DAVOS
o
Subject: Bilateral EU/Indonesia trade relations
Ref. Ares(2018)5979569 - 22/11/2018
o
Bilateral Meeting between Commissioner De Gucht and Minister
Gita Irawan Wirjawan
o
Davos,
Scene Setter
Indonesia is increasingly recognized as a key global player, both politically and
economically1. It is the largest economy in ASEAN (40% of total ASEAN GDP)
and has grown over 5% per year in the last decade. However, with a widening
trade deficit, signs of a weakening economy and the proximity of 2014 elections
(Parliamentary and Presidential elections in April and July 2014, respectively),
Indonesia is increasingly leaning towards import substitution trade policy and
protectionist measures which inevitably affect business environment and trade.
These policies have also affected the preparatory talks (scoping exercise) to the
launch of an FTA (the Indonesians prefer to call it CEPA), that, after a promising
start in 2012, have stalled because of Indonesia's low level of ambition and lack
of determination to address trade liberalization.
You last met Minister Gita2 in Bali at the 9th WTO Ministerial conference in
December 2013. While you did not have then an in-depth discussion on bilateral
trade issues, this meeting should be the occasion to
convey our growing
concerns as to Indonesia’s protectionist policy trend, as well as inject
some realism on the timeframe for starting CEPA negotiations. Realistically,
negotiations for a CEPA are unlikely to start in 2014, partly due to the upcoming
Indonesian elections and post-election adjustments, but mainly because of
the
big gap in ambition and the work required to close it: the worrying
plethora of
restrictive measures Indonesia is adopting does not help.
On
bilateral issues, as resulting from Indonesia’s restrictive policies, we are
suggesting that:
you raise the
export restrictions on raw materials, which, like other
similar measures, is of concern to the EU, as expressed in your January
2014 letter to the Minister (attached);
you raise concerns regarding the
recently adopted Industry Law (very
protectionist at a first preliminary analysis);
you enquire about when the revision of the
Investment "negative list"
will be announced.
you raise the
" entry port restrictions": art 4(1)(a)
1 Part of ASEAN, APEC, G20; hosted the WTO MC9.
2 Gita is a prominent political figure; one of 11 nominees for the Presidential candidate runner up of the Democratic Party.
1/10
DAVOS
o
Subject: Bilateral EU/Indonesia trade relations
o
Bilateral Meeting between Commissioner De Gucht and Minister
Gita Irawan Wirjawan
o
Davos,
We have included 3 defensives on issues that that the Indonesians tend to
raise at Ministerial level.
On
WTO issues, Minister Gita very able chairmanship was instrumental to the
Bali deal. You could stress the need to prioritise the implementation of the trade
facilitation agreement in the coming months.
Line to take
I. Bilateral issues
Line to take on EU/Indonesia relations
While the EU/Indonesia trade and investment relations are good,
there is
considerable scope for improvement. The EU stands firm
in its commitment
to launch negotiations for a comprehensive
CEPA as soon as we are able to agree on the scope and level of
ambition of such negotiations.
Regrettably, however, there is
still an important gap in ambitions
between our two sides in the scoping exercise: we need to see
greater ambition from Indonesia on services, investments and
procurement, to ensure that the future CEPA brings new market
access opportunities and a more predictable investment and
business climate.
Furthermore,
I cannot hide my concern about Indonesia’s
increasingly protectionist measures which negatively affect our trade
and investment relations:
how does Indonesia intend to address
them in view of a future CEPA with the EU? We need to seriously
address a coherence issue here.
With Indonesia’s
elections around the corner and the upcoming
change of leaders in the EU next year, it looks very difficult to reach a
point still during this year where both sides are ready to launch
negotiations.
But we should work in parallel to clarify the current policy situation,
close the current gap in ambition and
engage in a constructive
dialogue to
address the increasing number of trade issues and try
to solve some of them.
2/10
DAVOS
o
Subject: Bilateral EU/Indonesia trade relations
o
Bilateral Meeting between Commissioner De Gucht and Minister
Gita Irawan Wirjawan
o
Davos,
Let me take
examples, which we need to seriously address:
Export ban on raw materials
In January 2014 I have addressed you a letter conveying our
growing concern Indonesia’s export restrictions of raw
materials.
