Regardless of its distant domain, EU and Indonesia have always been engaged in constructive economic partnership. Given its different geographical condition and level of economic development, a degree of disparity present between both side economies, allowing both to be complementary in nature. Indonesia’s abundant natural resources and 230 millions inhabitants signifies potential sources for European producers and market for their products. Nonetheless, statistically speaking, Indonesia has yet to forge its trade relations with the union. Indonesia ranked as the union 32th export destination and 24th as foreign supplier for the union market[1]. The momentum has now arrived, ever since the singing of Lisbon Treaty in 2007 the union has undergone an institutional change that also reflected in its external affairs, including in its trade relations. One major change is the union initiative to renewed its general preferred system (GPS)[2], thus exclude Indonesia as one of the scheme’s beneficiaries. This substantially alters the landscape of trade relation between the union and Indonesia. On one hand this move might seem as form of loss for Indonesian export, should Indonesian export subjected under the current EU’s MFN tariff the potential loss is amounted around 2.4 billion[3] US$. On the other hand however, this initiative also evinces EU’s recognition as considerable economic powerhouse, thus give the needs to change the framework of bilateral cooperation in a more level manner. In the context of investment, EU’s flow of FDI to Indonesia is only second to Singapore, amounted of 2.7 billion[4] US$. This result is only natural considering the two different level of economic development. For Indonesia, this flow if investment provide means for technology transfer and create million of jobs in many different sectors. Nevertheless, similarly with trade statistics, FDI data suggests that Indonesia receives only 6% percent from the union total investment[5] to ASEAN. These data signify the need to elevate economic cooperation between EU – Indonesia.
In November 2009 the idea of equal partnership and further cooperation, manifested in EU-Indonesia Partnership and Co-operation Agreement (PCA). This agreement lays a legal foundation for the two to draw an even closer partnership via shared values, strategic and economic cooperation, and people-centered activities (Oegroseno, Arif Havas 2014). To economic cooperation, this agreement paves the way for a discussion of Comprehensive Economic Partnership Agreement (CEPA) that took place in late 2009[6]. Entering the year of 2015 series of talks have take place between two sides to establish the scope of agenda within the CEPA discussion. Reaching the end of the year 2015, Indonesian government shows more and more appetite to advance the CEPA discussion. The Jokowi’s administration ambitious goal to boost economic growth under the current global pressure and emergence of other FTAs seem to invigorate the government’s appetite on CEPA with the EU. This enthusiasm is reciprocal with the one that EU as what the medias have recorded via numbers of statements documented from its high rank officials. Regardless of such constructive atmosphere, this discussion has yet to bear its fruit.
Aside from CEPA, other issues also marked the dynamics of EU-Indonesia economic relations throughout the year of 2014-2015. Indonesian recent vigor on its Maritime Axis ambition found a suitable match with the EU’s sustainability norms, especially under the extent of Indonesian government ambition to embattle Illegal Unreported and Unregulated Fishing (IUU)[7]. Reciprocal manner also appears for the Indonesia’s visa waiver proposal. That being said, should both sides seek to advance its economic affairs, challenges prevail. CPO remains as one of the major prick between the two economies close ties, Indonesian government decision to request an anti-dumping panel provided futile. At the same being regarded as environmentally unfriendly products Indonesian CPO also receive strong pressure from the EU, this inevitably invites strong criticism from the Indonesia’s side and provoke the anxiety on the union intention to use new form of protectionism. This proves standard remain as an imperative element in any future framework constructed to advance EU-Indonesia economic relations. The Indonesia-EU FLEGT VPA serve valuable reminder for the both sides’ negotiators and policy makers that efforts to bride the standardization gap might not only lead to compromise but also mutual benefit for both sides. EU negotiations needs to apprehend that compromise does not come without cost whereas Indonesian negotiators and policymakers needs to delicately treat the EU’s interest in sustainable development. In many cases EU’s peculiar standard to promote sustainable development can be capitalized as opening to forge closer diplomatic and economic ties, instead of being seen as barriers for further cooperation.
