Overview
With a population of around 33 million, Malaysia is considerably smaller than the other two south-east Asian countries in our list. Yet, its large economy – well above the Association of Southeast Asian Nations (ASEAN) average – makes it a particularly relevant partner for the European Union. The EU has pursued this in part, concluding a partnership and cooperation agreement in 2023. However, discussions on a free trade agreement have stalled since 2012, not least because of a dispute over palm oil and deforestation. Nevertheless, unlike Indonesia, our interlocutors said this has not soured European-Malaysian relations at large. As such, there is significant room to deepen the relationship, especially in areas such as trade, digital governance, and maritime security.
Most economic indicators paint a positive picture of EU-Malaysia relations. Malaysia is the EU’s third largest trading partner in ASEAN, ahead of Indonesia and the Philippines. In turn, the EU is Malaysia’s fourth largest trade partner and EU countries are among the top investors in Malaysia. Yet, the late adoption of the partnership and cooperation agreement – the EU signed such agreements with five other ASEAN members before concluding Malaysia’s – and ongoing struggles to adopt a free trade agreement, suggest that sustained attention will be required to realise its potential.
In 2023, the EU and Malaysia, together with Indonesia, created a joint task force to resolve the dispute over the EU’s deforestation regulation and improve common understanding of its supply chain traceability and transparency requirements. Resolving this dispute would not only advance negotiations with Malaysia (and Indonesia) towards a bilateral free trade agreement with the EU but could also lay the foundation for a future EU-ASEAN agreement (which was paused in 2009 to focus on bilateral trade agreements). An EU-ASEAN free trade agreement would boost trade between the two regions that are already each other’s third largest trading partners. Moreover, as the United States and China are both the EU’s and ASEAN’s top two trade partners, an EU-ASEAN agreement would also enhance their resilience to disruptions stemming from US-Chinese competition.
The partnership and cooperation agreement also seeks to advance cooperation on connectivity, cyber-security, and digital innovation. Almost half of Malaysians enrol in tertiary education, placing it third among ASEAN countries, and its per capita GDP is above the ASEAN average. Malaysia’s relatively affluent, highly educated, and digitally connected population make it a particularly well-suited south-east Asian partner to advance technology and connectivity governance solutions in the region. However, if the EU wishes to benefit from such a partnership, it will need to allocate more financial resources to its Global Gateway initiative, and make these resources more readily available.
Malaysia also serves as a hub for undersea fibre-optic cables in the region. Past accidents have illustrated the vulnerability of this form of infrastructure and the need to keep it secure. Territorial disputes in the South China Sea and rising Chinese belligerence could jeopardise plans to further expand undersea infrastructure and could undermine south-east Asia’s security, connectivity, and economic prospects. Recent European efforts to protect maritime infrastructure, such as obliging member states to carry out regular risk assessments, should incentivise EU-Malaysian cooperation in this domain. But as Malaysia’s ocean economy primarily depends on shipping, tourism, and fishing, combatting illicit activities in these more traditional areas of maritime security is still a bigger priority for Kuala Lumpur. But Malaysia is also welcoming EU technical and financial support for ASEAN’s various maritime security initiatives and collaboration in formats such as Enhancing Security Cooperation In and With Asia and Critical Maritime Routes Indo-Pacific II. These could, in the future, provide a basis to cooperate on best practices to protect undersea critical infrastructure and to push back against China’s challenge to the law of the sea.
While there are real hurdles that complicate moving the EU-Malaysia relationship forward – the trade disputes in particular – once these are overcome (or genuinely worked out) Malaysia could become a key partner for Europeans in south-east Asia, especially considering its 2025 chairmanship of ASEAN.