These export restrictions and localisation requirements are likely to
be in breach of WTO law; are inconsistent with the G20 anti-
protectionist pledges; and contribute to unfair and non-sustainable
trade given the major differences in resource endowments across the
globe and interdependence between countries.
I would strongly urge you to consider alternative, non-restrictive
measures to achieve Indonesia’s policy objectives, without negatively
affecting WTO members
. Indonesia’s measures can only create
incentive for users to find other sources or alternative materials and
this may not necessarily benefit Indonesia.
Adoption of new Industry Law
We have strong concerns regarding the recently adopted Industry
Law.
The Law leaves a lot of discretion in terms of imposing local
content requirements, protecting national strategic industries
(without specifying them) and initiating safeguard measures to
protect domestic industry, empowering the Industry Ministry to
propose such measures (tariffs and quotas).
The Law appears to be very trade restrictive and discourage
companies to operate in Indonesia: how do you intend to reconcile
it with a project for an Indonesia /EU FTA?
Investment list
Finally, let me also enquire about the revision of the
"Investment
negative list" which has been under discussions in the Government for
some time. We are obviously hoping to see further liberalisation in some
3/10
DAVOS
o
Subject: Bilateral EU/Indonesia trade relations
o
Bilateral Meeting between Commissioner De Gucht and Minister
Gita Irawan Wirjawan
o
Davos,
sectors of key interest for EU industry (pharma, telecoms, tourism).
Would you be able to update me on this?
EU Horticulture and Indonesia entry port restrictions
In December 2013 the head of the EU delegation in Jakarta and the
Minister of Agriculture, Dr Suswono met and agreed to meet up early in
the 2014 in order to resolve the current ban on EU horticultural imports
through Tanjung Priok (Jakarta) port.
Can you confirm when will the issue be solved and the EU will be
granted a CRA and therefore use of the port?
The forthcoming Indonesia/EU Working group on Trade and
Investment which should take place in February will be a good
opportunity to hold a constructive discussion on these issues.
II. Multilateral issues
We collectively reached a landmark deal in Bali. Let me again thank you
for your very able chairmanship.
The coming months will be crucial for the WTO. We now need to ensure
a timely and meaningful implementation of the trade facilitation
agreement to demonstrate
in practice that the Bali outcome is solid and
credible.
Defensives (bilateral issues)
Should the Minister accuse the EU of lack of ambition with regard
to the launch of the scoping exercise and the CEPA negotiations
with Indonesia:
We have already mentioned this briefly in Bali. We remain committed… but
we need to get the substance right. The “scoping” exercise in 2012
unveiled an important lack of ambition from Indonesia’s side in the
procurement, services and investment sectors as well as the extent of
liberalization. This was the reason which did not allow progressing in a
4/10
DAVOS
o
Subject: Bilateral EU/Indonesia trade relations
o
Bilateral Meeting between Commissioner De Gucht and Minister
Gita Irawan Wirjawan
o
Davos,
meaningful manner. We must see this gap reduced for constructive,
realistic talks to start. We therefore look forward to receiving positive
signals in this regard from Indonesia and are willing to engage. The
forthcoming EU/Indonesia Working group on trade and investment to be
held in February 2014 (date to be confirmed) can be an opportunity to hold
a first exchange of views.
If asked about AD measures on biofuel
Let me assure you that the current anti-dumping and anti-subsidy biodiesel
investigations are highly technical proceedings based on strict legal WTO
requirements.
The Council adopted on 19 November 2013 a regulation
imposing
definitive anti-dumping measures on biodiesel from
Indonesia (and Argentina) which entered into effect on 27 November
2013. The rights of defence of the Indonesian producers, guaranteed under
WTO rules, are fully respected.
If asked about Indonesian palm oil exports and future possible
restrictions on the EU market:
In the EU, there are currently no restrictions on imports of Palm Oil as
such. Most palm oil imports from Indonesia enter at 0% duty rate.
Indonesia maintains the lion’s share of EU total imports of palm oil with
48%.
Amendment of the EU sustainability criteria for biofuel currently under
decision making process or future EU food labelling rules equally apply to
all products irrespective of their origin and are non-discriminatory.
