Some week-end reading after many developments this week on EU ASEAN trade: Vietnam FTA, trade preference withdrawal for Cambodia, GSP reports on Myanmar and the Philippines, and an EU ASEAN Senior Officials meeting. Commentary by Borderlex editor Iana Dreyer.
The European Union is about to enact an extensive free trade agreement with a large autocratic country in Asia. It’s a first. Where does his leave us?
By gradually becoming a globally relevant power, the European Union is losing its political innocence. As one does. It’s time Brussels get its priorities right in assessing its geopolitical, business and human rights interests.
Trade vs human rights in EU trade policy
The EU, and in particular the European Parliament, want to put human rights in trade and value chains higher up the agenda. How does that square with other priorities?
The Treaty of the European Union’ Article 21 sets out principles of its external action.
It reads thus: “The Union’s action on the international scene shall be guided by the principles which have inspired its own creation, development and enlargement, and which it seeks to advance in the wider world: democracy, the rule of law, the universality and indivisibility of human rights and fundamental freedoms, respect for human dignity, the principles of equality and solidarity, and respect for the principles of the United Nations Charter and international law”.
Among others, Article 21 also says that the Union should “encourage the integration of all countries into the world economy, including through the progressive abolition of restrictions on international trade”.
But which principle takes precedence, when, why – and how? The Treaty offers no answer. That’s to the EU’s top leadership to determine.
FTA with Vietnam
This week the European Parliament ratified a long-awaited trade agreement with Vietnam, a dynamic emerging market in South East Asia with plenty to go for it, starting with a clever and hard-working people, a rich culture and fantastic food.
As the European Union tries to act more ‘geopolitically’ in these turbulent times, the fact that a splintered European Parliament was able to bring the controversial deal over the line and secure a solid majority of 401 MEPs in favour of the agreement flies in the face of frequent claims that the EU is unable to act in a united way – and decisively – on the international stage.
Vietnam has courted the EU for years as it tries to diversify its economy and build political ties with various great powers as China next door casts its growing shadow over the ASEAN region and engages in sensitive land disputes in the South China sea.
Vietnam wants to attract high-tech and high-quality investments. Europeans want a base for cost -efficient production in Asia that is not China, and a platform to sell on to the rest of South East Asia, currently the most dynamic region in the world. Vietnam is itself a growing market of 95 million people, with major energy and infrastructure needs for which European firms – boosted by the new FTA – cater for.
Source: World Bank
|Status in Economist Intelligence Unit Democracy Index 2019||Gross National Income per capita
2018 – US$ PPP
Source: World Bank
|Trade status with EU|
|Cambodia||16.3||Authoritarian||1390||Partial EBA suspension|
|Indonesia||268||Flawed democracy||3840||GSP. FTA under negotiation|
|Malaysia||31.5||Flawed democracy||10590||On hold|
|Myanmar||53.8||Authoritarian||1310||EBA enhanced engagement|
|Philippines||106.7||Flawed democracy||3830||GSP +. FTA on hold|
|Singapore||5.6||Flawed democracy||58770||FTA in force|
|Thailand||69.4||Flawed democracy||6610||FTA on hold|
|Vietnam||95.5||Authoritarian||2360||FTA to come into force soon|
The EU is also trying to project power – not least regulatory power – across the world. This regulatory expansion has hard-nosed mercantile interests backing it.
Any country recently exposed to negotiations with the EU on technical standards and conformity assessment for automobiles or renewable energy or pharma patent protection, have a tale to tell about this. The EU’s mighty agri-food, wine and spirits sector benefits from the EU’s ever-expanding and oft-resented ‘geographical indications’ imperium.
No doubt infrastructure investment in a country such as Vietnam will gain from the commitments Hanoi took in the trade agreement’s public procurement chapter. Urban transport, waste management, medical devices and services, renewable and not-so-renewable energy – that’s where many European firms are positioning themselves in Vietnam’s public procurement processes.
Compared to any other emerging market with which the EU has signed a trade agreement, Vietnam is making an impressive effort at opening its market and economy.
With the World Trade Organization floundering, bilateral treaty-based trade relations such as those established with Vietnam will matter even more in future as they could soon be the last bastion of “rules-based trade” Europeans can rely on.
Wider ASEAN trade strategy
The Vietnam agreement comes only one year after a comparable agreement was enacted with Singapore. Singapore is a rich city-state with an already open economy, it is the single most important entry point for business to ASEAN.
