Why Malaysia is vital for the EU’s Asia strategy

The EU needs Malaysia, and the Association of Southeast Asian Nations (ASEAN), more than ever before to support its common foreign, security and defence policy, as new geopolitical fault lines have emerged, writes Thomas Matussek.

Thomas Matussek is a former German Ambassador to the UK, India and Permanent Representative to the UN in New York.

The EU’s diplomatic efforts in Asia have increased markedly over the last few weeks. German Foreign Minister Annalena Baerbock’s visit to Beijing follows the united front presented by Emmanuel Macron and Ursula von der Leyen to President Xi, while a visit by the EU’s top diplomat, Josep Borrell, was postponed due to him contracting COVID.

All the while, security concerns in the region are heightening as the G7 foreign ministers prepare to meet in Japan next week.

Central to the EU’s policy formulation under its plan for action for ASEAN engagement is long-term relationship building with strategic countries in South-East Asia, to deepen political and security cooperation while ensuring a balance of power in the face of Chinese interests.

Combined with the sanction regime in place over Russia, the EU has had to look elsewhere for security and trade partners, and the charm offensive shifted to the ASEAN economic bloc with renewed vigour.

ASEAN is the EU’s third largest trade partner and it is the biggest investor in ASEAN countries. In the coming decade, ASEAN is set to grow in importance, with annual projected growth of 4-5% – making it one of the fastest growing regions in the world, a stark contrast to European growth.

With the third highest nominal GDP of any ASEAN member and of utmost geostrategic importance, Malaysia must represent a crucial component of the EU’s strategy in the region.

Bilateral trade between the EU and Malaysia is dominated by industrial products, and in 2020, Malaysia became the EU’s 20th largest trading partner in goods. However, the relationship is not without sticking points, with Malaysia accusing the EU of infringing upon its sovereignty through environmental policies which will ban imports of palm oil, a key export. The World Trade Organisation will rule on this case later this year.

Legal disputes across Europe are also casting a shadow over Malaysia’s outlook. A multi-billion dollar lawsuit involving the Government of Malaysia is currently being litigated in France, Spain, the Netherlands, and Luxembourg, after the world’s second-largest arbitration award of $14.9 billion was issued in February 2022.

It represents 16% of its annual GDP or nearly twice the cost of the country’s entire health system, and the Malaysian government understandably would want to ensure that money can be put towards valuable public services.

The case is complicated, involving an 1878 colonial agreement that is being used as justification by a litigation fund as the basis for the claim.

Attempts to enforce the award have resulted in Malaysian entities across Europe coming under attack, including diplomatic buildings in Paris and state-owned companies’ bank accounts in Luxembourg, putting that in jeopardy.

Malaysia did not participate in the proceedings that led to the case, and it is not waived its sovereign immunity, and the grounds for the award are in question following the Spanish court’s decision to annul the proceedings.

European ministers will no doubt have sympathy with what appears to be an attempt to hold a sovereign state to ransom.

The case casts an unfortunate shadow on the EU’s relationship with Malaysia and more broadly the ASEAN region, in a particularly fractious moment where the EU desperately needs stronger partners.

Despite this, there is still a lot of potential in the relationship, due to their overlapping areas of interest such as maritime security, economic recovery and navigating the green transition.

The EU needs Malaysia, and ASEAN, more than ever before to support its common foreign, security and defence policy aims, as new geopolitical fault lines have emerged.

ASEAN sensibly has refused to take sides on this polarised rivalry, instead invoking its ‘centrality’. But the EU can provide ASEAN with a much-needed alternative to both the US and China, which will be even more important as rivalries intensify.

EU diplomats have thankfully begun to recognise both the political, security and economic imperatives for strengthening bridges with ASEAN members. Free trade agreements with Singapore and Vietnam have already come into effect, while negotiations have started with Indonesia and negotiating mandates have been agreed upon with Malaysia, the Philippines and Thailand.

In December last year, both EU and ASEAN leaders came together to commemorate 45 years of diplomatic ties and celebrate their ‘strategic partnership’. It remains possible that a parliamentary assembly of lawmakers from the EU and ASEAN can be created to further strengthen ties.

But, while Malaysia’s legal battles in European courts continue, there will remain a distraction from the importance of diplomatic, economic, and security ties. This should not be allowed to overshadow the EU’s status as the alternative of choice in the face of the uncertainties of the US-China strategic rivalry.