitutions that exist today would be dismantled in favor of a more liberalized and foreign investment friendly regime.
In the Philippines, Thailand and in most countries in the region, charter change is a sensitive issue that is being debated and contested at the national levels. The debates are focused on political reforms which often overshadow the issue of economic reforms (i.e liberalization measures) that are inherently part of the charter change agenda.
Another critical issue for the region is on access to medicines. The strong emphasis on recognition and compliance to IPR in the EU agenda clashes with the growing position in the region to maximize its rights on addressing public health issues. The experience of Thailand in invoking its rights under the WTO trips agreement on compulsory licensing and parallel importation of life saving drugs is a case in point. The move of Thailand to issue compulsory licences for key drugs has caused quit a stir in the developed world particularly within the multi-billion dollar pharmaceutical industry. The EU is home to some of the world’s largest pharmaceutical companies.
The EU’s approach of combining “softer” cooperation agreements with more hard line FTA has created the impression that EU is a benign hegemonic power whose bottom line is development with concern for human rights, environment, labor rights etc. The rhetoric is evident in the EPAs and FTAs as well as in the association agreements, and the CSPs. According to EU bureaucrats, what the EU is doing is helping the countries improve trade by improving their standards and regulatory mechanisms.
The EU competitive agenda defined in the Lisbon strategy, the Bolkestein directive and the new EU agenda belies all of these claims of a philanthropic Europe. At the heart of this strategy of making EU the most competitive economy in the world is corporate interest.
The EU competitive agenda, with its strong and aggressive push for liberalization of goods and services, and of investment regimes, will undermine development in the Global South.
Furthermore, the agenda economic integration and liberalization promoted by the EU as a model for ASEAN to follow is dangerous given the levels of poverty and inequality in the region and the absence of a system of social security in the region comparable to that in Europe.
*Joseph Purugganan is a research associate with Focus on the Global South. This paper was presented in workshops on trade at the Alternative G8 Summit. June 5-7, 2007 in Rostock, Germany
1. Lisbon Strategy (http://www.euractiv.com)
2. Global Europe: Competing in the World. Speaking points by Commissioner Peter Mandelson. 4 October 2006
4. Marc Maes. The EU approach to bilateral negotiations. A quick snapshot. 8 November 2006
5. Global Europe: Competing in the World. Speaking points by Commissioner Peter Mandelson. 4 October 2006
6. From the Joint Statement of the Thirty Eight ASEAN Economic Ministers (AEM) in August 2006
7. SAPA Working Group on the ASEAN. Submission on the Economic Pillar. June 2000