This article first appeared in Forum, The Edge Malaysia Weekly on May 13, 2024 - May 19, 2024

While the Lao chairmanship of the Association of Southeast Asian Nations (Asean) is still in its early stages, planning is already beginning in Kuala Lumpur for when Malaysia takes over the reins of Asean at the end of this year.

Malaysia has traditionally been a strong supporter of Asean and, more importantly, closer economic integration within the region and with the region’s partners. And while there might have been difficulties in the bilateral relationship with the European Union (EU) in recent years (think palm oil), Malaysia has always had the ability to look at the bigger picture.

There is, therefore, no reason to suspect that during its chairmanship, Malaysia will not seek to enhance external relations further, including with the EU, and to drive forward Asean integration.

At the regional level, we have seen remarkable consistency of themes and target areas between Indonesia’s Asean chairmanship in 2023 and the current Lao chairmanship.

Early indications are that Malaysia will also include connectivity, advancement of the digital economy, inclusiveness and sustainability as its themes for 2025. This is very much welcomed and points to a more concerted and cohesive approach across the region, with closer integration and alignment.

As one of the diplomatic heavyweights in Asean, we can be sure that Malaysia will use its influence to advance the Asean agenda in several areas.

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 is something 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 but, under its chairmanship, Malaysia will need to ensure that those discussions deliver on a forward-looking agreement and that the agreement is then fully implemented.

Looking beyond the intra-Asean scope, work is also ongoing on upgrading the Asean-China and Asean-India free trade agreements (FTAs). Given the close economic ties between Malaysia and both of 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, who their top trading partners are and where investment funds are coming from.

Trade is, therefore, very important, not just for its economic implications but also for diplomatic ones. Forging closer economic ties with external partners is also seen as key to fostering diplomatic linkages. Given the diplomatic tightrope that Asean often treads between the major powers of 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 is an area 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, with the total trading relationship being almost €60 billion when 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 (RM153 billion), roughly 18% of all FDI to the nation. But these numbers could, and should, be so much better.

Since Vietnam’s FTA with the EU commenced, it has seen its trade in goods with the EU increase by nearly 50%. Over the same period, Malaysia saw a 30% 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, there is no doubt that 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.

Underpinning the answer to this question is a range of issues, 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 Organization 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 is supporting the things 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.

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.

Malaysia should be seen in Europe as a good ally that can help it achieve a more productive relationship in general with Asean, an ally that can play a crucial role in navigating geopolitical minefields, keeping Asean as a neutral party and a friend at the same time.

And for Malaysia, Europe should be seen as a partner that can help further drive growth and provide support to deal with economic and environmental challenges ahead for all of us. Boosting trade relations will always be the first step towards a deeper political and diplomatic relationship, but it is not the only one.

Chris Humphrey is the executive director of the EU-Asean Business Council

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