OBG talks to Karel de Gucht, EU Trade Commissioner

Interview: Karel de Gucht

What is the trade potential that would be unlocked by an ASEAN-EU Free Trade Agreement (FTA), and what are the main sticking points in its adoption?

KAREL DE GUCHT: All available studies indicate that both trade volume and export values would increase substantially under a FTA between the EU and ASEAN. Moreover, investment both from the EU and within ASEAN is set to increase with tariff reductions. The cost of doing business in some ASEAN countries and sectors is still quite high so further reforms facilitated by the FTA will lead to substantial benefits. In particular, liberalisation of services will generate additional gains. Investors will also benefit from ASEAN's ongoing integration and harmonisation agenda. This will add an estimated 2% to the ASEAN total GDP by 2020.

The European Commission started negotiations with ASEAN in 2007 and, although it had to pause this process two years later, mainly due to the different level of ambition of the ASEAN members, we still have the objective to conclude a region-to-region agreement. Bilateral negotiations for FTAs have started with some individual South-east Asian countries. These individual FTAs are meant to be building blocks towards an agreement in the regional framework.

How can protectionist policies be prevented in this era of economic uncertainty?

DE GUCHT: History has taught us that the risk of rising protectionism is always greater during an economic downturn, and there are ongoing efforts on several fronts to clamp down on such development. Successive meetings of the G20 have resulted in commitments to avoid protectionist measures until 2013, and to roll back any measure already put in place since the beginning of the crisis. The EU played a key role in pushing for these G20 commitments. At the EU level we have also closely monitored trade restrictions imposed by third countries and have regularly reported our results in order to help monitoring work done in this area by the World Trade Organisation and others. Unfortunately, despite commitments made, several countries are currently moving towards industrial policies based on import substitution, local content requirements and restrictions in public procurement.

The ambitious trade agenda that the EU has set for the coming years in its 2010 Communication on "Trade, Growth and World Affairs" should serve as an engine for economic growth and job creation. It proposes a strategy to reduce trade barriers, open global markets and therefore fight protectionism.

What are the major factors limiting growth in international trade and economic activity in the Philippines compared to the region?

DE GUCHT: Recent reports and surveys show that foreign direct investment (FDI) in the Philippines is much lower than that in other ASEAN countries and that the perceived institutional inefficiencies make FDI in the Philippines less attractive. Therefore, FDI has the potential to increase with the removal of constraints and an improvement of the investment climate.

How can trade and diplomatic relations between the EU and the Philippines be strengthened?

DE GUCHT: Bilateral relations between the Philippines and the EU are certainly strengthening. This is reflected by the successful conclusion of the Partnership and Cooperation Agreement. Yet there is more to be done.

In today's global economy, investment is a key factor in generating trade and growth. There is an increasing need from investors for a more open and predictable regulatory environment with efficient, business-friendly procedures. Investors benefit when regulations are transparent and implemented in an objective manner. It is also important to streamline lengthy and excessively costly administrative procedures that in practice often constitute a disincentive to investment. This would create many new investor opportunities for European companies, and would in turn also lead to much stronger trade relations between the EU and the Philippines.