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Politics

In Southeast Asia, Britain hedges against eurozone troubles

British Prime Minister David Cameron meets with Indonesian President Joko Widodo in Jakarta on July 27. (Photo by Simon Roughneen)

JAKARTA -- By choosing to visit Asia on his first major overseas trip after the May 2015 general elections returned him to office, British Prime Minister David Cameron signaled that the region's dynamic economies will be a key focus of his new government. 

     But the visit was neither to China, the world's second-biggest economy, nor to India, the world's most populous democracy and once the centerpiece of the massive British Empire, nor to Japan, the world's third-biggest economy, which, like the U.K., is a close ally of the U.S.

     Instead, Cameron made a four-day, four-country swing through Southeast Asia, visiting Indonesia, Singapore, Vietnam and Malaysia. Talking up the need for Britain to do more business outside Europe, Cameron evoked British merchants of yore, saying, "No territory was too far. No opportunity was left untapped. We need to employ some of that Elizabethan endeavor today -- to tell the world: 'We've got the supply, you've got the demand -- let's do business.'"

     There seems to be ample scope for Britain to strengthen its trade and investment relationships in Southeast Asia. As Cameron noted, the U.K. does more business with Belgium, a country of just 10 million people, than it does with the four Southeast Asian countries he visited, which have a combined population of almost 400 million.

     Earlier in 2015, Britain riled the U.S. and surprised much of the world by agreeing to join China's new Asian Infrastructure Investment Bank, widely considered a rival to the Western and Japanese-dominated World Bank and Asian Development Bank. But while China's economy is projected to continue growing at an average annual 7%, the recent stock market plunge and domestic trends -- such as rising labor costs and increasing focus on domestic-led growth -- have reinforced views that Westerners should look elsewhere in Asia for trade and investment opportunities.

     "Both the U.K. and the rest of Europe need to look beyond China and India and strengthen relations with ASEAN," said Peter McCawley, an economist focusing on Southeast Asia at the Australian National University.

     While the European Union as a whole has a greater gross domestic product than the U.S., the world's largest economy, the combined GDP of the 10-member Association of Southeast Asian Nations is now growing about three times faster than that of Europe -- ranking the bloc as the world's seventh-largest economy.

     With a combined population of more than 600 million, ASEAN is set to launch its long-planned economic community on Dec. 31, a development that the U.K. and EU should take seriously, McCawley told the Nikkei Asian Review.

     The U.K.'s trade and investment department describes ASEAN as "a new big beast in the East" thanks to its consumer market, the world's third largest. With economic growth lagging in Europe, the continent's businesses could surely benefit from greater access to Southeast Asia's growing middle class.

     Economic ties between the two regions are deepening, with big companies from the more advanced ASEAN economies -- Indonesia, Malaysia, the Philippines and Thailand -- making major investments in European countries in recent years.

     According to the website of the European Commission, the EU's administrative arm, "ASEAN as a whole represents the EU's third-largest trading partner outside Europe (after the U.S. and China) with more than 235 billion euros ($259 billion at current rate) of trade in goods and services in 2013."

     The EU and ASEAN first proposed a free trade agreement in 2007, but the matter has not been officially discussed since 2009. Before his recent Southeast Asia visit, Cameron said he would bring up the proposed FTA during his meeting with ASEAN Secretary-General Le Luong Minh. However, in a press statement after the meeting, the ASEAN Secretariat made no mention of whether the FTA had been discussed. 

     The EU has separately been negotiating trade deals with Vietnam and Singapore, and during the Singapore leg of Cameron's visit, Prime Minister Lee Hsien Loong said that implementing the recently agreed EU-Singapore FTA would provide impetus for the wider EU-ASEAN deal.

     "For the EU, it's a signal that you are open for business, and whatever your domestic issues and preoccupations, you do want to continue to deepen and strengthen the links that you have with the Far East, with a rapidly growing part of the world," Lee said.

     Economic turmoil in Greece has raised questions about the future of the eurozone currency area. Although the U.K. is not a eurozone member, the continental crisis has heightened pressure on the British government to hold a referendum on whether the U.K. will remain in the EU. Cameron's successful re-election in May was partly due to his pledge to hold such a referendum by the end of 2017.

     Cameron favors Britain staying in the EU -- although his Asia visit reminded British voters that the country could increase trade and investment in the region to offset the impact of Europe's economic woes. Even so, some analysts note the difficulties of building business ties with Asia. 

     Indeed, the British government's trade and investment advisories have warned of convoluted bureaucracy in Indonesia, where "there is a growing trend towards protectionism" and populist economic nationalism, according to a recent paper by prominent Indonesian economists and published by Australia's Lowy Institute for International Policy.

     Britain, like other Western countries moving to shore up links with Asia, is likely to be more concerned about investment barriers than about domestic politics in target countries.

     Ahead of his arrival in Malaysia, Cameron was criticized for visiting as Prime Minister Najib Razak faces a widening corruption scandal at a state development fund. But Cameron defended the visit, saying, "Issues of corruption are issues in this region as elsewhere in the world."

     While the visit to Malaysia generated some controversy for Cameron, little was said about his trip to Vietnam -- a one-party state that continues to persecute people who speak in favor of a transition to democracy. Cameron became the first British prime minister to visit the country, at a time when tensions between Hanoi and Beijing continue to simmer over disputed claims in the South China Sea.

     Joining Cameron on the whistle-stop tour of Southeast Asia were more than 30 leaders of major British companies, including insurers Aviva and Lloyd's, construction equipment maker J.C. Bamford Excavators, known as JCB, and engineering giant Rolls-Royce Holdings.

     Of the roughly $1 billion worth of deals involving a mix of Southeast Asian companies and governments in the region that British companies had lined up prior to Cameron's trip, the biggest was Rolls-Royce's $580 million aircraft engine maintenance agreement signed with Vietnam Airlines during the U.K. prime minister's visit to Hanoi.

     Rolls-Royce said it hopes to expand its business across the region -- especially in Indonesia, the largest economy in Southeast Asia -- despite concerns about Jakarta's growing economic nationalism.

     "Indonesia's strong demographic profile, continued economic growth and position as one of the fastest-growing G-20 economies provide interesting long-term opportunities for Rolls-Royce, including greater demand for aircraft, maritime and power systems for land and rail vehicles, and for the oil and gas industry," Adrian Short, Rolls-Royce director for Indonesia, told the NAR.

     As well as garnering several major investments for British business, Cameron left Southeast Asia with pledges of increased collaboration from Muslim majority Indonesia and Malaysia on curbing the flow of militants from those countries to the Islamic State group in Iraq and Syria. The leaders of Vietnam and Indonesia discussed possible visits to London, perhaps later this year.

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