Singapore gained greater foothold in Europe for its own increasingly sophisticated manufacturing products and a more predictable environment for its business services to the EU. And vice versa.
Another major agreement with a very large ASEAN country is under negotiation: an FTA with Indonesia. Despite deep disagreements over issues such as EU biofuel policy – a de facto exclusion of palm oil from the EU’s mandated new biofuels mix – and despite EU litigation at the WTO over Indonesian export restrictions: the two sides are talking.
FTA negotiations with Thailand could resume soon.
The fact that the agreement with Vietnam will come into force is a boost to the EU’s overall ASEAN strategy. The ultimate goal in Brussels is a region-to-region deal – though that is proving elusive.
Human rights and ASEAN trade
Getting Vietnam over the line was a significant challenge in the EU.
Although opposition came from the usual trade nay-sayers – the usual rice farming, sugar, processed fish, and textile import-competing interests – the fundamental issue with the Vietnam file has been human rights.
The international trade committee and its chairman Bernd Lange, have played a pivotal role and carved out a role as deal-makers, using a short period of leverage ahead of the ratification vote to have the Vietnamese government promise concrete steps to improve labour rights in the country and ensure that the labour provisions included in the Vietnam agreement are ratified and implemented.
“I am really proud of the European Parliament using the leverage we have to imoprove the agreement with Vietnam,” said Lange after the vote on Wednesday (12 February). “I am deeply convinced that the best way to improve the situation for people on the ground is dialogue.”
May the reason Vietnam played along be the fact that its labour record is not necessarily the worst in the region? One indication of this is the graph below on working hours in Asia,taken from the ILO’s latest World Employment and Social Outlook:
The fundamental issue in the ratification process has been one related to what Vietnam is as a regime. It’s a tough one-party post-totalitarian state, classified as clearly ‘authoritarian’ by the Economist Intelligence Unit’s 2019 Democracy Index and as ‘Not Free’ by Freedom House.
Freedom of expression, data localisation
While Vietnam is not afraid of being comparatively decent with workers on issues such as working time, anything that could lead to contestation of political authority is taboo in the country. This explains why freedom of association was the central issue in negotiations with Vietnam over labour rights. Vietnam changed its labour law to cater for more labour freedom – not least due to EU pressure. This is far from being an insignificant step, and a clear risk the regime has been ready to take.
At the same time as the labour reform process was unfolding – and perhaps not unrelatedly – Vietnam has been cracking down on political dissidents. A growing and increasingly affluent and globally connected Vietnamese middle class is bound to become politically restless at some point. Vietnam is accordingly diligent in controlling media and the digital sphere. Data is not allowed to freely flow out of the country – Hanoi has put a lid on it.
The EU didn’t tackle the issue of forced data localisations for companies with Vietnam – it wasn’t on the agenda at the time when the substance of FTA was negotiated, about five years ago. There are no signs that Brussels wants to talk digital with Vietnam just now – while it is engaged in similar discussions on data at the WTO and bilaterally with a variety of countries in the Asia Pacific.
In terms of business, this blind spot on data will soon make the Vietnam deal a bit of a relic of the past – supply chains and trade growth are increasingly linked to data flows. The lid on the data issue also reveals that the EU is quietly accepting the nature of the regime in Hanoi.
The Vietnam episode makes the EU’s trade-and-human rights policy towards other countries in the region the more puzzling.
First there is Cambodia. This week the EU made it official that textiles, footwear and other exports from Cambodia will face import duties again, following a decision to trigger an unused provision in its GSP regulation that allows the EU to cut off beneficiaires of duty-free-quota-free rights from benefits if they violate fundamental human rights and labour conventions.
Cambodia has a tumultuous 20th Century history. Whilst its economy growing quickly it is still a very poor country (see table above). Cambodia backtracked on democratic progress in 2017 when the current president clamped down on a surging successful liberal opposition party and jailed its members and leaders.
Cambodia’s regime today is pretty nasty. It is appropriately classed as ‘authoritarian’ by the EIU.
What the EU has being doing is, in fact, an attempt a regime change or regime change reversal – something it has duly shied away from doing with Vietnam. “Open the political space” is the euphemistic term used by the European External Action Service and the latest Commission documents to express its most important demand on Hun Sen. Of course the Cambodian leader would not relinquish. Why would he?
