The US government
successfully avoided (for now) missing its funding deadline this week, but
Washington politicians are not the only ones dealing with time pressures. ASEAN exporters reliant on the EU market also
face a major change in import duties, which barring a major miracle, will
adversely affect their sales to Europe.
Most ASEAN countries benefit
from low or zero import duties when they export to Europe because they
currently qualify for the Generalized System of Preferences (GSP). Under the GSP, the EU and other developed economies
provide import duty preferences to encourage economic development in the
less-developed countries. Brunei and
Singapore, considered too economically developed, are not currently part of the
GSP program.
The cost savings can be significant. For example, plastic bags normally attract a
6.5% import duty rate, but plastic bags from Thailand currently attract 0%
import duties because Thailand qualifies (for now) under the GSP program.
However, earlier
this year the EU announced its revised GSP rules. The new GSP rules “graduate” Indonesia,
Malaysia and Thailand out of the program, with only Cambodia, Laos and Myanmar automatically
maintaining their GSP status, and the Philippines and Vietnam eligible to apply
as “vulnerable” countries requiring continuing GSP status.
The new rules take effect on
January 1, 2014. This will have a major
impact for Indonesia, Malaysia and Thailand.
They will become less competitive not only relative to other ASEAN
members, but to other countries as well.
It was with this in mind
that the EU and individual ASEAN members had entered into free trade agreement
(FTA) talks. The EU started FTA
negotiations with Indonesia, Malaysia and Thailand with the aim of reaching
agreement before the impending expiration of GSP status.
Alas, the EU’s FTA talks
with the three countries have become stalled.
Changing domestic political environments have made FTAs a harder
sell. After the 2013 elections, FTAs
have become much more controversial in Malaysia. Indonesia is now focused on the upcoming 2014
elections, and FTAs are always controversial in Thailand. There is also FTA fatigue in some countries,
where local industries now have to deal with increased competition from FTA
partners such as China and are reluctant to more FTAs.
The EU had hoped that the
impeding January 1 deadline would focus national leaders in Indonesia, Malaysia
and Thailand to reach an agreement. That
appears highly unlikely. Now the chances
of reaching an agreement will depend on pressure from Indonesian, Malaysian and
Thai exporters faced with significantly higher import duties in Europe. Given the other political concerns at play,
however, the complaints from those exporters will need to reach a crescendo
before their governments will move forward with EU FTA talks again. In other words, for Indonesian, Malaysian and
Thai exporters, the EU market will become a lot worse before it gets better.