5/10
DAVOS
o
Subject: Bilateral EU/Indonesia trade relations
o
Bilateral Meeting between Commissioner De Gucht and Minister
Gita Irawan Wirjawan
o
Davos,
Background
Launch of talks on a scoping exercise for an EU-Indonesia CEPA
The shared interests and commitment to closer collaboration between EU and
Indonesia outlined in the EU-Indonesia PCA (signed in November 2009) opened
the door to closer cooperation in a wide range of fields, including trade. When
Presidents Yudhoyono and Barroso met in December 2009 they tasked a joint
Vision Group to examine how to increase trade and investment between both
partners.The Vision Group's Report, made public in 2011, recommended the
negotiation of a CEPA.
After the promising launch of a scoping exercise in 2012, the process has stalled
because of Indonesia's low level of ambition and lack of determination to address
trade liberalization (in their latest scoping counter-proposal full negotiation
chapters, such as competition, had been completely eliminated and the level of
ambition both as regards coverage of good trade, level of ambition on services
and investments and procurement).
EU and Indonesia forthcoming elections (N.B.
in 2014 Indonesia’s presidential
election takes place in July, after the Parliamentary elections in April) as
well as a need to fill in the wide gap between EU and Indonesia in the current
scoping exercise makes it unlikely that FTA negotiations can be launched in
2014. Most likely the discussions will pick up speed again only after the new
President and Cabinet are in place sometime in autumn 2014.
EU market access concerns
There are various trade issues, many of which linked to the trade policy of
Indonesia. This is rather protectionist and oriented towards self-sufficiency,
import substitution. To mention some of the numerous restrictive practices and
measures:
Export restrictions:
Legislation de facto banning the export of metal and
mineral raw materials which must be processed within the country has been
applied since 2012. The straightforward export ban has entered into force on
12 January 2014, but, pending a legal analysis of the newly adopted
measures, it appears that a recent decree continues to temporarily suspend it,
subject to mining companies demonstrating their plans to domestically
process minerals and to build smelters over a stipulated time period of three
years, until 2017. Indonesia also applies a 20% export tax on 65 mining
commodities. There is no information about any exporting companies being
6/10
DAVOS
o
Subject: Bilateral EU/Indonesia trade relations
o
Bilateral Meeting between Commissioner De Gucht and Minister
Gita Irawan Wirjawan
o
Davos,
banned outright; apparently the Government has allowed a list of 66
companies to continue to ship unprocessed ore after the January 12 deadline.
The measures enshrined in Indonesia’ mining laws constitute export
restrictions and localisation requirements are likely to be in breach of
Indonesia's WTO commitments. They also go against the anti-protectionist
pledges made by Indonesia's leaders in the G20.
The newly adopted ( December, 19) Industry law, which is still in the process
of being assessed, but which already appears to be protectionist, by
imposing, inter alia, local requirements. This Law is yet seen as another
victory for Indonesian hard-line policy makers, notably in the Ministry of
Industry, requiring more restrictive and protectionist industrial policies, spilling
over into the trade policy areas. It is a wide ranging Law, which touches upon
many aspects affecting trade and investment, and will provide greater protection
and benefits to domestic industries. The Government will have to issue all
implementing rules and write up the National Industrial Development
Blueprint, a 20-year work program, to correspond with the new law.
Preliminary identification of key areas of concern, inter alia: the imposition of
compulsory national standards; compulsory rules on procurement of local
products (mechanism for sanctions if not complied with): the law obliges
public procurement to utilise domestic product; State control of key industries:
Safeguard measures to protect domestic industry: the law mandates the
government to ensure “domestic industrial security”; prohibition to use foreign
workers: In order to secure selected national strategic industry, Minister of
Industry can prohibit the use of foreign workers
Trade restrictive import practices, where licensing is a major instrument used.
Exporters to Indonesia must comply with numerous and overlapping import
licensing requirements that create confusion. They do this on a broad range of
products, including electronics, household appliances, textiles, toys, food and
beverages.
Certain sectors are also hit by restrictions to enter major
ports (horticulture).
Entry port restrictions: the main entry port of Tanjung Priok in Jakarta is
closed to imports of EU horticultural products. Exception was granted to
countries that have a 'Country Recognition Agreement' (CRE) (US, Australia,
New Zealand and Canada). art 4(1)(a)
7/10
DAVOS
o
Subject: Bilateral EU/Indonesia trade relations
o
Bilateral Meeting between Commissioner De Gucht and Minister
Gita Irawan Wirjawan
o
Davos,
. So far
however there are no concrete results on an EU wide CRA. The US and NZ
requested the establishment of a WTO panel in March 2013 challenging the
Indonesian non-automatic import licensing procedures for horticultural, and
animal and animal based products, and their inconsistency with obligations
under the WTO.
