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After more than a decade of negotiations, the Malaysia-EU FTA is now targeting a 2027 conclusion. But what does the deal really mean for business? Chris Humphrey, Executive Director of the EU-ASEAN Business Council, speaks to Cynthia Ng about where Malaysia is winning, where it still has gaps and what European businesses are looking for next.
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00:10Hello, you are tuning in to Awani Review. My name is Cynthia Ng.
00:14Negotiations on a Malaysia-EU free trade agreement have been underway for more than a decade.
00:20The latest round of talks wrapped up in June,
00:23with both sides aiming to conclude the negotiations in 2027.
00:30But beyond the negotiating table, businesses are making investment decisions today.
00:36So the question is, how are European companies looking at Malaysia
00:39and how will this free trade agreement, when it comes to fruition,
00:44how will this fit into that picture?
00:46Joining me today on the show is Chris Humphrey.
00:49He is the Executive Director of the EU-ASEAN Business Council,
00:52which represents European businesses operating across the region.
00:55Chris, thank you so much for making time and welcome to the show.
00:58Thank you for having me on.
00:59Well, Chris, let's start with this because before we get to the negotiations,
01:03let's talk about business sentiment.
01:04How are European businesses looking at Malaysia today?
01:08I think looking at it fairly favourably.
01:10We do an annual business sentiment survey.
01:12Our last one was out last September.
01:15And in that, 57% of our respondents said they were looking to expand their operations
01:19and their businesses in Malaysia.
01:22And that put Malaysia on a par with Vietnam and Indonesia.
01:24So in the top three in ASEAN.
01:27So I think on the whole, businesses look at Malaysia quite favourably.
01:30You've had a period of a relatively stable government.
01:32That also helps.
01:34And a government that's been driving a reform agenda.
01:37And that also helps as well.
01:38And then on top of that, you have the recommencement of the FTA negotiations
01:42you just mentioned.
01:43And that fills European businesses, I think, with good heart and good cheer towards Malaysia.
01:48That survey actually that you pointed out is quite interesting
01:50because if you look at overall investment appetite in the region,
01:54there has been a bit of a dip in sentiment.
01:57Can you talk to us about the mood of European businesses
02:00where they operate in ASEAN, particularly Malaysia?
02:03Well, European businesses overall always see ASEAN as a good place to invest.
02:06And again, our business sentiment survey points out in quite strong numbers,
02:11sort of 60% of respondents, that they see ASEAN as the region
02:13of best economic opportunity over the next five years.
02:17And I mean, that's no surprise.
02:19ASEAN is a real global growth engine, averaging more than 5% GDP growth per annum.
02:24And Malaysia has been hitting those 5% plus figures for the last few years as well.
02:29And then increasingly, you look at the unstable geopolitical world
02:34that we currently live in, companies looking to diverse their supply chains.
02:38ASEAN is a natural place to look.
02:40As a region, it's relatively young.
02:42You have a tech-savvy workforce as well.
02:45It's geographically well-positioned.
02:47It's driving its own economic integration agenda forward.
02:50And you have governments in the region that are increasingly open
02:53to foreign direct investment.
02:54And indeed, ASEAN as a whole has been achieving record numbers of FDI
02:58over the last few years.
02:59Last year, EU investments into ASEAN was US$31 billion,
03:04making the EU the number one source of FDI.
03:06So overall, the picture is quite rosy.
03:08I mean, there are issues.
03:10There are market access issues to worry about.
03:12There are non-tariff barriers to worry about.
03:15But that's true of any region in the world.
03:17All right.
03:17So let's get to the FTA because that's the key agreement that we have been waiting for many years now.
03:23So Malaysia doesn't sit in isolation here.
03:25EU's already got deals with Singapore, Vietnam.
03:28Now it's chasing Malaysia, Thailand.
03:31From the perspective of European businesses,
03:34how important is it for Malaysia to get this agreement over the line?
03:39Because European businesses are already operating in Malaysia,
03:43across the region, right?
03:45So how will this agreement fundamentally change how they operate?
