Asean

2023 as seen by ASEAN citizens

Economy, employment, and environment are top concerns of Southeast Asian peoples, who endorse "ASEAN WAY" in diplomacy

Unemployment, inflation, lack of raw materials, climate change, increasingly intense weather events, widening socio-economic gap and income disparity. These are the main concerns of citizens in the ten ASEAN member countries. The figure emerges from the long-awaited annual report The State of South-east Asia by ISEAS - Yusof Ishak Institute in Singapore. The results of the annual survey, which is useful to understand what Southeast Asian citizens expect from the year that has just begun, indicate that 59.5 % of the 1,308 respondents in the 10 ASEAN countries ranked unemployment and economic recession as a more pressing concern than climate change, which ranked second with 57.1 %. Rising socio-economic gaps and growing income inequality ranked third, while only after that were the growing geopolitical tensions mentioned by all international media in reference to opposing maneuvers in the Asia-Pacific. Indeed, 73% of the respondents expressed fear that ASEAN is becoming an arena of geopolitical competition, another sign that the classic "third way" of neutrality and pacifism adopted by the bloc is convincing the region's citizens. China continues to be considered the most influential economic power in the region, followed by the United States. China was also ranked as the most influential and strategic power in Southeast Asia. Again, the United States follows in second place. A testament to the fact that the bloc's citizens approve of their government's attempt to keep the doors open to everyone but not turn against anyone. When all is said and done, Southeast Asian respondents continued to prefer the option of strengthening ASEAN's trust and unity to fend off pressure from the U.S. and China amid tensions between the two powers. The traditional option under which ASEAN sides with neither China nor the United States saw more support this year than in 2022, while a third option growing in popularity involves ASEAN seeking to deepen relations with "third parties" such as Japan or India to increase its strategic space.

Italy and Vietnam, 50 years of friendship

Editorial by Lorenzo Riccardi, Managing Partner RsA Asia

Hanoi is Rome's main trading partner in ASEAN. And it is on the list of priority countries for investment promotion

Italy and Vietnam are getting closer and closer. In 2022, trade between the two countries reached an all-time high of $6.2 billion, up 11% from 2021. A trend that has been on the rise for a while and has led to doubling figures within a decade. And that is set to continue, as Italy has included Vietnam in its list of 20 priority countries for trade and investment promotion through 2030. Among other things, next March 23 marks the 50th anniversary of bilateral relations, and to celebrate the recurrence a calendar of initiatives is planned to promote cultural and economic ties. For example, on the occasion of the Lunar New Year, the Consulate of Vietnam in Turin on January 30 organized a round table discussion on investment opportunities in Vietnam and Southeast Asian countries. Along with the writer, Sandra Scagliotti, Honorary Consul of the Socialist Republic of Vietnam in Italy, and Mario Donadio of Leading Law participated. Vietnam is Italy's main trading partner in Southeast Asia, but the whole region offers great opportunities. The political and economic union of the ten members of the Association of Southeast Asian Nations counts on a huge market, with 667 million people and a territory of 4.5 million square kilometers; it is the third largest economy in the Asia-Pacific and the fifth largest in the world. The ASEAN Economic Community (AEC) has a combined GDP of $3.6 trillion, according to estimates for 2022. The International Monetary Fund released its World Economic Outlook on January 31, 2023. The report forecasts global growth for 2023 at 2.9% before rising further to a GDP rate of 3.1% in 2024, which is an upward revision of 0.2 percentage points from the October 2022 estimates. The recent reopening of China's borders is expected to pave the way for a faster-than-expected global recovery. For the five largest ASEAN economies (Indonesia, Malaysia, the Philippines, Thailand and Vietnam), growth is projected at 4.3% in 2023. Cooperation with Europe and Italy is set to increase further.

Climate diplomacy: where is the green light for change?

