IF there were any doubts about Southeast Asia as the region of best economic opportunity, the results of the 2022 EU-Asean Business Sentiment Survey would put them to rest.
More than any other country or region—think China, India and Europe—European businesses surveyed view Asean as a market that has become indispensable in terms of worldwide revenues over the past two years, and almost all expect a boom in profit for their operations in the region.
Against the backdrop of ongoing geopolitical tensions, rising inflation, and global supply chain disruptions, European businesses continue to regard Asean positively, citing strong economic recovery from the Covid-19 pandemic and an improvement in infrastructure across the region as key reasons.
The EU-Asean Business Sentiment Survey is an annual exercise to gauge the views of the European business community towards Asean. Results are a litmus test to reveal the ever-evolving business relationships between Europe and Asean.
Improvements needed on AEC, ATIGA
But it is not all rosy—for all that Asean Member States are doing to achieve their goal of becoming a single economic community, survey respondents do not regard regional economic integration as a dealmaker for their businesses.
Less than a third of respondents polled have business strategies based on the Asean Economic Community, with a significant number indicating there was not enough progress on the AEC to warrant such a regional strategy. For Asean, this may be an important area to focus on going forward if the intended benefits of Europe’s interest in the region are to have a more widespread impact.
That said, the number of European companies who believe the AEC has had a positive impact on their business activity has grown year on year. What they hope to see from Asean are more progress in harmonising standards and regulations, the removal of non-tariff barriers to trade, and simplified customs procedures for seamless flow of goods across borders.
These, along with a chapter on e-commerce, were also reflected in businesses’ response on what they think should be included in the upgrade of the Asean Trade in Goods Agreement. The main instrument driving the region’s economic integration efforts, ATIGA is being reviewed to ensure Asean remains relevant and responsive to regional and global developments.
More trade deals
AS with the last two years, nearly all respondents held the view that the EU should be accelerating negotiations on trade deals with Asean Member States. There was also an overwhelming increase in those who thought that a comprehensive region-to-region Free Trade Agreement (FTA) between the EU and Asean should commence now.
Businesses believe a region-to-region deal would deliver more benefits than a series of bilateral deals —but we must recognize that such a deal is very difficult to achieve. Additionally, eight out of 10 respondents felt that more trade deals would help their businesses. When asked which country the EU should next begin FTA negotiations with, Thailand topped the list yet again, like it did in 2021.
Climate action
Given that the EU prides itself on being the world’s climate leader, it comes as no surprise that firms see sustainability issues as the area in which the EU has the most influence on Asean.
In recent years, the EU has increasingly tightened its climate change policies, some of which have caused rifts in diplomatic relations with its partners in Asean. Most recently, the European Parliament has voted to widen a legislation to restrict goods into the EU that come from supply chains associated with deforestation.
There is also a proposal to require companies to conduct human rights and environmental due diligence across the whole of their business. Despite these developments that could upend business as usual, firms surveyed felt that overall, the EU’s sustainability policies would have a positive impact on Asean.
On the other hand, most respondents felt that Asean as a region was not serious enough about meeting sustainability goals, and that the goals themselves were not ambitious enough. Amongst Asean countries, Singapore leads the list with an 86 percent approval rating on meeting sustainability goals and was the only country that scored a positive outcome in the ambition of their goals.
Only one-fifth of respondents felt that ESG principles were sufficiently well-incorporated into sustainability initiatives in Asean, and when asked to assess how well the region is doing on climate action issues, Asean’s score was a mere 4.2 out of 10. This suggests European businesses feel strongly that the region needs to be doing much more.
Green supply chains are a clear and tangible climate issue. Asean has ambitions to attract a greater share of global supply chains, but only 3 percent of respondents felt that the region is doing enough to attain this goal.
The same sentiment goes for the Circular Economy—only 9 percent said they had confidence in Asean’s ability to deliver on it. This tells us that climate action must be taken more seriously, not just for economic benefits, but because every region needs to play their part in the global fight against climate change.
European businesses continue to see Asean as the region with the best business prospects over the next five years, but there is continued doubt about regional integration, non-tariff barriers, and trade. Equally important, if not more so, is the region’s sustainability agenda and its ability to do its part in the fight against climate change.
Chris Humphrey is the EU-Asean Business Council Executive Director