The EU has third party status.
Investment restrictions: a 'negative list' restricts foreign ownership in
numerous sectors. A revision of this list has been on the cards for some time,
with expected announcements of liberalisation in some key sectors of great
interest to EU companies (such as pharma, telecom, and tourism). However,
it does not seem to materialise, as decision-makers are waiting for an
opportune moment to make such an announcement.
Background
Defensive issues
Anti-dumping Biodiesel case
Following complaints lodged by the European Biodiesel Board ("EBB"), the
Commission initiated anti-dumping and anti-subsidy investigations in August and
November 2012 respectively on imports of biodiesel from Indonesia and
Argentina. Provisional
anti-dumping duties were imposed on 28 May 2013. No
provisional
anti-subsidy measures were imposed: the investigation continued,
but the industry withdrew the complaint lodged in the anti-subsidy proceeding.
On the other hand, with regard to the parallel anti-dumping investigation
the
Council adopted on 19 November 2013 definitive anti-dumping measures
on biodiesel from Indonesia (and Argentina). However, the measures
entered into effect on 27 November 2013. The rights of defence of the
Indonesian producers, guaranteed under WTO rules, are fully respected (both
Indonesia and Argentina are threatening to challenge the EU decision in the
WTO on the grounds that it is not compatible with WTO rules).
Biodiesel and the Renewable energy directive (“RED”)
Together with the AD case on biofuel, Indonesia is also raising concerns with
regard to the EU proposed amendments to the
EU directive, on Renewable
Energy Directive (“RED”),
which sets sustainability criteria for biofuels and
requires EU member states to produce an agreed proportion of energy
consumption from renewable sources such that the EU as a whole shall obtain at
least 20% of total energy consumption from renewables by 2020. Two of the
8/10
DAVOS
o
Subject: Bilateral EU/Indonesia trade relations
o
Bilateral Meeting between Commissioner De Gucht and Minister
Gita Irawan Wirjawan
o
Davos,
environmental criteria
are being revised and under decision making process. Indonesian complaints they are discriminatory and trade restrictive. However,
the RED which will be gradually implemented in the EU,
equally applies to all
biofuels consumed in the EU, irrespective of whether the raw materials
were cultivated inside or outside EU territory and looks at the sustainability of
fuel production overall. Furthermore, a
s it is stated in the Commission's
Renewable Energy Progress report3 in 2010, 40% of EU consumed
biodiesel feedstock in 2010 was produced outside the EU, and biodiesel
imports were dominated by Indonesia (palm-oil) and Argentina (soy-bean)
since 2010, the imports of palm-oil based biodiesel from Indonesia have
considerably increased and its market share reached 9,7% in 2011) .
Palm Oil Exports
Indonesia has also lately raised growing concerns over
Palm Oil exports to the
EU, claiming that the market is becoming increasingly difficult to access for
Indonesian producers as a result of NGO criticism on Palm Oil production and
sustainability. Indonesia has tried for some time (without success) to have Palm
Oil included as an
'environmental good' in APEC in order to qualify for reduced
tariffs. In the EU, there are currently no restrictions of the imports of Palm Oil as
such, and the product enters in fact under 0% MFN tariff rate. Indonesia's exports
of crude palm have been increasing significantly in the last five years Indonesia
is particularly concerned that anti-palm oil sentiments are increasing ahead of
new EU labelling requirements (that will be introduced in 2017) requiring
"Vegetable Oil" to be defined However, even this legislation is not discriminatory
, as it applies to all products irrespective of their origin.
Anti-dumping: Fatty Alcohol case
In November 2011 EU imposed anti-dumping duties on fatty alcohols originating
in Indonesia, India and Malaysia. Two Indonesian producers were originally
affected, however following a review only one (was imposed moderate measures
(45 Euro/tonne, ca 4% if expressed ad valorem).
Indonesia requested the establishment of a WTO Panel and demanded that the
remaining company be removed from measures within the context of an on-going
review of the measures.
The EU is currently discussing with the
representatives of the company the possibility of accepting a price
undertaking and works with a view to avoiding the dispute in Geneva.
3
see 27 March 2013 (COM 2013) 175 final,
9/10