Political tensions and economic competition are slowing down the race towards the green transition. The war in Ukraine is changing Russian fossil fuel routes, but supply agreements are particularly advantageous for partner countries such as China

2022 was a black year for climate diplomacy. Although the 2021 Conference of the Parties (COP26) seemed to have rekindled decision-makers' focus on the climate crisis, the natural disasters that followed, the war in Ukraine, and a further slowdown in the markets have contributed to a completely different trend this year. COP27 saw presidents from some of the major global economies rushing past on their way to the G20 summit in Bali, while delegations from the most fragile countries only got the promise of funds for loss and damage, i.e. economic compensation for suffering the worst effects of climate change. Although not reaching the agreed quota of USD 100 billion, this decision was hailed by many as a first milestone towards climate justice. However, as new models by climate researchers demonstrate, the damage resulting from the climate crisis is far greater than has been calculated so far. Today, many of the world's most endangered cities are in Asia, including several major regional capitals such as Bangkok, Ho Chi Minh City, and Manila.

The meeting between US President Joe Biden and his Chinese counterpart Xi Jinping on the side-lines of the G20 summit has revived the rollercoaster of climate diplomacy, creating a sense of cautious optimism following commitments from the world's two biggest polluters. However, Washington and Beijing's actions are not yet consistent with their narrative of each country’s 'leading' role in the green transition. Looking east, China's promise to offer alternative models of sustainable development is still far from supporting the most urgently needed reforms. Neither the more heterogeneous ASEAN bloc nor the advanced East Asian economies seem ready for a rapid energy transition and achieving carbon neutrality. The first target is 2030, when Japan promises to have cut emissions by 46 per cent compared to 2013 figures, China aims to peak its emissions, and South Korea is bound by the Global Methane Pledge to reduce methane emissions by 30 per cent compared to 2020. China is missing from the latter mechanism, and has also released itself from the loss and damage fund.

South-East crossroads of interests 

Another interpretation of China's decisive role sees Beijing as the leader of a 'positive competition' with Washington, where the two countries seek to gain status (and budget) from their dominance in multilateral forums and in the market for energy transition technologies. But recent US manoeuvres targeting the semiconductor sector and manufactured goods produced in Xinjiang (which mainly include solar panels) risk turning competition into rivalry. What is certain is that China's promises combined with economic interest are having an impact on the countries most dependent on Chinese funding in the fossil fuels sector. One example is Vietnam, which must now consider whether to build new coal-fired power plants in the absence of Chinese capita due to Beijing's promised ban on foreign investment in the sector. Nevertheless, Southeast Asia's energy demand continues to rise, having grown more than 80 per cent in less than twenty years, and the easiest and most immediately available options are the most polluting energy sources, which continue to occupy more than 80 per cent of the region’s energy mix. Financial incentives also accompany the more practical availability of cheap natural resources, as in the case of Indonesia, which is the world's third largest coal exporter. Furthermore, the war in Ukraine is changing Russian fossil fuel routes, with supply agreements which are particularly advantageous for partner countries such as China.

Southeast Asia is at the crossroads of the interests of new investors avoiding China and older relationships rooted in the economic fabric of different countries. Japan, the main investor in Thailand in 2022, has long been eyeing the opportunity to build electric cars and components necessary for the energy transition. There is also a strong interest in new sustainable agricultural supply chains, as well as in businesses that can transform the tourism sector according to parameters more consistent with the UN agenda for sustainable development. In this case, the challenge is much broader than merely addressing the energy dossier, because it requires deep reflection on the environmental and social impacts of sectors that have driven the economies of several countries in the region over recent decades.

The challenges of sustainability between India and Central Asia

Far from the spotlight of climate diplomacy, but extremely important for its economic and demographic weight, India has to reckon with the challenges of uncontrolled modernisation. The unbridled growth of its cities is not matched by reasoned urban planning (think, for example, of private vehicle traffic), while water resources and soil health have plummeted since the 1950s. The evidence on the ground is not yet matched by an awareness of playing a proactive role at the climate negotiation table. Even for New Delhi, competition with China is a priority. Furthermore, while on the one hand the Indian government forms new working groups for the enforcement of multilateral agreement directives, on the other hand it moves to repress environmental organizations and activists.

