Southeast Asia is a trading partner for Europe

Late last year, Brussels hosted a major summit between the European Union and the ASEAN trade bloc, which brings together many of Southeast Asia’s fast-growing economies. This is significant as the bloc also signed a free trade agreement with Australia and New Zealand in 2009.

Despite ongoing efforts, a genuine Free Trade Agreement (FTA) between the EU and ASEAN is not expected anytime soon. Veteran Indian diplomat Gurjit Singh pointed to EU sanctions against Cambodia and Myanmar for human rights abuses as an important reason. Therefore, bilateral trade agreements are now more realistic.

During the summit, European Commission President Ursula von der Leyen pointed out that the EU has already signed free trade agreements with Vietnam and Singapore, adding: “We want to trade more with each other. Others. We are already each other’s third largest trading partner” and “Our main goal would be to negotiate a free trade agreement between the regions. »

Commodity trade

However, there are other deep differences. At the EU-ASEAN summit, Indonesian President Jokowi criticized the EU, warning about the EU’s new regulation on deforestation, adding that the EU should not try to dictate to ASEAN whether it wants to continue its relationship with Indonesia. will come.

He said:

“There should be no coercion, no party dictating all the time and assuming my standards are better than yours. »

Indonesian Foreign Minister Marsudi added that the regulation would “impede trade” and was “discriminatory” and warned that it would “impede Indonesia’s exports of goods”. »

Indonesia has new ties with non-EU trading partners as it announced it will negotiate a new FTA with the Eurasian Economic Union, while also developing deeper economic and strategic ties with the United States.

In countries like Indonesia and Malaysia, the two main palm oil exporters, small, family-owned businesses could be hurt by the EU’s deforestation rules, which threaten to add a lot of red tape to palm oil imports into the EU.

The regulation comes as palm oil-related deforestation is at its lowest level since 2017, according to research group Chain Reaction Research and Malaysian companies such as Sime Darby, the world’s largest certified sustainable palm oil producer. They have committed to achieving net zero emissions by 2050. In Sabah and Sarawak, the company also intends to afforest 400 hectares (ha) of peat plantations.

Unlike the EU, the UK requires products to comply with local regulations, thus effectively applying the principle of mutual recognition.

The EU’s new regulatory initiative really smacks of protectionism, especially as removing palm oil from the supply chain will worsen deforestation, as European-produced alternatives like sunflower oil or rapeseed require more land, water and fertiliser.

Energy

Another major point of tension between the EU and Southeast Asia is the international legal battle over control of Malaysia’s oil and gas reserves, a topic that does not receive much attention in political debate. supplies.

The legal dispute stems from a colonial-era agreement in 1878 that gave the British North Borneo Company access to what is now part of Malaysia and is known as Sabah. At the time, the late Sultan of Sulu was a claimant to the territory and claimed that the sultan allowed the British “to benefit from its minerals, forest products and animals” in return for an annual rent.

The British kingdom acquired this work after the Second World War. Sabah was included in the composition of the new Malaysia created in 1963. For decades, several Malaysian governments paid the sultan’s heirs an annual sum of RM5,300 as part of the cession, but Malaysia stopped the payments in 2013 following an armed raid from Lahad. Datu, led by supporters of the late Jamalul Kiram III, who claimed to be the Sultan of Sulu, made an effort to claim eastern Sabah.

In February 2021, a French arbitration court awarded $14.92 billion to the heirs of the late Sultan of Sulu, a remote region of the Philippines, against Malaysia, saying the contract was a “lease contract of private international trade”. With the Sabah High Court ruling in March 2020 that Malaysia is the appropriate venue for disputes arising from the 1878 treaty, the Malaysian judiciary is strongly challenging the jurisdiction of non-Malaysian courts.

European courts have ignored these regional decisions. The French arbitration decision resulted in the Luxembourg takeover of two subsidiaries of Malaysia’s state-owned oil company Petronas in the summer of 2022. The value of these arrests is unknown. Because Sabah has significant oil and gas reserves, major economic interests are at stake. A day after the confiscations, a French court suspended the execution of the sentence pending an appeal.

Conflict of interest?

According to an expert analysis published by the Transnational Arbitration Institute, Spanish arbitrator Gonzalo Stampa conducted “an arbitration that some have completely misdirected.” According to the analysis, it “ruled in favor of the claimants in the context of a highly contested ad hoc arbitration where neither the alleged arbitration clause nor the conduct of the proceedings had been accepted by the parties. , Spain. The arbitrator took actions that could be considered unreasonable, excessive or even provocative, such as changing the venue of the arbitration and resulting in a polarizing award. »

The Malaysian government has also filed criminal charges against Stampa, which appears to have close ties to the Spanish law firm B. Cremades & Asociados, which represents the plaintiffs. According to Stampa himself, in a 2015 interview, he has a close and long-standing relationship with the firm’s founder, Professor Bernado M. Cremades, who hired him right out of law school. He worked with Cremades for thirteen years, learning everything he knew about arbitration from Cremades before starting his own firm. “I have nothing but gratitude for him,” he told Stampa. During this period, he is the author of the book Commercial Arbitration in Spain: history and existing legislation, published in 1994 with Stampa Cremades.

In November 2021, a month after Stampa moved the arbitration seat from Madrid to Paris, Stampa and Cremades participated as speakers at the same legal conference, specifically in Kuala Lumpur, after his appointment was revoked by the Madrid Supreme Court. , on international arbitration. Obviously, the world of arbitration law is a small one, but some may wonder whether a close relationship between an arbitrator and a party does not constitute a conflict of interest that could undermine the arbitrator’s impartiality.

Either way, the whole episode raises tensions between Malaysia and Western Europe, which could seriously jeopardize the EU’s relations with ASEAN.

The result

Despite new pressures to “break away” from Russia and China, great business opportunities remain in Southeast Asia, especially with its fast-growing economies and generally pro-Western political attitudes. The differences are mostly about issues that can be resolved. It would therefore be a shame not to invest more political capital in strengthening trade relations between the EU and ASEAN.