Two major issues have dominated Medias’ attentions on the dynamics of EU-Indonesia bilateral economic relations, continuation of the signed EU-Indonesia FEFLGT-VPA and the publication on Comprehensive Economic Partnership Agreement (CEPA). One the timber issue, media coverage revolves around the implementation of FLEGT-VPA, as both governments reach their final phase of discussion. Many publications have captured positive vigor for both governments on this bilateral framework. EU, via its representatives, has praises Indonesia’s devotion to this agreement. “If you consider where Indonesia was 10, 15 years ago, [it] didn’t have a good reputation. To get from there, to being a world leader in timber legality, is an astonishing achievement,” “From what I understand, Indonesia has the most comprehensive and the best developed timber legality system [of any country] in Asia.” (Crooks Colin, 2015). Meanwhile Indonesian government had began to grasped the positive outcome of this agreement for its timber export. In 2014 Indonesian Forestry Minister, Mr. Zulkifli Hasan, stated that FLEGT-VPA ratification had boosted Indonesia’s timber export, and invites both public and private sector to push forward this agreement (Jakarta Post, August 2014). However, passing the 3rd quarter of 2015, there has been a new development in media publication, which the setback on the discussion of this agreement implementation. Some publication had captured EU’s concern amid the legal issue that bind Indonesian Ministry of Forestry prior to its legal dispute with an NGO, Forest Watch Indonesian (FWI). Many had recorded the union intention to freeze this agreement prior to the Indonesian government decision to ease the certification obligation. Indonesian government its Trade Ministry, had released revised Regulation No. 97/2014 and Regulation No. 89/2015 to exempt as many as 15 downstream timber products from SVLK certification. This decision was made by Indonesian government to ensure SVLK certification does not constrain the SMEs, while the union sees it denies the common objective of FLEGT-VPA.
The major second issue is discussion on CEPA which actually not an entirely new development, its initiation came soon after the two governments singed the PCA in November 2009. Not long after the signing two governments establish a group called “EU-Indonesia vision group”. This group consists of academics, businessmen, and bureaucrats with aim to seek means in strengthening EU-Indonesia relationship. By the year 2011 draft of recommendation is submitted to Indonesian trade ministry, the idea however went dormant for quite a time. It was not until the year 2014 that media started to discuss about CEPA again, through a documented statement of H.E Mr. Olof Skoog. Ever since the media has managed to record both government interests on the idea of CEPA, the media has also managed to capture Indonesian government intention to speed up the pace of CEPA discussion as stated by Mr. Achmad Sigit Dwiwahjono as the head of director for Indonesia Industry Access and Resistance development department.
Given the nature of both economies, a presence of CEPA can be beneficial for Indonesia, especially with the fact that Indonesia would no longer receive special treatment under the EU’s GPS scheme. Conversely, the government shows more and more appetite to advance the CEPA discussion. This vigor is further fueled by Jokowi’s administration ambitious goal to boost economic growth under the current global pressure and emergence of other FTAs. Recent sluggish economic growth had made the government realized the danger of Indonesia’s economy over reliance on domestic consumption, conversely government poise the ide to boost export to generate economic growth. While at the same time Malaysia and Vietnam enter their final stage of discussion with EU to form CEPA, as the result, Indonesian government push the negotiators to step up the pace of negotiation. That being said, the government needs not to be hasty, let alone be intimidated with our neighboring countries newly formed trade agreements. Our government should put more value on the fact of Indonesia growing economic importance, especially in the ASEAN. It is not an overstated to say Indonesia is current and future powerhouse of ASEAN, with 40% of its population and 35% of economy. Global economic slowdown has forced countries to explore a new market, in this extent Indonesia’s huge population and its formidable domestic consumption will serve its merit. Therefore, the government intent to fasten the pace of CEPA negotiation should not be driven solely by insecurity feeling.