Finally, Central Asia focuses on climate change adaptation measures rather than demanding more responsibility from the big polluters. While in some places like Kazakhstan the race for economic leadership in the region seems to overshadow environmental promises, in other countries such as Kyrgyzstan there is a strong concern about extreme climate phenomena and food security. The competition over water resources, which has recently emerged with clashes along the Kyrgyz-Tajik border, also opens dangerous scenarios of climate change as an accelerator of conflict in the region. The main promise, as stated by the leaders involved in the UN environment agency's project on climate security in Central Asia, is to work together with international organizations to build a socially and economically sustainable adaptation strategy. Here too, however, the role of a prominent player like China could influence the design and electrification choices of newly urbanized areas. Looking at the resources in the area (water sources along the border with Xinjiang, natural gas wells), another side of the coin becomes visible: predatory scenarios that are not new in Asia, such as the case of the Chinese dams along the Mekong Delta.

World moves closer to ASEAN

China, Japan, the United States, Europe, and Italy: relations with Southeast Asia are increasingly being seen as globally strategic

If there is a clear trend in the global commercial and geopolitical landscape, it is the willingness of the major powers and all the more developed or emerging countries to deepen their relations with ASEAN. Southeast Asia is increasingly seen as an indispensable center of economic and diplomatic cooperation. Just look at what has happened recently and what may happen in the near future. In 2022, the first year of the Regional Comprehensive Economic Partnership (RCEP) coming into effect, China recorded a 15 percent year-on-year increase in trade with ASEAN, which firmly holds the position as China's top trading partner. In 2023, it is foreseeable that the pace may even increase, in step with Beijing's accelerating growth. President Joe Biden's participation last November at the ASEAN summit in Cambodia, on the other hand, confirmed that the United States has also stretched the pace in a region that is also crucial for strategic reasons. The investment plan announced by the White House is finally moving in the direction of U.S. involvement not only on the defensive and military side, but also on the infrastructural and environmental side, given the focus on energy transition involving all ASEAN countries. Moving very decisively are certainly not only the superpowers. Japan, for example, has long been an established presence in Southeast Asia. Ever since 1977 and the launch of the "Fukuda Doctrine," named after the then prime minister who during a famous trip to the Southeast expressed Tokyo's commitment not to become a military power and to build a relationship of mutual trust with ASEAN and its member countries. Since then, Japan has become one of the bloc's major trading partners and investors and a major source of infrastructure funding. Now the country is seriously considering elevating its relationship with ASEAN to a comprehensive strategic partnership, putting it on par with China and the United States. South Korea recently launched its first Indo-Pacific strategy, which reserves deepening relations with ASEAN as one of its pillars. The region is also set to become the largest destination for foreign direct investment from Taiwan. The European Union, for its part, has realized that its interests increasingly coincide with those of ASEAN, and the possibility of a free trade agreement between the two blocs no longer seems so remote. A development that would also benefit Italy, whose businesses are looking with increasing interest toward the Southeast.

Tourism rebounds in ASEAN countries

According to WTTC, Southeast Asia will be the first to return to pre-pandemic levels of tourism. But contradictions and opportunities of mass tourism pose new questions

December 2022: Christina Aguilera posts a reel on her Instagram account that collects more than 25 thousand likes. The US pop star is spending her birthday in Vietnam, in the background of the landscape of Ha Long Bay, a UNESCO heritage site. The singer takes a helicopter ride, then celebrates with a toast on a yacht. All around, still few tourists, especially for a place that came to record more than 7 million visitors in 2017. By 2020, after the first pandemic wave, arrivals to Ha Long had plummeted to 1.5 million. Only a year earlier, environmentalists called for more attention to the natural area, where the construction of the new airport could trigger an environmental catastrophe due to the future tourist boom.

Ha Long's popularity and the decline in tourism due to the pandemic do not provide sufficient evidence to reason about greater landscape protection. Recovery, however, is near: according to data from the World Travel and Tourism Council (WTTC), the Asia-Pacific region will be the first to return to 2019 figures, with projections of 8 percent year-on-year growth over the long term. In addition, over the next decade, workers in the sector could increase to the point where they occupy 64.8 percent of the global total.

