Online magazine highlighting research, news and analysis covering the European Neighbourhood

More hindrances to a good relationship between the EU and South East Asia

Despite warming relations between the European Union (EU) and the 10-member Association of Southeast Asian Nations (ASEAN), a series of geopolitical, environmental and legal flashpoints could derail progress in 2023. On 14 December, EU and ASEAN leaders met for a summit in Brussels for the first time, signalling how significantly relations have improved over the past 45 years. In 2021, bilateral trade in goods increased by nearly 14%, and by late 2022 the two sides elevated relations to the status of a “strategic partnership”.

However, 2023 may prove a more challenging year, as Southeast Asian countries’ neutrality in the Russia-Ukraine conflict and the ongoing crisis in Myanmar are increasingly questioned. Two other issues could serve to derail matters even further: Indonesian and Malaysian outrage over the EU’s stance on palm oil, which could grow in significance given that Indonesia is slated to become the next chair of the ASEAN bloc; and a $15 billion legal spat between Malaysia and descendants of the last sultan of Sulu, a remote Philippine region, involving major oil and gas assets.

The palm oil question

On the one hand, sources in Brussels are optimistic about Indonesia’s new leadership of ASEAN given President Joko Widodo’s consistent efforts to improve relations with the West since taking office in 2014. Yet the EU’s recent stance on palm oil has been seen as an attack on the economies of both Indonesia and Malaysia, two of the region’s biggest palm oil producers. On 6 December, the European Parliament and Council of Europe adopted a provisional agreement requiring all companies selling soy, cattle, beef, cocoa, coffee, timber, rubber and palm oil on the EU market to comply with new due diligence regulations.

The legislation requires that the commodities be produced on land that has not been subjected to deforestation or forest degradation after 31 December 2020 – or to face hefty fines for non-compliance. In addition, the new regulation requires operators to trace the specific products back to the plot of land where they were produced, and to ensure they comply with deforestation-free laws in the relevant country of production.

Michalis Rokas, EU Ambassador to Malaysia, hailed the new regulation as a signal of Europe’s commitment to continue importing palm oil, while ensuring it only imports from deforestation-free producers.

But the governments of Malaysia and Indonesia saw the development quite differently, condemning the regulation as “discriminatory” toward palm oil producers who are already making progress on eliminating deforestation. Instead of enhancing such progress, representatives of both governments complained, the measures would hurt small farmers and create additional burdens given that both countries are already investing significantly in national sustainable certification standards.

For Malaysia and Indonesia, the EU’s approach has consistently ignored the success of these national efforts. They are calling for the EU to acknowledge the effectiveness of their existing sustainability certification standards which according to the World Resources Institute correlate with declines in rates of deforestation over the last five years. According to the think tank Chain Reaction Research (CRR), palm oil deforestation in Indonesia, Malaysia and Papua New Guinea has fallen to its lowest level since 2017. Also, Malaysian companies like Sime Darby, the world’s largest producer of certified sustainable palm oil, did commit to a sustainability agenda which includes achieving net-zero emissions by the year 2050. In Sabah and Sarawak, two Malaysian regions, the company also intends to reforest a 400-hectare area of peat crops.

Geopolitical challenges

Other geopolitical tensions between the EU and ASEAN come from various member-states – especially Laos and Vietnam – who have abstained from UN General Assembly condemnations of Russia’s actions in Ukraine. Although ASEAN recently signed a Treaty of Amity and Cooperation with Ukraine, the EU wants to see a more consistent and vocal approach from all ASEAN members. At the recent summit in Brussels, European Commission president Ursula von der Leyen drew parallels between the conflict in Ukraine and China’s efforts to control territories contested with several ASEAN countries.

Growing human rights crises in Myanmar, Thailand and Cambodia are creating problems in EU-ASEAN dialogue, with the ASEAN bloc having received extensive criticism from European officials for its failures to reign in mounting abuses among these member-states. Both blocs are working toward the creation of individual EU free trade agreements with major ASEAN powers such as Indonesia, Malaysia and the Philippines, which could then be consolidated into a total EU-ASEAN free trade pact. However, the European Parliament will not ratify any such agreement given the ongoing civil war in Myanmar.

International legal dispute

One of the biggest potential spoilers of EU-ASEAN relations that has largely gone unnoticed by EU officials comes from a major international legal dispute involving control over Malaysia’s oil and gas resources. In February last year, a French court issued a surprise $15 billion ruling against Malaysia in favour of the heirs of the late Sultan of Sulu, a remote region in the Philippines. The ruling – which had been sought by a Spanish arbitrator originally appointed in a Spanish court – determined that the claimants are entitled to a 15% share in Malaysia’s profits from oil and gas production in the region.

By July that year, the ruling resulted in Petronas, Malaysia’s state-owned oil company, having its assets seized in Luxembourg by court bailiffs. The ruling also appears to threaten Malaysia’s control over Sabah, which happens to be rich in oil and gas resources. The legal dispute harks back to a colonial-era 1878 agreement under which the territory now known as Sabah, then-owned by the late Sultan of Sulu, was conceded to the British North Borneo Company in return for an annual rent paid to the Sultan. The company was granted the right to “profit from its minerals, forest products and animals”.

After the Second World War, the company was taken over by the British Crown. But by 1963, the state of Malaysia was formed including Sabah in its sovereign territory. For decades, successive Malaysian governments continued to pay an annual nominal fee to the heirs of the Sultan, until 2013 – when 200 armed followers of the late Jamalul Kiram III, the self-proclaimed Sultan of Sulu, illegally invaded Sabah and occupied a town.

After 2020, the late Sultan’s heirs used the lack of payments to launch a claim against Malaysia in Spain. When the Spanish court realised it did not have the jurisdiction to handle the case, the arbitrator appointed by the court – Gonzola Stampa – went to France to obtain a judgement. Independent legal experts have raised questions about the arbitration, given that it is using a 145-year old colonial-era treaty to undermine a sovereign state’s control over its own territory and resources. According to Dr Wojciech Sadowski, a legal expert on transborder arbitration and litigation with extensive experience in EU courts, the role of Spanish and French courts in undermining Malaysia’s sovereignty raises serious questions, as neither of these courts have jurisdictional authority. Criminal proceedings have now been issued against Stampa, the Spanish arbitrator, due to his having moved the seat of arbitration to France in violation of a Spanish court’s revocation of his appointment as sole arbitrator and instructions to close the file. Dr Sadowski points out that the case could therefore set a dangerous precedent:

“Is it conceivable, in today’s world, to give an entire province of a state into a leasehold as a ‘commercial lease transaction’? And for perpetuity? Would it be conceivable e.g. for Canada to give perpetual effective control over the entire Quebec to a foreign company? Or for Spain to do the same in Andalucia? In all probability, such contracts would be regarded, in most jurisdictions, as unconstitutional and contrary to the public order.”

With Malaysia having already expressed concerns over the EU’s new regulation affecting palm oil, the risk that EU courts might pose to its oil and gas resources in the Sulu case could end up destabilising the EU’s relationship with the country and the wider ASEAN. Malaysia is the second largest oil and gas producer in Southeast Asia, and the fifth largest exporter of liquid natural gas in the world.

Yet few EU officials appear to realise that one of the biggest risks to a more harmonious relationship with Asia is coming from EU courts.



Copyright picture: By Keepscases – Own work, CC BY-SA 3.0,