ASEAN-EU trade consists of 10 priority areas: electronics, healthcare, wood-based products, automotive, rubber-based products, textiles and apparel, agro-based products, fishery products, air travel and tourism. These selected sectors accounted for more than 50% of intra-ASEAN trade in 2003. In value terms, the priority sectors contributed USD 48.4 billion and USD 43.4 billion of intra-ASEAN exports and imports, respectively, in 2003.

According to a study conducted by the EU Directorate-General for Trade, all ASEAN members as well as EU countries would benefit from welfare gains. These gains are likely to be significant for most ASEAN countries. The gains are larger when some sensitive products are excluded from the liberalisation. This is mainly due to the fact that these sensitive products on the EU market are concentrated in agriculture, which is not supposed to feature increasing returns to scale.

The introduction of sensitive products like agriculture would lead to higher welfare gains for the ASEAN countries. ASEAN continues to compete with MERCOSUR on the agricultural market. ASEAN is now the only large agricultural region in the world facing EU tariffs in this sector. Thus, ASEAN would lose in the absence of an EU-ASEAN FTA.

The same is true for the EU: if ASEAN concludes an FTA with all other industrialised countries, the EU would be the only industrialised region facing tariffs on the ASEAN market. Therefore, an FTA between the ASEAN and the EU would not only mean more liberalised trade, but also less discrimination between significant trade partners.

The importance of concluding an Asia-EU FTA is magnified by the fact that the EU and other industrialised countries compete to provide the same kind of goods and services, and within the same quality range. On the other hand, ASEAN countries has an export structure which is closer to the Mercosur one as far as the EU market is concerned.

Unskilled labour would also benefit from the agreement except for Vietnam. The change in its production structure is oriented towards apparel, whereby its services production is expected to decline.

Expected gains accruing to ASEAN members are very large, adding up to more than 2% of GDP in 2020. The bulk of the gains (actually three quarter of the gains accruing to the ASEAN) are associated with the liberalisation in services. Malaysia would exhibit the largest increase in skilled workers wages in the region as a result of its specialisation in services. For Philippines, an ASEAN EU FTA would not be profitable unless liberalisation of trade in goods is accompanied by a substantial liberalisation in services.

The introduction of a list of sensitive products, as a result of political economy constraints, will increase the overall expected welfare gains for the ASEAN and the EU.

Theory aside, such potential trade gains now depend on the true extent of liberalisation, revised investment incentives relative to trade benefits and costs, uncertainty in disruption of business cycles as well as actual implementation.