Ready for recovery

That 2023 could be the year of recovery is also told by actors in the territory. In January, Tourism Council of Thailand (TCT) President Chamnan Srisawat said that forecasts are for at least 20 million tourists to Thailand in the new year, almost doubling from 2022 numbers (11.8 million). The Vietnam National Tourism Administration (VNAT) also forecasts 8 million international arrivals, for estimated earnings of about $27.5 billion. In Cambodia, preparations are being made for the return of crowds to the well-known Angkor Wat complex. "The government has devoted a lot of effort to a recovery plan for the tourism industry," Top Sopheak, spokesman for the Ministry of Tourism, told the Chinese news agency Xinhua. "We believe that foreign tourists will increase in the coming years, especially in Angkor, as many airlines have resumed flights."

ASEAN has also been studying measures to address travel recovery in the post-pandemic era. As early as January 2022, a meeting of tourism ministers highlighted the need to take coordinated measures to boost the recovery of the tourism sector and achieve a number of goals already set out in the ASEAN Tourism Strategic Plan (ATSP) 2016-2025: not only a better quality of tourism offerings, but also a greater focus on the social and environmental sustainability of the sector. Examples given in the meeting's press release include the urgent need to support small and medium-sized enterprises, increase the skills of tourism operators, and protect the environment and historical heritage.

A fragile compromise

The basis for a recovery of Southeast Asian economies also (though not only) through the tourism industry is a given. The easing of restrictions due to the pandemic has already led to a growth in foreign entries, from which come tourists with ample spending power compared to domestic travellers. A possible recovery of the more developed economies also promises significant revenue for the most tourism-dependent country such as Thailand, but also an opportunity to invest in the sector as is happening in Vietnam.

What remains is the dilemma of the sustainability of the sector, especially in those areas where border closures have brought with them serious damage to the local socioeconomic fabric. As the International Labor Organization (ILO) pointed out in its 2021 report, the pandemic has caused an unprecedented collapse of job opportunities, especially affecting those sectors related to international tourism and global value chains. Adding to the dependencies that can be created in the labour market are other side effects of mass tourism: inflation, inflated real estate prices, and environmental degradation. The impact of mass tourism in Southeast Asia is primarily on ecosystems. It only took a few weeks of lockdown to return natural habitats to their true inhabitants. This has happened, for example, in Thailand, where a group of dugongs has returned to populate the waters around Libong Island. To date, there are still few Southeast Asian destinations that impose restrictions to safeguard the natural heritage of the excessive amount of tourists lured by the region's breathtaking views. Such as in Boracay, a small Philippine island where a total ban on entrances was imposed in 2018 to allow the waters to be cleaned of the accumulation of polluting sewage spilled from accommodations. Some restrictions have recently been adopted on the use of beach sand but, on the other hand, the green light for fireworks to celebrate New Year's Eve signals a more lax policy to keep the popularity of the tourist destination high.

ASEAN, development is the watchword

While the war in Ukraine is continuing, integration, cooperation and growth remain at the center of Southeast Asian countries' plans

2023 started the same way 2022 closed: with the West worried about the war in Ukraine and inflation on the one hand and Asia trying to strengthen its growth on the other. And it is precisely ASEAN that is increasingly emerging as a platform for investment but also for dialogue. A trend clearly anticipated by two accelerating processes: the flow of foreign projects into Southeast Asian countries and the moves of their governments in opening up to international trade and mobility. In addition to the stimulation of domestic demand, which already returned to vibrant growth in 2022, the region's executives have realized that removing regulatory, normative, and fiscal barriers allows them to reinvigorate engagement on the two key concepts of openness and integration. Pillars of improved multilateral trade and policy dialogue. Free trade has been a key driver of Asia's development in recent decades, but now some global powers are adopting semi-protectionist postures, forcing several companies to reconsider their supply chains. Despite this, Asia continues to be the most dynamic region in the world, buoyed by the development orientation of most of its governments. From the Regional Comprehensive Economic Partnership to other free trade agreements, examples supporting this perspective are numerous even in the last few pandemic years. The results can be seen. In 2022, Vietnam grew more than 8 percent, a record high since 1997 driven by a 13.5% increase in foreign direct investment. Not only by those moving part of their production lines from mainland China but also and especially as part of new projects that the region is increasingly able to attract. Including those related to hi-tech manufacturing. Of course, global uncertainties have led the Asian Development Bank to reduce its 2023 economic growth forecast for developing Asia, which includes 46 economies, from 4.9% to 4.6%. Excluding China, the growth rate was reduced from 5.3% to 5%. An expansion of about 5% would still be the fastest of any region in the world. Moreover, the Southeast Asian region is set to become the world's largest single market by 2030. 