03:50What investments they pour into these countries?
03:52Well, it will fundamentally change things.
03:54First of all, it will remove tariff on a whole host of tariff lines.
03:57That makes it cheaper to export from Europe into Malaysia
04:00and indeed cheaper for Malaysian companies to export to the EU as well.
04:04So there are benefits on both sides.
04:05The whole thing about an FTA is you end up with a win-win solution.
04:09The other thing it will drive is it will open up market access into Malaysia as well.
04:14So sectors that are currently restricted, you will see them opening up.
04:17You will see an investment protection agreement done alongside it
04:20that helps protect companies' investments in the country.
04:25So there's a whole raft of things that will happen,
04:27including tackling non-tariff barriers through the technical barriers,
04:31the trade chapter and the SBS chapter as well.
04:34So it will make simply doing business in both directions much easier.
04:38Okay.
04:39And that in itself will help drive more investment.
04:43And we've seen that already happen within the region with the EU-Vietnam FTA,
04:47where there's no investment protection agreement,
04:49but it's driven more European FDI to Vietnam.
04:53Okay.
04:53So when this negotiation started way back,
04:57the conversation has always been about, you know, largely tariffs,
05:00market access, you know, bringing down costs for exports.
05:03But if you look at the world today, we're talking about supply chain resilience.
05:06We're talking about geopolitical uncertainty.
05:09So how much of that conversation has changed when you speak to European business community
05:13about what they need to confidently operate or set up businesses in this part of the world?
05:19Well, we live in a very different world to when we first commenced the FTA discussion more than 10 years
05:24ago.
05:24And you hit the nail on the head.
05:26We live in a world where there's increased geopolitical uncertainty,
05:30geoeconomic uncertainty.
05:31And companies, whether they're Malaysian or European, want more certainty.
05:36And that's the whole thing about an FTA.
05:38It will set the rules governing trade between Malaysia and the European Union.
05:42And that will allow companies to understand better and make their investment decisions with more certainty.
05:49And Malaysia has a lot to offer.
05:50Malaysia is a gateway to ASEAN and the broader Asia region.
05:54You have a lot of land here.
05:55You have a lot of natural resources here.
05:57You have a good talent pool in Malaysia.
06:00So I think it makes perfect sense for European firms.
06:04They're looking to increase their investments, to diverse their supply chains.
06:09Why wouldn't you look at Malaysia, honestly?
06:11The country has a lot to offer.
06:13There's a rule of law which we understand because it's based on common law.
06:16It has good infrastructure.
06:18It has good connectivity.
06:19You have a government that's been on a reform path and hopefully will remain on a reform path going forward.
06:25What's not to love?
06:26Okay.
06:27So those are great credentials from Malaysia.
06:30But we'd like to understand from the European business community
06:32because people assume these deals are all about exports, you know, bringing down costs.
06:38But when you talk to your members, are they looking at more like selling into ASEAN, selling to Malaysia?
06:44Or is it about setting long-term basis, the companies, their headquarters?
06:48What's that?
06:49It's a combination of those things.
06:51If you went back 10, 20, 30 years ago, European firms were looking to establish manufacturing bases in Southeast Asia
06:59because of the cheapness of the place.
07:01And they were looking to manufacture things to export back to Europe.
07:05Increasingly, our members are looking to establish manufacturing in ASEAN to serve ASEAN markets, which is no surprise.
07:14ASEAN is a growing economy.
07:15It will soon be the fourth largest economy in the world.
07:18You have a growing middle class.
07:19Middle class demand more white goods, more washing machines, more TVs, et cetera, more cars.
07:24So you have a growing domestic market.
07:28So no longer are European firms looking to establish manufacturing to build things cheaply to export back to Europe.
07:34They're looking to establish manufacturing to serve the ASEAN market.
07:38And increasingly, we're seeing that manufacturing move up the value chain as well.
07:41So it's becoming higher added value stuff.
07:43Particularly true in places like semiconductors and digital technologies and in healthcare as well.
07:49Okay.
