Can the European Green Deal be a Good Deal for ASEAN?

European Union (EU)-ASEAN relations are in good standing following a successful 45^th Anniversary Commemorative Summit and the 10^th ASEAN-EU Business Summit in Brussels last December. Trade-wise, the EU continues to be among ASEAN’s top trading partners and a significant source of foreign direct investment. The elevation to a “strategic partnership” and the promise of a €10 billion funding under the EU’s Global Gateway programme, to help ASEAN with sustainability and connectivity initiatives, also signal a closer relationship in promoting green growth.

However, as in any partnership, there are areas of tension and disagreement. In this case, it comes in the form of the European Green Deal, seen by many in ASEAN as a threat. Terms that have been used by regional governments to describe the Deal, whether publicly or in private, include “regulatory imperialism,” “climate colonialism,” and “protectionism disguised as climate action”. The truth, as always, is more nuanced. Some impacts are clearly being overstated, often for domestic political purposes. Others are perhaps misunderstood, pointing to what some see as a communication deficit by the EU.

What is the European Green Deal? In 2020, the EU Commission approved a set of policy initiatives to transform the EU into a resource-efficient sustainable economy and to achieve its ambition of climate-neutrality by 2050. The European Green Deal is the EU’s domestic response to the global climate emergency and covers all sectors, from agriculture and the energy and digital industries, to transport. These reforms aim to foster a new era of sustainability.

Some of these reforms have external reach and will significantly impact businesses and jurisdictions outside of the EU, including in ASEAN. The EU, realising that its imports also contribute towards its ecological footprint, aims to address this by decarbonising its own economy and imports. This means that the goal of reaching net-zero greenhouse gas emissions in less than two decades can be accomplished only by making the external dimension an integral part of the Green Deal.

This “external dimension” has naturally generated significant concerns among EU’s partners, including in ASEAN. The Carbon Border Adjustment Mechanism (CBAM), the EU Regulation on Deforestation-Free Products (EUDR), and the Corporate Sustainability Due Diligence Directive and Reporting Directive are all set to make sustainability standards stricter for partner countries and companies that export to Europe. There are significant uncertainties surrounding compliance and whether the EU will support such compliance. Developing countries see the Green Deal as a set of protectionist trade barriers that will restrict their economic progress and as an attempt to set global standards around sustainability which are regarded as too ambitious, especially for those jurisdictions that lack resources and expertise.

Indonesia and Malaysia have joined hands to seek concessions on the EUDR, which they deem inherently punitive and discriminatory. The Directive bans the trading of products and commodities in the EU linked to deforestation and forest degradation. Palm oil is one of several commodities subject to the rule, which, along with rubber, is a key export commodity for several Southeast Asian states. Following the earlier dispute over palm oil that flowed from the EU’s Renewable Energy Directive II (REDII) legislation, Malaysia and Indonesia’s reactions should not have surprised anyone in Brussels.

The EU has long provided hefty financial assistance and support to developing countries through various channels and programmes. The Green Deal, though, does not outline a spending plan for external partners to adjust to the EU’s new regulations and standards. Rather, other programmes, such as the #TeamEurope Green Deal Initiative for ASEAN, are being put in place that might provide mechanisms for support in some related areas such as sustainable agriculture and energy transition but not directly to help alleviate compliance concerns on the EUDR. 

The successful implementation of the external dimension of the Green Deal will hinge on the EU’s ability to effectively alleviate these costs and provide targeted assistance, especially to developing countries on compliance mechanisms. Without explicit support, there is a risk that the Green Deal will continue to be perceived as a threat by countries that need to restructure their economies to meet these new stricter requirements whilst they are striving to grow their economies and deal with a raft of socio-economic issues of their own.

Many argue that there has been a deficit of sufficient communication about the Green Deal’s requirements, implications, implementation strategies, and available support mechanisms to third partners. There certainly exists a significant gap in understanding and an alarming level of anger and even misinformation across the region. At the time of writing, the EU is ramping up engagement with its external partners by establishing a Task Force with Malaysia and Indonesia on the EUDR, which is a good development.

Apart from the governments, the Green Deal will have implications for the private sector, both for European and ASEAN businesses. There are significant concerns around reporting, for instance, which includes determining reporting requirements and standards for environmental data and progress towards sustainability goals, including what reporting frameworks with which to align. There are also challenges around restrictions on data availability, privacy, collection and sharing, and access to comprehensive databases for environmental data and maps, in the jurisdictions where these businesses operate. This is not to mention the high costs and resources that need to be poured into tracking and verifying the sustainability and environmental impact of raw materials, products, and services across complex supply chains. Again, information is scant, scattered, and unclear, much to the frustration of businesses. ASEAN can play an important role by developing a unified set of reporting standards that would help aid compliance with the European Green Deal.

The European Green Deal stands as a testament to the EU’s leadership in the global climate fight and it is ambitious precisely because the EU is taking its role seriously and pushing others to take more urgent action to meet their Paris obligations. ASEAN countries are not sufficiently acting on the pledges they made under the Paris climate deal. The Climate Action Tracker considers Indonesia’s and Vietnam’s Nationally Determined Contributions (NDCs) highly insufficient and Singapore’s critically inadequate. The ASEAN Secretariat acknowledged the “large gaps in implementation and ambition”.   

For the Green Deal to become truly transformative and globally impactful, and for it to not sour the EU’s relations with ASEAN, the EU must take further steps to get all stakeholders on board. This includes engaging in more active and inclusive dialogues with ASEAN, enhancing communication and information-sharing, and providing clear and comprehensive guidelines to external partners and businesses about the Green Deal requirements.

Equally, ASEAN needs to look at the Green Deal as an opportunity to get further assistance from the EU on sustainability issues and to help accelerate its own transition to greener net-zero economies. In the short term, there may be teething issues and added costs. However, in the long term, it will bring benefits. Complying with the Green Deal sooner rather than later will enable ASEAN’s export-oriented companies to gain advantages and lower market access costs by avoiding additional tariffs and taxes such as those from the CBAM. 

The EU remains a crucial partner in geopolitics and trade for ASEAN. At a time when US-China tensions are at an all-time high, the EU has an important role to play as a potential balancing force and intermediary. As reflected in The State of Southeast Asia 2023 Survey report, the EU is increasingly seen by many in Southeast Asia as the region’s most preferred and trusted partner to hedge against the uncertainties of the US-China rivalry.

Whilst there is much left to be desired in terms of engagement and communication, collaboration and support are critical for a successful global response to climate change, which is what the EU is aiming for with its Green Deal. ASEAN should embrace this to work with the EU for the common good.

---

Editor’s Note:
This article is part of the ASEANFocus Issue 2/2023 and will be available on the ISEAS – Yusof Ishak Institute website and the ASEAN Studies Centre webpage on 22 September 2023.