ASEAN epicenter of growth in 2023

The year that has just begun features many uncertainties, from the war in Ukraine to inflation, but also one certainty: the pivotal role of Southeast Asia

"ASEAN Matters: Epicentrum of Growth." That is, "ASEAN matters: epicenter of growth." This is the apt slogan chosen by Indonesia for its 2023 rotating presidency of the Southeast Asian bloc of countries. After successfully hosting the G20 summit in Bali, the Indonesian government confidently embarks on its next goal: to coordinate the diverse positions and interests of ASEAN member countries, maintain the unity of the bloc, and further elevate Southeast Asia's stature as a global growth center. It is a mission made less complicated by the trend in the area already in the past few years. In spite of all the difficulties created first by the Covid-19 pandemic and then by the war in Ukraine with its many side effects starting with inflation, the region has held up brilliantly. Perhaps one of the most interesting stories to tell is that of Vietnam, which grew above 8 percent in 2022, the highest figure in 25 years. But it is not just about data and percentage points of gross domestic product. Also counting in a positive way is the openness predisposition always maintained by the bloc, albeit with due differences and discontinuities among member states. In 2023, Indonesia will try to make all these elements "count" even more on the international level, while on the regional level it intends to maintain its focus on expanding economic cooperation at the bloc level. Jakarta will also try to build consensus on food and energy security by strengthening supply chains. There is no shortage of complicated challenges on the domestic front as well, chief among them the crisis in Myanmar, an issue on which the Indonesian presidency will try to make significant progress. Never losing sight of the fact that free trade has been a key driver of Asia's development in recent decades, and Southeast Asia has long been showing that it wants to avoid at all costs not only so-called economic decoupling but also a new cold war in which major powers push everyone else to choose sides. The motto of the Indonesian chairmanship reiterates that ASEAN's choice is one of economic growth and trade integration.

Timor Leste towards ASEAN’s membership

After more than ten years from its candidacy, Dili is preparing to become the eleventh member state of the South-East Asian bloc.

Signed at the end of the 40th ASEAN Summit held in Phnom Penh, the agreement in principle granted Timor-Leste observer status and participation in all ASEAN meetings, including the summit plenaries. The country would be the first new ASEAN member in more than two decades since Cambodia's admission in 1999.

The expected decision comes after years of debate, which includes initial reluctance from Singapore. President Ramos-Horta presented East Timor's candidacy for ASEAN membership in 2011, one year before completing his first five-year term. At the time, the request brought out quite a bit of resistance even at home, due to the country's lack of human and economic resources to adapt to ASEAN programs, and above all the financial obligations that members are required to pay to manage the regional organization. The decision is therefore a great achievement for Ramos-Horta, who won the Nobel Peace Prize in 1996, together with the then bishop of Dili Carlos Ximenes Belo, for their peaceful campaigns in favor of the independence of East Timor from Indonesia. Inclusion in the regional bloc would in fact seem to be the beginning of a mea culpa from Indonesia towards its former colony.

The history of the two nations is marred by the loss of thousands of lives and the horrific acts of violence that marked the 24-year Indonesian occupation of what was then East Timor. Many more were killed in the aftermath of the United Nations-approved referendum on August 30, 1999, when the East Timorese voted for independence from Indonesia.