07:50So these are the areas that our businesses are looking?
07:53Absolutely.
07:54We look around our members.
07:55Healthcare investments in the region are increasing.
07:58Digital investments are increasing.
07:59We just need a level playing field to allow companies to bid to win contracts.
08:04But that's something that will come.
08:05And that's something that an FTA will help with.
08:07Okay.
08:07Now, talking about semiconductors seem to be the headline story for Malaysia for the past couple of years.
08:12Beyond the announcements and the pledges, do you actually see long-term money moving from Europe to Malaysia in this
08:19area?
08:19I do.
08:20I'm afraid.
08:20I really do.
08:21Because European firms are looking to, as I mentioned earlier, diverse their supply chains.
08:27And why not come to ASEAN?
08:29It's a natural place to look.
08:30When you're looking at ASEAN, I think you really have to start looking hard at Malaysia.
08:35And when you're making an investment, if it's an investment in a new semiconductor factory, it's not a short-term
08:40investment.
08:40It's a long-term investment.
08:41You're building something that's going to be in place for the next 10 to 20 years at least.
08:45So you're not looking short-term.
08:48You are looking long-term.
08:49You're looking at which markets can be serviced from Malaysia.
08:53And the natural place to look then is Asian markets.
08:56All right.
08:57So you've mentioned a few things.
08:57You've mentioned manufacturing.
08:58You've mentioned digital services, a semiconductor.
09:01I do want to talk a bit about maybe some of the areas where you think Malaysia could move faster.
09:12Well, there are a whole raft of non-tariff barriers out there which need to be tackled.
09:16And I could talk for ages about quotas.
09:18We're talking about talent movement, talent availability.
09:21I could talk about quotas in the automotive industry where things need to move.
09:24I think every country in the world needs to look at their talent and their education systems because the world
09:30is moving at such great pace.
09:31You look at AI and how fast that's moving.
09:34Education systems generally aren't keeping pace.
09:37And then we need to review how we are training our children for jobs that we don't know exist actually
09:43in the future.
09:44So you need to be able to teach people in a different way.
09:47So I think every country needs to look at that and that includes Malaysia.
09:51Okay. All right.
09:52So just going to the chapters that are being discussed.
09:56I know there are 21 chapters that both sides are looking to conclude sometime in 2027.
10:04Five chapters have concluded.
10:06So we have about 16 to go.
10:08That's at least what we know so far based on discussions.
10:11Fair bit of work to do before both sides can sign the agreement.
10:15Among your members, based on the last discussion in June and your chat with your business community,
10:24do they genuinely feel like we could get to the finish line by that timeline?
10:29If both sides are prepared to make concessions, then yes.
10:34And it requires both sides to make concessions.
10:37The chapters that are done are relatively easy chapters.
10:40The SMEs?
10:42The SMEs has been done.
10:44Digital is almost done apparently.
10:47Some of the more basic ones are done.
10:50But we've got to work on things like market access.
10:52We've got to work on...
10:53They've got to make offers on tariffs for instance, both sides.
10:57They've got to work on financial services.
10:59They've got to work on annexes on automotive and on wines and spirits.
11:03There's a lot of work to be done.
11:04And as ever with these negotiations, you do the easy bits first.
11:08Because that builds momentum.
11:10And the difficult ones hold off to the end.
11:12And that often requires political leadership to intervene and make decisions.
11:17Decide where they're going to concede and where they're going to draw red lines.
11:21I think we will get there.
11:22And we will get there probably within the next 12 months.
11:25The pace is there.
11:27The pace has been picking up.
11:28They've been having four rounds in 12 months.
11:31That's already a very fast pace.
11:33Most FTA negotiations will only be two rounds.
11:36They've got a fifth round coming up in September.
11:38Possibly a sixth round coming up in December or January.
11:41So it's clear both sides see momentum.
11:44Both sides want the deal all done.
11:46I can understand Malaysia's imperative to get a deal done.
11:49Because they look around the region.
11:51Singapore's already done.
11:52Vietnam's already done.
