Last month, the “political agreement” between Indonesia and the European Union (EU) on their Comprehensive Economic Partnership Agreement was met with well-deserved acclaim, as the country now joins Vietnam and Singapore as the third Association of Southeast Asian Nations (ASEAN) member to forge a free trade agreement (FTA) with the bloc. The development provides optimism for the EU’s trade negotiations with the other ASEAN-6 members—the subset of more developed ASEAN economies—namely Malaysia, the Philippines, and Thailand.
In light of Donald Trump’s abrupt abandonment of America’s very own free-trade order, both blocs’ incentives to finalize deals have never been greater. For ASEAN, it would provide a strategic bulwark against over-dependence on China, while granting privileged access to Europe’s repository of cutting-edge industrial machinery and green technologies. Concurrently, the EU would secure critical electronics and commercial channels to Southeast Asia’s 650-million-strong consumer market, fertile ground that European firms already hail as their most promising frontier. The economic stakes are unambiguous, as concluded agreements with Indonesia, the Philippines, and Malaysia alone could augment EU GDP by an estimated €9.28 billion by 2032.
To move towards finalizing FTAs as quickly as possible, negotiators must grapple with two glaring quandaries: rapidly dismantling physical trade and investment barriers without imperiling vulnerable domestic producers, and reconciling regulatory asymmetries by bringing ASEAN closer to international benchmarks and tempering excessive EU stipulations.
The Labyrinth of Explicit Restrictions
Despite proclaiming itself one of the world’s most “outward-oriented” economies, the European Union continues to withhold most-favored nation treatment from Malaysia, the Philippines, and Thailand; it opted instead for duties ranging from 5.6 to 9% on their goods in 2023, with even higher levies on exports such as automobiles and seafood.
These tariffs are particularly questionable given how painlessly they could be eradicated. Most of the sectors in which the EU and ASEAN specialize are complementary rather than competitive, with only one of the top five export products (refined petroleum) overlapping between the two blocs. Moreover, the EU maintains tariffs in areas of partial domestic insufficiency, including rice, where domestic output meets a mere 60% of demand. Both blocs should therefore front-load tariff reductions, mirroring the approach demanded by the EU–Vietnam FTA, while judiciously implementing transitional safeguards in sectors poised to face considerably heightened competition.
Additionally, ASEAN’s local content restrictions constitute formidable impediments to EU investment, encouraging manufacturers to rely on suboptimal suppliers and ultimately inflating consumer prices. For instance, Thailand grants a 50% corporate income tax reduction to producers of battery electric vehicles only if locally sourced components account for at least 40% of the car’s raw material value. These barriers are even more pronounced in services, as exemplified by Malaysia’s 30% cap on foreign equity in accounting and taxation firms, which places these markets among the most restrictive worldwide when measured against OECD standards.
Although eliminating such protectionism may trigger short-term labor dislocation, empirical evidence from Indonesia’s manufacturing sector indicates that the ensuing gains in national income and productivity would decisively outweigh the costs of unemployment. These benefits not only fuel business expansion but also enable firms to redeploy labor into higher-value activities, ultimately fostering a more resilient and lucrative job market over time.
Hindered by Red Tape and Its Absence
A less conspicuous, yet equally pernicious, impediment to inter-bloc integration lies in their yawning regulatory disparities, which necessitate costly “double testing” to verify compliance of ASEAN exports with European standards. Streamlining these regimes will require a decisive strengthening of ASEAN’s regulatory bodies, with a dismal 2% of businesses currently deeming the group’s customs procedures efficient. The EU could therefore expand capacity-building support through loans and grants, since only a fraction of its ASEAN+ budget, which is itself constrained to a modest €41 million in commitments since 2017, is currently allocated for this purpose. Meanwhile, it ought to spearhead technical training for local officials in areas including compliance verification and supply chain auditing, ideally in partnership with multinational corporations given their financial heft and decades of experience navigating inter-bloc trade. In sectors where regulations are more likely to align, such as organic produce, pilot Mutual Recognition Agreements could also help build trust in ASEAN standards, especially in Malaysia and Thailand, where oversight bodies are comparatively robust.
The former two measures could be extended to fortify ASEAN’s intellectual property (IP) regimes, whose anemic protections severely impede the progression of FTA talks. Malaysia even lacks a formal mechanism for registering IP rights with customs authorities, and this issue is compounded by Southeast Asia’s status as a burgeoning market for counterfeit goods, valued at USD 35 billion annually and poised to drastically increase with the proliferation of e-commerce. Given that nearly 45% of the EU’s GDP derives from IP-intensive sectors such as pharmaceuticals and aerospace, inadequate safeguards would expose European firms to unfair competition, while weak IPR enforcement within ASEAN would also dampen European incentives to invest in the region’s nascent high-value industries.
Moreover, refining ASEAN’s regulatory compliance mechanisms must be matched by elevating the rules themselves to internationally accredited benchmarks. While particular areas of interest include environmental stewardship, labor protections, and digital security, the electronics sector should also come under special scrutiny given its extraordinary strategic and financial salience. The EU could hasten this process through financial aid for enterprises demonstrably aligning with its standards, which would be especially efficacious due to ASEAN’s reliance on carbon-intensive sectors from apparel manufacturing to palm oil. Additionally, it might deploy expert advisers to chart optimal pathways for regulatory convergence, a step Brussels has repeatedly wavered on, as evidenced by its conspicuous absence from last year’s ASEAN Ministers for Energy Meeting on promoting low-carbon technologies.
Ironically, the EU’s excessive regulations also risk stymieing its economic integration with ASEAN by imposing Kafkaesque hurdles for exporters, even those from countries it shares FTAs with, whilst yielding minimal gains in product integrity. Some European states exacerbate this through “gold-plated” measures—country-specific requirements that exceed EU-wide standards—including the Netherlands’ additional restrictions on foodstuffs and Italy’s on electronics. Additionally, the bloc-wide deforestation regulation (EUDR) has elicited particular concern given ASEAN’s heavy reliance on tree-based industries such as timber and rubber, since from the end of 2025, it will obligate firms to furnish exhaustive proof that their products have not contributed to deforestation or forest degradation. As this heavy-handed mandate could paradoxically undercut budgetary room for conservation efforts, the EU should pursue a more calibrated approach, one that enables Southeast Asian nations to gradually phase out ecologically deleterious practices whilst facilitating further economic development.
Conclusion: Light at the End of the Tunnel
From the suspension of bloc-to-bloc FTA negotiations in 2009 to the repeated suspensions of bilateral talks between the EU and individual ASEAN members throughout the 2010s, the trajectory toward economic integration has been anything but smooth. The recent resurgence of these dialogues now offers a genuine prospect of fruition, and all parties should commit more effort than ever to seize the boundless rewards at stake.