Bangkok Post | 16/05/2011
EU refines trade strategy
With Asean FTA off the table, country-by-country talks are moving slowly, with some major sticking points
by Umesh Pandey
BRUSSELS — Asian countries looking to undertake free trade negotiations with large trading partners such as Europe need to look at their own track records on both trade and political practices before starting talks as these are crucial to the overall conclusion of a pact.
The 10-member Asean bloc is among the top five trading partners of the EU. The 27-member group is the second-largest export destination for goods and services from Asean, and two-way trade was worth 147 billion last year, up from 124 billion a year earlier.
The EU had hoped to secure a pan-Asean trade pact but it abandoned the plan, citing the wide disparity between Asean’s developed economies and its least developed countries (LDCs). The EU believed such conditions would make a comprehensive FTA difficult.
"We already have many favourable terms for the LDCs, therefore having an FTA with the entire Asean grouping would have been very difficult," said a leading member of the trade negotiating team in Brussels.
The EU has switched to bilateral negotiations and is now in talks with both Singapore and Malaysia, while Vietnam is set to be the next target followed by Thailand in the near future.
"There are various factors we have to consider ... among them the principal stance on trade practices, democracy and human rights," added another negotiator, speaking on condition of anonymity during a recent background briefing in Brussels.
While democracy and human rights are not related to economics, it has been the position of EU member nations that a country with a bad record in these areas was unlikely to be allowed freely into an FTA, the negotiators said.
Even for Singapore, where talks are in advanced stages, passing a deal at the EU parliamentary level could face obstacles because of a perceived lack of democratic rule in the city state.
"Singapore is more of a one-party rule and the opposition is not given that much opportunity," said an official.
In this month’s elections, the People’s Action Party that has run Singapore for five decades won 81 out of 87 seats despite a popular vote of just over 60%, down from 66% in the 2006 election, when it won 82 out of 84 seats.
In the same way, trade practices that countries undertake often emerge as key issues that need to be tackled apart from political stability.
"If we talk about Thailand, there are various issues such as intellectual property rights, the ongoing political instability and even the practice of compulsory licensing [of pharmaceuticals]," the source said.
Compulsory licensing was introduced in 2007 by the military-backed government of Gen Surayud Chulanont and was bitterly opposed by big pharmaceutical firms across the world.
The negotiators says these issues are not forgotten or swept under the carpet, and may be raised when talks begin.
Other issues such as IP rights in fashion goods, software and other areas are also being seriously looked into. Negotiations have already started on these issues with the first meeting in Bangkok in February this year and another one set for Brussels in February 2012.
"Can we expect an instant result? I don’t think so, but it is the start of a process that would take time to materialise," negotiators say.
But without a conclusion on issues such intellectual property right, the likelihood of an FTA deal is unlikely.
The pharmaceutical industry is a potential major sticking point as copying of medicines in Thailand is becoming a big issue that the EU is taking seriously.
But the EU is also facing pressure from Asian countries that are looking to export herbal products. Under a 2004 EU directive on herbal medicine that took full effect on May 1 this year, herbal medicinal products without licences will no longer be allowed in the EU market.
A lot of these products have been sold as food supplements for decades. They now need to be medically registered in order to remain in the market.
This requirement is likely to reduce exports from Asian nations in a segment worth billions of euros. The rules cover all kinds of products including drinks, ointments or other herbal products including ayurvedic treatments.
The Traditional Herbal Medicinal Products Directive features a simplified registration procedure with a seven-year transition period for traditional herbal medicinal products to obtain medicine licences.
Instead of going through safety tests and clinical trials as regular chemical drugs, applicants must provide documents showing the herbal medicinal product is not harmful in the specified condition of use, as well as evidence that it has at least a 30-year history of safe use, including 15 years in the EU.
With the new rules on herbal products, the FTA negotiators say they now face a lot more more negotiations with Asian nations seeking fewer restrictions on their exports of the products.
The task is not easy as both EU officials and their Asian counterparts are looking to tap into each others’ markets.
"We are looking to export food, dairy, and chocolate along with other food products," said one negotiator, noting that up to 20% of the region’s produce goes to waste and food in the EU is relatively cheap _ only about 10% of disposable income is spent on food.
The EU sees more demand in increasingly affluent Asia for some of its key products be they agriculture- or technology-based. It is therefore keen on FTA agreements and recently reached a pact with South Korea.
Also on the agenda are India and, in the very near future, Indonesia. "To the EU it seems that one of the countries we have been forgetting is Indonesia and that is why our new focus is to push for opening up more trade with Indonesia," said the source.