11:53Indonesia's concluded.
11:55Philippines will be concluded before the end of this year.
11:57So it only leaves Malaysia and Thailand.
11:59And if you don't conclude an FTA with Europe, you're going to get left behind.
12:03Yeah.
12:03Okay.
12:03So, yeah, you're right.
12:04So, I mean, we talk about the competitiveness question, right?
12:09Malaysia's fighting the countries that you've pointed out for investments, for money.
12:14From what you're hearing, where's Malaysia actually winning and where are we lagging behind?
12:20From what I'm hearing, you're succeeding, particularly in semiconductors.
12:25Okay.
12:26You've been succeeding in data centers and that's a moot point whether the data centers are worth chasing or not.
12:31You're succeeding in high-end manufacturing.
12:35You could probably do a lot more in financial services, for instance.
12:40You need to do a lot more on greening your power supplies to attract more manufacturing going forward.
12:45I mean, European firms will demand green power.
12:47Yeah.
12:48And you need to accelerate that.
12:50But Malaysia, to be fair, particularly when they were chairing ASEAN last year, was doing a lot to push the
12:54ASEAN power grid and was still pushing a lot on the ASEAN power grid.
12:58And that's an essential tool in ASEAN's weaponry about attracting more FDI going forward.
13:04Sustainability, of course, is a key issue.
13:05A bigger piece of these deals here because we talk about carbon rules, supply chain checks, environmental standards.
13:13These are very pertinent points for EU businesses.
13:17How ready do your members think Malaysia is for that shift?
13:23Because this would be one of the, I would imagine, one of the difficult chapters coming up ahead for the
13:28discussions.
13:28The trade and sustainability chapter probably will be the most difficult chapter.
13:34The EU sees movement on sustainability issues, particularly on climate action, as key.
13:41European businesses see it as key as well.
13:45I think Malaysia, and our talks with the Malaysian government over today, and I think for the rest of the
13:50week, will also show how important it is to Malaysia as well.
13:53But certainly Banknagara see it as a key issue.
13:57So I don't think the issues are insurmountable.
14:02A lot of it stems from policies the EU was pursuing under the Green Deal.
14:07They've softened the Green Deal a bit.
14:09And I think that will help the negotiations with the FDA.
14:11Would it be enough to help push Malaysian businesses to also move towards that?
14:16If Malaysian businesses want to sell into Europe, they're going to have to move.
14:20Okay.
14:20And they are moving, to be fair.
14:22If I look at what's happened in the palm oil sector with the sustainability certifications,
14:28Malaysia's gone an awful long way in that they've gone beyond what the EU demands.
14:33So the signs are good.
14:35Okay.
14:35So as I understand, palm oil historically has been one of the more contentious issues between EU and Malaysian exporters.
14:43I believe it's sitting outside of the FDA tax at the moment.
14:48We probably will get more clarity.
14:50But EU deforestation rules, that will still bite exporters, particularly Malaysian exporters.
14:56From the business perspective, has that issue genuinely, you think, separated from trade discussions?
15:01Or is that more of a negotiating friction at this point?
15:04The first thing to say is Malaysia has made huge progress and the MSPO certificate scheme that's in place really
15:13has made a difference.
15:14And as I mentioned earlier, Malaysia has gone beyond what the European deforestation regulation asks for.
15:20So there should be no issues really for Malaysian exports.
15:24Palm oil will be covered by the FDA.
15:26It's covered in the Indonesia-EU Comprehensive Economic Partnership Agreement, an FTA by any other name.
15:32And I would expect it to be covered under the EU-Malaysia FTA.
15:37So Palm oil from Malaysia should be getting preferential tariff treatment going into the EU.
15:42All right.
15:43Great to have that clarity.
15:44So you're here this week with the delegation of European business leaders,
15:48meeting Malaysian ministers and officials.
15:51You walk into this meeting, what were some of the biggest asks from your members?
15:56Our biggest ask for members is clarity around things like Malaysia's sustainability efforts,
16:02what's it doing on greening power supplies, the asks around removal of non-tariff barriers.