In December 1975, with the full approval of US President Gerald Ford and Australian Prime Minister Gough Whitlam, then-President Suharto invaded East Timor, after it was abandoned by Communist-controlled Portugal. For more than two decades, Indonesia acted as the colonial master of East Timor, which was named the twenty-seventh province of the Republic. However, the United Nations has never recognized Indonesia's sovereignty over East Timor, thanks in part to Ramos-Horta's global campaign. In the wave of change that led to the fall of the Suharto regime, his successor BJ Habibie decided to let the people of East Timor choose the future of their country, through a referendum that sanctioned independence from Indonesia, with almost 80% of the votes. Unable to accept such a defeat, the Indonesian army and its militias began an unparalleled destruction, forcing hundreds of thousands of people to flee. Peace was restored only after the United Nations sent multinational troops and the Indonesian military agreed to cooperate. Timor Leste was chosen as the official name of the new Republic, which declared its full independence on May 30, 2002. 

Timor Leste, which shares the islands of Nusa Tenggara with Indonesia, is now among the world's poorest nations, the main reason why Singapore had opposed its entry into the bloc. All these years, it was President Joko Widodo who pushed fellow regional leaders to accept Timor-Leste as part of the group. From the outset Singapore questioned East Timor's capability to join the trade bloc, fearing that such an impoverished state would just become an unnecessary burden on ASEAN.

However, ASEAN has admitted new members despite low human and economic resources. Timor Leste remains a low-income country, but its welfare is better than Myanmar today. It enjoys huge reserves of oil and gas, and in 2021 per capita income was $1,400. 

Helping new member states is standard procedure for ASEAN. Its history shows this first with Laos and Myanmar in 1997 and then Cambodia in 1999. New members of the bloc were also given special treatment to catch up with economically stronger members such as Indonesia, Vietnam, Thailand.  

While waiting to receive the same treatment, the conditions are before everyone's eyes. Joining ASEAN would finally give Timor Leste a level playing field within the group and access to a huge market, which would help the country grow faster and be part of decision-making processes. Indonesia will not be able to repay its debt, but it is ready to write a new future.

ASEAN, 2023 a year of challenges and opportunities

The coming year may further strengthen the economic and diplomatic role of the bloc of Southeast Asian countries, which could also welcome a new member

2022 was the year when ASEAN and Southeast Asia proved to be a platform, indeed "the" platform par excellence, of economic and diplomatic restart at the global level. Not just greater resilience to inflationary pressures, the region posted excellent economic recovery numbers despite all the difficulties associated with the tail end of the Covid-19 pandemic and the war in Ukraine. More. The success of the various multilateral summits held in the area, between G20 in Indonesia and APEC in Bangkok, confirms ASEAN's ability to be considered a reliable diplomatic interlocutor. This is despite some grey areas and unresolved problems, chief among them the crisis in Myanmar on which the Cambodian rotating presidency, despite several attempts, has failed to make significant progress. There will be no shortage of challenges in 2023, but the feeling is that the Indonesian presidency will do all it can to seize the opportunities. After hosting the G20 in Bali, the bloc's largest economy is projecting strongly on its role as a regional leader. Jakarta will thus aim to create a network of intra-regional cooperation ranging from climate change and cyber defense to the digital economy and food security, the latter of which is placed among its 2023 priorities. It is also possible that a decisive boost will come to the entry of an eleventh member into the Association: East Timor. There are those who raise misgivings about the different conditions of Dili's economy with that of the bloc's more advanced countries, but ASEAN will never fully overcome its inherent diversity, but it is proving to be able to exploit it as a strength and a point of pride. ASEAN has managed to prevent the emergence of conflicts between major powers and regional wars since the end of the Cold War, when Vietnamese troops withdrew from Cambodia in 1989, paving the way for the 1991 Paris Peace Accords. The bloc overcame the Asian financial crisis by expanding intra-regional trade and promoting a common foreign exchange regime. More recently, the East Asia Summit successfully brought outside powers to its table, including the United States, China, Russia, Japan and Australia, strengthening the bloc's diplomatic power. The ASEAN "third way" seems to be a path to be pursued more and more decisively.

