Malaysia poised to helm Asean's strategic ties with Europe

ALL eyes in the region are on Kuala Lumpur as Laos is set to hand over the chairmanship of Asean to Malaysia by the end of the year.

A longtime advocate of Asean unity, Malaysia is expected to use its diplomatic clout to deepen economic ties within the region and strengthen its partnerships with key partners.

While thorny issues like palm oil have strained Malaysia's relationship with Europe in recent years, the country's pragmatic foreign policy approach suggests it will continue looking at the bigger picture and prioritise long-term strategic interests.

Under Malaysia's stewardship, Asean integration and outreach to global partners are poised to gain fresh impetus. Leveraging its economic heft and diplomatic gravitas, Kuala Lumpur is uniquely positioned to spearhead initiatives that will shape the region's trajectory for years to come.

At the regional level, Asean's recent Chairs have demonstrated a remarkable alignment in their priorities and focus areas, carrying forward a cohesive vision for regional integration. Early indications are that Malaysia will also include connectivity, advancement of the digital economy, inclusiveness and sustainability as its themes for 2025.

This strategic continuity bodes well for a more coordinated and unified approach across Southeast Asia. As one of the diplomatic heavyweights in Asean, Malaysia is poised to wield its influence in driving the regional agenda forward on multiple fronts during its chairmanship.

One of those will surely be in the digital space, with the negotiations on the Asean Digital Economy Framework Agreement slated for completion by the end of 2025.

That would surely move the needle on regional economic integration.

As will the completion of the negotiations on an upgrade to the Asean Trade in Goods Agreement, which, from the indications coming out from the negotiators, will be a significant advance over the current agreement. Under its chairmanship, Malaysia will need to ensure that those discussions deliver on a forward-looking agreement that is then fully implemented.

Beyond the intra-Asean scope, work is ongoing to upgrade the Asean-China and Asean-India Free Trade Agreements (FTAs). Given Malaysia's close economic ties with these Asian heavyweights, we can expect the country to play a significant role in those discussions.

Trade is a major topic in the capital cities across the Asean region. In most ministerial meetings, I have observed that the politicians are well-versed in trade and investment numbers, their top trading partners, and where investment funds are coming from.

Trade is, therefore, critical, not just for its economic implications but also for diplomatic ones. Forging closer economic ties with external partners is crucial to fostering diplomatic linkages.

Given the diplomatic tightrope that Asean often treads between the US and China, forming closer economic and diplomatic ties with other key partners, such as Japan and the EU, takes on added importance.

This area is where Malaysia, given its close trade ties with China and historical links to the West, can and should play a key role.

Naturally, my focus remains on ties to Europe. In 2022, Malaysia's trade in goods with the EU was over €50 billion, creating a significant trade surplus. The total trading relationship was almost €60 billion including services.

The EU is Malaysia's fourth largest trading partner, with EU Foreign Direct Investment (FDI) stocks in Malaysia amounting to nearly €30 billion, roughly 18 per cent of all FDI to the nation.

But these numbers could, and should, be so much better. Since Vietnam's FTA with the EU commenced, its trade in goods with the EU has increased by nearly 50 per cent. Over the same period, Malaysia saw a 30 per cent increase.

With the EU now having active trade negotiations with Indonesia, Thailand, and, most recently, the Philippines, the big question for policymakers in Kuala Lumpur is how much longer Malaysia can wait to recommence negotiations that have been on hold since 2012.

As others in Asean forge closer trade and investment ties with Europe, Malaysia runs the risk of missing out at the very time when it is looking to reinvigorate economic growth to help it avoid being stuck in the middle-income trap.

From the experience of Singapore and Vietnam, no doubt having an FTA with the EU will boost trade and investment. The question, therefore, is whether Kuala Lumpur is ready to restart the talks and, in doing so, whether the Malaysian government can match the level of ambition that the EU would hope for.

A range of issues underpin the answer to this question, such as Malaysia's dispute with the EU over the latter's Renewable Energy Directive II and the use of palm oil for biofuels, a disagreement that hopefully the recent World Trade Organisation decision can help put to bed.

Then, there are new irritants in the relationship flowing from the EU Green Deal and, in particular, the EU's Deforestation Directive, as well as concerns that Malaysia and others in the region have over its implementation and reporting requirements.

Balanced against this is the desire to forge closer ties with Europe and Europe's own stated intention to do more to support Asean, and not just on trade and investment issues.

The EU's engagement with Asean extends beyond mere economic interests to encompass broader geopolitical objectives. By supporting Asean's regional integration efforts and capacity-building initiatives, the EU seeks to bolster Asean's resilience and enhance its role as a driver of regional stability.

In other words, the EU supports what Malaysia has traditionally been pushing for in Asean.

Through targeted investments in infrastructure, human capital and sustainable development, the EU aims to foster inclusive growth and narrow the development gap within Asean — a strategy that aligns with both parties' commitment to the Sustainable Development Goals (SDGs).

There is also the work of the EU-Asean Joint Working Group on Trade and Investment, which seeks to forge closer ties in areas such as resilient supply chains, energy transition and the digital economy.

When it takes over the chairmanship of Asean at the end of this year, Malaysia will play a leading role in the work of that group. Given its diplomatic strength within Asean and its interests in those topics, Malaysian leadership will be vital to securing closer region-to-region relations.

In addition, considerable effort is now being put into meeting Malaysia's and others' concerns about the EU's Green Deal. The establishment of a Joint Task Force, which also includes Indonesia, is a testament to that.

Malaysia has undoubtedly made great strides in sustainability in its palm oil industry and other agricultural sectors. Hopefully, the EU will move to give greater recognition to this, and then concerns over the Deforestation Directive can be abated, paving the way for a deepening of the relationship between the two sides.

What is clear is that such disputes should not obstruct the advancement of the overall relationship.

Prime Minister Datuk Seri Anwar Ibrahim's recent, highly successful visit to Germany signalled an intent to foster close ties with Europe and secure more investments in Malaysia. But this is not just about trade. It is also about forming closer political bonds.

Europe should view Malaysia as a valuable partner capable of facilitating a more robust Asean relationship. Malaysia's diplomatic dexterity can help navigate the region's geopolitical complexities while preserving Asean's neutrality and cordial ties with major powers.

Conversely, for Malaysia, Europe represents a crucial ally in propelling economic growth and tackling shared environmental challenges. While strengthening trade links is the natural starting point, this partnership holds broader potential for deepening political and diplomatic cooperation between the two sides.

*The writer is executive director, EU-Asean Business Council*


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