The European Union (EU) and Malaysia have officially announced that negotiations for a Free Trade Agreement (FTA) will restart, signaling a renewed commitment to deepening their trade and investment ties. 

The announcement comes during a visit from the Malaysian Prime Minister Anwar Ibrahim to Brussels, where he met with Commission President Ursula von der Leyen and Council President António Costa. 

FTA talks were initially launched in 2010 following the decision to stop EU-ASEAN FTA discussions and to instead continue bilaterally with individual ASEAN member states. Talks between EU and Malaysia underwent seven rounds but stalled in 2012 following issues over government procurement and environmental standards. Negotiations, however, continued and concluded on an EU-Malaysia Partnership Cooperation Agreement, which was signed in December 2022. 

Since the stall, the EU has been keen to continue FTA discussions with Malaysia, with the latter holding off due to disagreements over environmental standards, in particular the acceptance of Malaysia’s sustainable palm oil certification.

During a question and answer session on his recent trip to Belgium, Prime Minister Anwar Ibrahim noted that the both sides have agreed to move forward, as the EU-Malaysia agenda does not only include palm oil but also contains other forward looking items such as renewable energy and digital trade. It would thus be a missed opportunity to overlook these. 

In a statement released by the European Commission, the EU said that the restart comes at a critical time where geopolitical tensions are escalating, and the risk of instability is growing. 

Trade between the EU and Malaysia is significant, with total bilateral trade in goods valued at approximately €45 billion in 2023. The EU accounts for nearly 8% of Malaysia’s global trade, making it the country’s fourth-largest trading partner. On the investment front, the EU is one of Malaysia’s most important foreign direct investors, with cumulative investments exceeding €31 billion, spanning key sectors such as manufacturing, finance, and renewable energy. This substantial economic partnership highlights the potential impact of a comprehensive FTA on both sides.

A key focus of the negotiations will be addressing tariffs, non-tariff barriers, and improving market access for goods and services. For Malaysia, which exported over €29 billion worth of goods to the EU in 2023, sectors such as electronics, machinery, and palm oil stand to benefit significantly from improved trade terms. On the EU side, exports to Malaysia—worth around €16 billion in the same year—include high-value products like pharmaceuticals, automotive components, and specialised machinery, which could see further growth under a more liberal tariff regime.

Sustainability and labor standards will be central to the discussions, reflecting the EU’s commitment to integrating environmental and social governance (ESG) principles into trade policy. Malaysia’s palm oil sector, which contributes substantially to its economy, is likely to be a focal point of these conversations. Both sides are already in discussion via a Joint Working Group on palm oil and the FTA negotiations will provide another platform for this issue to be resolved amicably. 

The FTA is also expected to boost foreign direct investment (FDI) between the two regions. The EU has long been a reliable investor in Malaysia’s manufacturing sector, which accounted for nearly 30% of total FDI inflows in 2023. With the agreement in place, sectors such as green technology, renewable energy, and digital infrastructure are anticipated to attract increased investment from European companies seeking to capitalize on Malaysia’s strategic location in Southeast Asia.

ASEANcham-EU is supportive of this announcement and asks that both sides approach the negotiations with expediency, with the aim of concluding talks. Ultimately, the resumption of FTA talks presents a significant opportunity to strengthen the EU-Malaysia economic partnership and to generate long-term benefits for businesses and consumers on both sides. 

This FTA also marks the 6th FTA that the EU has concluded or is engaged in with ASEAN member states. FTAs with Singapore and Vietnam are already in force, while discussions are in a late stage with Indonesia. FTA talks with Thailand and Philippines have recently restarted as well. 

With trade and investment figures between EU and ASEAN only expected to grow in the coming years, this agreement could serve as a model for how the EU and ASEAN collaborate to build resilient, inclusive, and sustainable economic ties in an evolving global landscape, and possibly negotiate a region-to-region trade agreement.