The fintech revolution in Southeast Asia

In Singapore, the digital market is transforming the banking sector, with the Asian city-state's recent opening to digital banks threatening the monopoly of traditional banks. A regional trend

The expanding digital payments market in Southeast Asia is expected to reach a volume of $2 trillion by 2030. According to a report produced by Google, transactions by that date are expected to triple in comparison to the previous decade, thanks to the driving force of fintechs and growing digital banks in the region. This annual study was co-sponsored with Temasek Holdings, Singapore's state-owned investor, along with other consulting firms, and looks at digital market trends in six countries-Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. Another growth vector according to the report is the massive increase in Internet users, expected to reach 460 million by 2022. These numbers are likely to multiply in the coming years, in line with the population development dynamics throughout the Southeast Asian region. While during the pandemic, digital adoption saw a sudden growth throughout the area, now most companies are slowing down the phase of acquiring new customers to improve the engagement of those already reached in the past years. That's why, according to the report, the rapid acceleration seen in the past few years is now embarking on a normalization process, with a modest total of 20 million new users expected by 2022, representing half of what was achieved between 2020 and 2021. In Singapore, the digital market is transforming the banking sector, with the Asian city-state's recent opening to digital banks threatening the monopoly of traditional banks. According to Nikkei Asia's Tsubasa Suruga, the big banking groups can sleep soundly for the time being: their dominant position still keeps them ahead of the game, with their wide range of services and large customer base in tow. For virtual banks to match the profitability of these players will still take time.

The results of the EU-ASEAN summit

Editorial by: Alessandra Schiavo, Deputy Director General/Central Director for Asia and Oceania Countries at MAECI

The 1st EU-ASEAN Summit at the level of Heads of State and Government was held in Brussels on December 14. The event celebrated the 45th anniversary of the Dialogue Partnership between the then EEC and ASEAN, as well as its gradual strengthening. Since 1977, the bi-regional relationship has grown exponentially, with the respective members now facing multiple risks and a radically changed international framework: climate change, health vulnerability, post-Covid recovery, energy crisis, food security, as well as intense competition on the political and security fronts.

Against this backdrop, ASEAN has emerged as a key player for the European Union, interested in promoting the values of pluralism and tolerance against crises that undermine stability, such as the aggression in Ukraine and the heinous coup in Myanmar.

The gained realization that only by working together can peace be preserved and shared prosperity generated, the EU became ASEAN's Strategic Partner in 2020, with an increasingly fruitful dialogue on security matters. The EU is also the Association's third largest trading partner. In October, the EU-ASEAN Comprehensive Air Transport Agreement, the first interregional air transport agreement, was signed. At the Summit, the Team Europe Initiative on Sustainable Connectivity with ASEAN (joined for Italy by CDP) was presented; Partnership Comprehensive Agreements with Thailand and Malaysia were also signed.

The Summit concluded with a Joint Final Communiqué, which emphasized economic cooperation and on connectivity, sustainable development, green and digital transition, and identified a point of consensus on some of the thorniest international issues. It was attended by the Presidents and Prime Ministers of EU and ASEAN countries (except Myanmar), as well as the heads of the two Regional Organizations. With the participation of Prime Minister Giorgia Meloni, Italy intended to renew its growing attention to ASEAN, a pivot of stability in the Indo-Pacific and a part of the world that is increasingly essential for geostrategic balances and to which we are increasingly committed. Not surprisingly, the Summit was also an opportunity to enhance the Development Partnership between Italy and ASEAN (in its political-security, economic, cultural and development cooperation volets). A bond that is cultivated through concrete and capacity-building initiatives, and that finds in the annual "High Level Dialogue on ASEAN-Italy economic relations" (whose next edition, in 2023, will be hosted by Thailand) a crucial moment of synthesis.

EU-ASEAN trade agreements: where do we stand?

In Brussels there is interest in concluding new free trade agreements, although the road is uphill for the negotiations with ASEAN partners. International tensions and domestic concerns (on both sides) make the dialogue more complex. But international trade remains vital for the economies of both blocs.