So who gets punished? Shoe factory workers. Hun Sen and acolytes still rule. Alone.
The process that has led to the removal of tariff preferences on Cambodia stands out by its astounding opacity.
The system works thus: the EU initiates an ‘enhanced engagement’ procedure to get the country to change its ways. If the counterpart is recalcitrant, the EU triggers a trade preference withdrawal procedure that lasts one year, during which a report is produced, diplomatic engagement reinforced, and expert groups are consulted .
In the Cambodia case, formal consultations mandated by the EU’s regulations were held twice only, and at the very end of the process, in December 2019 and 20 January 2020. Everything was largely decided by then.
An impact assessment and calculations of potential economic and social damage from trade restrictions were made but nobody has seen them. A report sent to to the Cambodian government laying out EU gripes last autumn leaked to NGOs in Cambodia – but never appeared in Brussels.
The opacity is inherent to the way the EU has arranged its so-called ‘comitology’ processes: their lack of transparency is notorious. These processes might work in highly technical areas or when sensitive business data is at stake.
But when it comes to judging democratic credentials of a third country and potentially harming poor people, the very obscure bureaucratic and lobby-heavy way of proceeding cannot but be an insult to all democrats and proponents of the rule of law.
Also, the Commission could have been more transparent – it is in other areas – but it chose not to.
There are other questions about the process. Was it a mere coincidence that Kem Sokha is member of the Council of Asian Liberals and Democrats, a group that can be seen as equivalent to the EU’s ALDE, and to which former trade commissioner Malmström is affiliated?
Was Cambodia’s case become a politically expedient way of pleasing parts of the European Parliament, where calls for “credibility” of the EU’s “values-driven” agenda promoted by the Commissioner have been strong?
A preliminary ‘enhanced engagement’ procedure has been ongoing with Myanmar and Bangladesh for two and three years respectively.
These countries are two other EBA beneficiaries. There is no sign – yet – that the EU will move to the next level: preference withdrawal. Whether they are actually ‘engaging’ better on substance with the EU than Cambodia is hard to ascertain from this week’s Commission report.
Myanmar’s human rights case is dire. The report on the EU’s ‘enhanced engagement’ processes released this very week by the Commission states that Myanmar is not addressing ILO concerns on child labour and freedom of association: “Myanmar has received urgent requests from the ILO supervisory mechanism for many years, in particular on forced and child labour and freedom of association,” writes the Commission. The scale of the human rights situation in Myanmar described in the report is hard to compare with the one in Cambodia. This is about large scale human rights violations including about getting clean on crimes against humanity.
Our understanding is that, due to other existing sanctions against Myanmar and other diplomatic engagements by the EEAS and some member states, the Commission refrained from pressing ahead with the preference withdrawal procedure. But the outcome of inter-intitutional wrangling in 2018/2019 was that DG Trade was ultimately allowed to proceed with the Cambodia case only.
Then there is the case of the Philippines. The Philippines benefit from the EU’s GSP + regime, an advantageous system of trade preferences for developing (but not least-developed) countries that abide by 27 environmental, human rights and labour rights conventions.
Although the Commission report on Philippines compliance with the conventions points to continued shortcomings and lack of serious engagement by the government on human rights – the murder campaign against drug dealers appears to go on – the EU is showing no signs of moving in the direction of the suspension of GSP Plus rights. It seems to consider that having suspended free trade agreement negotiations three years ago is enough.
So, again: why was Cambodia singled out and actually hurt?
The message this whole affair sends to the likes of ASEAN and developing countries is that of an EU that applies double standards. What is more: Footwear tariffs won’t likely free Kem Sokha.
EU and ASEAN ‘senior officials’ met this week. The EU would like to upgrade its relationship with the South East Asian grouping to that of a ‘strategic partnership’. But the process is not going anywhere – resentment against EU human rights and palm oil policy appears to play a role. “We recalled that the 22nd EU-ASEAN Ministerial Meeting in Brussels in 2019 had agreed in principle to upgrade EU-ASEAN relations to a Strategic Partnership, and looked forward to the timely conclusion of the upgrade,” states a press release after this week’s meetings.
Perhaps the new ‘geopolitical’ Commission will be able to come up with something better than the last ‘political’ Commission: a genuine strategy both for trade and for human rights in general, and with ASEAN in particular. One that actually delivers on both.