16:09But on the whole, actually looking down our list of questions from our delegates,
16:12they're largely supportive of Malaysia's efforts.
16:15We're seeing Malaysia walk down this reform path and we're encouraging them to do more of it.
16:22And our members are looking to invest more in Malaysia.
16:24They're looking to invest more, employ more Malaysians.
16:30So overall the mood is pretty positive.
16:33We run these delegations into ASEAN countries throughout the year.
16:37Sometimes we go in and we're asking very hard, difficult questions.
16:41We don't have very hard, difficult questions in Malaysia.
16:43And what do you hope that policymakers can understand about what businesses need?
16:51I think they will understand what businesses need because our members are explaining to them
16:55what they need to be able to make those investment decisions,
16:58be able to trade more with Malaysia.
17:00So we're explaining, you know, where we need policy changes.
17:04We're making suggestions like on environmental issues, on circular economy development.
17:10We're making suggestions for how Malaysia can move things forward faster,
17:14which will help European businesses feel more comfortable in establishing new manufacturing facilities
17:19or trading more with Malaysia.
17:21Right. But the things that you mentioned like environmental standards, sustainability,
17:25these are issues which take time, take years to materialize, right?
17:29So are we looking at commitment of policymakers to give that confidence?
17:35Well, we're already seeing it. You already have EPR legislation in place in Malaysia.
17:39Selangor State has just recently signed on to the recycling issues put forward by the federal government.
17:45And I know that other states want to sign on as well.
17:48So Malaysia is making progress, but you're right, it does take time.
17:52And in Europe, we've been doing this stuff for 20, 30 years, and we're still not perfect.
17:57So we need to be patient. But as long as we are seeing countries in ASEAN move in the right
18:03direction,
18:03and we're seeing an increasing number doing so, then that's already a good sign.
18:07And Malaysia is definitely moving in the right direction.
18:09So EU has concluded a talks with, or rather has ratified an in motion, which is with Singapore, EU Singapore,
18:15and I believe it was Vietnam.
18:19What are some of the lessons do you think that Malaysia could look to, to get us over the line?
18:26And what maybe perhaps could also share with us some of the pain points to get there?
18:33The first thing Malaysia needs to do is look at what happened once the EU-Vietnam FTA was completed,
18:39and that's been six years now.
18:40You can see the huge increase in trade between the EU and Vietnam.
18:44Most of it is Vietnamese originating.
18:46Okay.
18:47And there was no reason to suspect that it was any different for EU Malaysia.
18:51You will see a lot more Malaysian exports going to the EU.
18:55That's a big boon for Malaysia.
18:56But on the back of the FTA with Vietnam, we saw a big uptick in European foreign direct investment into
19:01Vietnam as well.
19:03Because the FTA creates confidence.
19:06So I think Malaysia can look forward to an uptick in FDI from Europe as well.
19:11Okay.
19:11There are pain points.
19:12There will be things which will be hard to swallow.
19:14There will be issues around government procurement, for instance.
19:17There will be issues around Halao certification, for instance.
19:20But these things aren't insurmountable.
19:23And the whole point about an FTA negotiation is it's a win-win.
19:26And it will require the EU to make some concessions, and it will require Malaysia to make some concessions.
19:31As long as they're both comfortable and they both see the bigger picture, then that deal will happen.
19:36And I think it's an imperative for Malaysia to get that deal happen.
19:40The EU is the world's third largest economy.
19:45One of the ministers today pointed out the size of the European economy for 450 million people compared to the
19:51size of ASEAN's economy.
19:52And the European economy is about three times the size of ASEAN.
19:55So there's a big market for Malaysian and Malaysian exporters to trade with.
20:01Europe has often positioned itself as somewhat like a middle way partner between the US and China.
20:08That positioning actually moved investment decisions, or do companies actually just follow the numbers?
20:16Companies just follow the numbers, to be quite frank with you.
20:18They'll invest where they see a commercial appetite and a commercial profit to be made.