The Czech EU Council Presidency had identified in mid-2022, as its priorities, the conclusion of new free trade agreements (FTAs) 'particularly in Latin America and the Indo-Pacific (...) with like-minded partners'. A priority shared by the MEPs who, during the meetings with the Prague’s delegates in the first weeks of the Presidency, expressed the urgency of concluding the agreements with New Zealand, Mexico, Chile, Australia, India and MERCOSUR. In other words, the desire to open up to new markets through bilateral agreements is alive in Brussels, but the different negotiating tables are viewed with varying degrees of optimism. The treaties with ASEAN countries under discussion at the moment - with Indonesia and the Philippines - seem more difficult to conclude. Negotiations with Malaysia and Thailand have been stalled for years due to the internal political events in the two countries - if the negotiations with Bangkok are restarting, those with Kuala Lumpur will have to deal with the increasing instability of Malaysian politics. And this despite the fact that the EU has achieved two recent successes - the FTAs with Vietnam and Singapore - in this very region.

The most advanced dialogue is the one with Indonesia. Jakarta is an essential interlocutor for Brussels, and not only when it comes to trade. The country is a key player in ASEAN and also in the G20, as it has demonstrated during its recent presidency of the Summit. Both partners are interested in strengthening trade relations, but there are still a few vexed issues - in particular, the protection of intellectual property rights (IPRs, a chapter that also covers the protection of geographical indications) and the long-standing palm oil issue. The Russian-Ukrainian war could affect this point since, on the European side, demand for Indonesian vegetable oils is growing - due to the need to replace suppliers in the countries involved in the conflict. Another important part of the agreement will concern investments. Here again, the economic opportunity is intertwined with the political one. The EU - like the US - wants to present itself as an alternative to China in strategic infrastructure partnerships through the Global Gateway strategy, designed to respond to Beijing's Belt and Road Initiative. Considering that China-Indonesia trade relations are also growing thanks to the RCEP agreement, the conclusion of an FTA could help Brussels not to lose ground to Beijing.

The protection of IPRs - particularly when it concerns the pharmaceutical sector - is also an area of contention in the negotiations with the Philippines. The perception in Manila is that European negotiators give too much priority to the interests of patent holders at the expense of the general interest of access to medicines. In recent years, negotiations were slow also due to the MEPs' concerns about human rights in the country - during former President Rodrigo Duterte's campaign against drug trafficking, extrajudicial killings by national security forces were heavily criticised - and Strasbourg even called for the suspension of the GSP+ trade regime. Respect for human, civil and political rights is a prerequisite for the continuation of negotiations from the EU perspective - as proof of this, negotiations with Thailand had broken down in 2014 due to the military coup.

Less 'sinister' domestic issues can also block progress in the negotiations. For example, dialogue with Malaysia has stalled because of political uncertainty in Kuala Lumpur politics: recent governments have been backed by shaky and shifting majorities. And it remains difficult to get all stakeholders to agree on complex issues like trade agreements. To return to the subject of palm oil, palm oil farmers are a very influential constituency in Malaysia and view EU policies on the issue with contempt - and indeed all recent administrations have been very confrontational with Brussels, even raising the issue at the WTO, backed by Indonesia. On the other hand, European civil society as well has strong and opposite views on the issue of palm oil and influences the European institutions in this regard. European negotiators have to juggle between the demands of their citizens and those of the partners' delegations, which are sometimes internally divided - in some ASEAN countries, ministries of the same government are competing with each other to foster the agenda of the pressure groups they are most closely linked, to the detriment of other parts of the economy or society.

Despite the difficulties, continuing the liberalisation of trade relations can bring great benefits to both blocs, which owe much of their economic dynamism to exports. The conclusion of bilateral agreements between the EU and individual ASEAN countries could facilitate negotiations for a future region-to-region FTA - this seems to be the ultimate goal of Brussels after the failure of the same project in 2009. Overcoming the technical and political difficulties - which we have only brushed upon in this article - would be a positive signal at a time when unilateralism seems to be becoming the hallmark of international trade policy.