NOTWITHSTANDING risks from “Brexit,” European businesses are upbeat on doing business in the Philippines – as is with the rest of the Association Southeast Asian Nations (Asean) – but they seek greater trade liberalization via a European Union-ASEAN free trade agreement (FTA).
A potential EU-Asean FTA could be a landmark trade deal in the increasingly borderless global economy as there isn’t any such region-to-region FTA anywhere in the world.
“This optimism and build-up of investment by European businesses in ASEAN will only rise further with the deepening of commercial ties between the EU and ASEAN, most notably with the conclusion and implementation of a sustainable, inclusive, high-quality EU-ASEAN FTA, which European companies are highly supportive of,” based on a 40-page research issued by the EU-Asean Business Council (EU-ABC) that in turn was based on the results of a 2016 business sentiment survey among its members.
The survey was conducted between March and June this year, EU-ABC chair Donald Kanak said in an interview, adding that all the talks about Brexit – of Britain’s exit from the EU – apparently did not dampen European businesses’ favorable view on Asean.
In the Philippines, 59 percent of respondents said they were keen on expanding operations in this market for the next five years while 29 percent said their investments would remain the same. Only 7 percent said they would pare down their exposure while 5 percent were not sure.
This sentiment holds true for the whole of Asean, with almost two-thirds (60 percent) of respondents planning to expand in the region and a further 31 percent maintaining their current level of operations. Only 4 percent were planning to contract.
By contrast, only 47 percent of European businesses in China plan to expand, with flagging business sentiment attributed to overcapacity in the Chinese economy and an increasingly challenging regulatory environment.
In terms of headcount, 55 percent of respondents with operations in the Philippines said they expected to hire more workers in the next five years while 34 percent said they would keep the same size of workforce. Some 4 percent said they would reduce manpower while 6 percent were not sure on their move. These numbers likewise reflected similarly upbeat labor prospects for the whole of Asean.
Asean’s attractiveness as a place to do business is reflected in the profit outlook for European businesses for 2016. Nearly three-quarters (74 percent) of respondents forecast an increase in profits for 2016 in the Philippines, in line with the regional average.
“It is clear that European business are optimistic and are investing for future growth in Asean. At a challenging time for the global economy, South East Asia is an economic bright spot and European companies are keen to invest in the region’s rapidly developing consumer market and increasingly integrated production base,” Danak said, noting that the level of optimism in this survey had increased from that seen in the previous survey.
“The survey shows strong support for a substantive and meaningful EU- Asean FTA to support sustained European investment in the region, and the EU-Asean Business Council urges leaders from the EU and ASEAN to work together toward that end, and in the meantime the rapid conclusion of bilateral FTA negotiations between the EU and ASEAN member-states,” he added.
Almost two-thirds (66 percent) of respondents said they wanted a European region-to-region FTA with Asean. More than half (58 percent feel they are at a competitive disadvantage without an overarching EU-Asean FTA.
Among the Asean member states, the EU so far successfully concluded FTA negotiations with Singapore and Vietnam in 2015. Negotiations with Malaysia were launched in 2010 and with Thailand in 2013 but these are both currently on hold. Negotiations on an investment protection agreement with Myanmar have been ongoing since 2014 and FTA negotiations with Indonesia and the Philippines – the two most populous nations in Asean – have been pursued since 2016.
“Hopefully they won’t have to go through all 10,” Kanak said, adding that having a region-to-region trade deal would be most beneficial to both regions.
While the World Trade Organization remains relevant in this area of globalization, Danakl said bilateral and regional trade deals seemed to be the direction for now.
FTAs have been the go-to instrument for governments aiming to drive economic growth and job creation by increasing trade in goods and services. But the study recognized that the proliferation of FTAs and the multiplication of rules that governed these agreements had been blamed for excessive complication and subsequently low utilization rates of such agreements, creating a “spaghetti bowl” or “noodle bowl” of crisscrossing, overlapping rules and regulations.
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