20:25The EU does position itself as the third way.
20:28We don't think it positions itself well enough as the third way, particularly in Southeast Asia.
20:33They need to raise their game.
20:35Everything's very good on the trade front.
20:37But you know, the EU could be doing a lot more on transport, on energy, on healthcare, on climate action,
20:43on environmental issues.
20:45So we need to see the EU play more of a role with ASEAN in general and play more of
20:50a role with Malaysia in particular.
20:53We need to promote ourselves better as Europe.
20:56And that's politically as well as commercially.
21:01Us Europeans aren't very good about shouting about how good we are or how much we're investing
21:06or how much we're providing in aid and development support, for instance.
21:11We need to improve our marketing.
21:13Now let me push you a bit here.
21:14If there was no US-China rivalry, no supply chain panic,
21:19do you think that this deal would have the urgency it has now?
21:23Because the momentum picked up last year.
21:25Yeah.
21:26To be frank with you, no.
21:28I don't think it would.
21:29I think the current state of geopolitics and geoeconomic issues is providing extra momentum for the EU
21:37doing more bilateral deals around the world.
21:39So we've got Indonesia over the line last year.
21:41We've had Australia.
21:42We've had India this year.
21:43We're going to have Philippines this year.
21:45And then Malaysia and Thailand following within the next 12 months.
21:49And I think the current state of the world is driving that momentum forward.
21:54And it's not just the EU needing it, it's its partners needing it as well.
21:58So I'm confident the FDA will happen.
22:00I'm confident that you'll see more trade and you'll see more investment on the back of it.
22:04But European firms are already moving.
22:06Okay.
22:07So we saw European FDI to ASEAN at US$31 billion last year.
22:11That was a record high for Europe.
22:14That shows you how keen Europe is on Southeast Asia in general.
22:17The question is where does it land in Southeast Asia?
22:20Most of that money lands in Singapore first, but it doesn't stay in Singapore.
22:23It goes out from there.
22:25Okay.
22:25So a few minutes that we have left, just to get a sense of what happens next.
22:29So the target is at some point in 2027, the deals are signed between Malaysia and Europe.
22:35What happens next?
22:37How long would it take for things to move on the ground?
22:42That's a very good question.
22:44So we're talking the ratification process because once it's signed, it's got to be ratified.
22:48I think it could move quite swiftly.
22:50I don't hear of any issues.
22:52In Europe, it needs to go through the European Council.
22:55It needs to go through the European Parliament.
22:57European Council really shouldn't be a problem.
22:59European Parliament, well, it depends if MEPs have concerns around sustainability or labour issues.
23:05But I'm not hearing any adverse noises from the MEPs that I speak with.
23:09I mean, we speak with them quite regularly.
23:11Okay.
23:11So I think ratification for the EU Malaysia FTA could be fairly swift and then entry into full sponsors fully
23:17ratified.
23:18So the question is how quickly can you ratify here in Malaysia?
23:21Let's say this deal concludes in 2027.
23:24What does success actually look like in your opinion, not for the negotiators of course, but for businesses and the
23:30Malaysian economy?
23:31Let's end with that.
23:32Okay.
23:32Success will be manifest in more foreign direct investment from Europe to Malaysia.
23:38It will be manifested in more exports for Malaysia to the EU and more exports for the EU to Malaysia.
23:44Hopefully, lowering our prices for consumers, more diversity of products being provided, more diversity of services being provided.
23:53Everyone's a winner.
23:54And for you personally, Chris, you've been working on this for years now.
23:58So what's that hope?
23:59Always a big success when you get an FTA over the line.
24:03So I'm not negotiating it myself, but we keep a very close eye on what's going on and we do
24:08interact with the negotiators on both sides.
24:10All right.
24:11Well, thank you so much, Chris, for giving us that insight.
24:14Being close to this business community certainly would give us that insight that we don't see from the European businesses.
24:22It's been my pleasure.
24:23Thank you very much indeed.
24:23Thank you so much, Chris.
24:25Thank you very much.
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