Further, the government also has to carefully understand its appetite for any sort of trade agreement. The government needs to properly scrutinize the content of any trade negotiations, especially in CEPA case where the discussion might goes beyond traditional tariff. CEPA also encompasses framework for trade facilitation and capacity building, therefore the government needs to ensure proper synchronization with domestic institution in order to bring out the most from this agreement. This bilateral framework also provide a channel for the government to mediate problem of standardization gap that has been substantially hinders two sides trade relations. Unlike tariffs, standards are far more diverse thus it quires a case-by-case approach. If properly treated standards disparity and the union fond to form a perplexed one might become opportunity for Indonesia, as what appears in the case of timber or fisheries sector. Hence it is best for our government to invest more time in order to produce outmost result from the negotiation.
Minor issues:
- CPO EU is currently Indonesia’s 2nd biggest export destination after India, although CPO faces several challenges to enter European market. Challenges derive mainly from EU’s concern over environmental and health impact of CPO, while Indonesian government and Palm Oil industries see this as the union’s protectionist attempt. Hence, media much of media publication on CPO records both sides’ attempt to antagonize one another.
- “Consumers in Europe, as in Indonesia, have the right to choose and make their choices based on factual information” (H.E. Olof Skoog, Jakarta Post 5th January 2015)
- President Joko Widodo demand EU to lift its unfavorable policy for Indonesia’s CPO export. He stressed out that Indonesia has done much to improve the sustainability of its palm oil sector. He also express his concern that developed country might use this as a partial account to justify non-trade barriers for CPO. (Nikkei Asia Review 15th January 2015)
Aside of the standardization debate, media also covers Indonesia’s attempt to challenge EU’s anti-dumping tariff on CPO derivatives product (fatty alcohol) to the WTO. Indonesia rise its legal challenge by 2012 but delayed the legal dispute and engage with bilateral talks with EU instead. In July 2014 however, Indonesia finally filed its formal dispute to WTO, with no significant progress ever since. A hearing panel finally formed by WTO DSB to hear Indonesia’s complaint in September 2015.
- Indonesia maritime axis agenda under president Jokowi’s administrator also reflected in its bilateral relationship with EU. Indonesia’s vigor to embattle Illegal, Unreported, and Unregulated fishing (IUU) falls in parallel with one of the union’s sustainability directive (Council’s regulation no 1005/2008 & 1010/2009). Media has manages to record Indonesia’s maritime diplomacy to draw a closer partnership with EU in fisheries sector. The media also record recent ban that EU put on Thai fisheries industry thus implies current opportunity for Indonesia to pronounce its maritime diplomacy to EU.
- Indonesia menyambut baik dukungan UE terutama bagi peningkatan kapasitas di bidang kerja sama maritim. Hal ini juga Indonesia upayakan agar dapat ikut mendukung agenda besar Pemerintah Indonesia dalam memajukan konsep poros maritim dunia dan pemberantasan Illegal, Unreported and Unregulated Fishing (IUU Fishing) yang diharapkan dapat lebih memanfaatkan potensi kemaritiman Indonesia bagi kesejahteraan rakyat Indonesia (Indonesian Ministry of Foreign Affairs)
Author: Adrian Ishak and Triyanto Prabowo.
Both are undergraduate students in the Department of International Relations Universitas Gadjah Mada, and currently work as research assistants for the media research on Indonesia-European Union bilateral relations in 2015 at the Programme on European Studies, Institute of International Studies.
References:
[1] http://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_112008.pdf
[2] http://trade.ec.europa.eu/doclib/docs/2012/october/tradoc_150028.pdf
[3]http://eeas.europa.eu/delegations/indonesia/documents/more_info/pub_2015csiscepa_en.pdf
[4]eeas.europa.eu/delegations/indonesia/eu_indonesia/trade_relation/investments/index_en.htm
[5] http://www.eurocham.or.id/index.php/eu-indonesia/eu-indonesia-submenu/cepa-menu
[6]http://eeas.europa.eu/delegations/indonesia/eu_indonesia/political_relations/index_en.htm
[7] http://ec.europa.eu/fisheries/cfp/illegal_fishing/index_en.htm