Working Lunch with Delhaize Group
Ref. Ares(2018)5979569 - 22/11/2018
Subject: EU-Indonesia trade relations
Scene setter
The Commission and the Government of Indonesia are currently in the process
of preparing the launch of bilateral free trade negotiations. A joint Vision Group
recommended such negotiations in its report published in June this year (so
called Comprehensive Economic Partnership Agreement or CEPA) and the
Indonesian Government is now engaged in obtaining the necessary domestic
support for the idea.
Internally, Indonesian industry is struggling with the effects of other FTAs,
especially with China, and calls for more protectionist measures rather than
trade liberalisation. These developments have probably influenced the recent
reshuffle of the Government on 18 October with the unexpected departure of
Trade Minister Mari Pangestu (so far very supportive of the Vision Group and its
recommendations) replaced by Harvard-educated and investment banker Gita
Wirjawan who has been (and continue to be) the Chair of the Indonesia
Investment Board during the last two years. Also due to the changes in the
Government, preparatory talks with the EU have lost momentum after the
summer and continue now at a more technical level.
Line to Take
The joint EU-Indonesia Vision Group report has highlighted the challenges
we are facing and clearly suggests that status quo is not an option. It
proposes to start quickly the process for the negotiation on comprehensive
free trade agreement.
To this respect, the Commission is prepared to engage in bilateral FTA talks
with countries in South East Asia which are ready to and capable of
negotiating a comprehensive FTA.
This obviously includes Indonesia and the preparatory discussions could
continue as soon as Indonesian Government has concluded its internal
consultation process.
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Working Lunch with Delhaize Group
Background
Indonesia's economic growth is – despite global crisis – impressive (6.4% in
2011). However, even though EU industry present in Indonesia is doing well,
new ('fresh') EU investment and trade flows still remain behind the level of other
ASEAN countries such as Thailand and Malaysia. EU industry is complaining of
market access issues and lack of regulatory transparency (predictability).
The EU is not taking advantage of this expanding economy of 240 million
consumers. Trade and investments are far below potential, mostly due to the
difficult trade and investment climate and lack of awareness of the opportunities.
In 2007 the EU launched FTA negotiations with a group of 7 out of 10 ASEAN
members. This has proved overly challenging. After two years of negotiations, it
became apparent that the levels of ambition between ASEAN and the EU did not
match. Therefore a joint decision was taken in March 2009 to "take a pause" in
the regional negotiations.
Until the time is ripe for re-engaging at the regional level (that still remains the
ultimate goal), the EU is open to engage on bilateral negotiations with those
individual ASEAN members ready to do so. These FTAs are intended to become
building blocks for a future agreement in the regional framework.
We have so far launched negotiations with Singapore and Malaysia. Vietnam,
Thailand and, most recently, Philippines asked to open preliminary talks with the
EU.
Indonesia has started showing an interest to join the bilateral process only in
2010 by welcoming and actively participating to the EU-Indonesia Vision Group
(see below), which recommended starting negotiations for a 'Comprehensive
Economic Partnership Agreement'.
Indonesia is expanding its network of regional and bilateral trade agreements
(China, Japan, Korea, India, Australia, Pakistan and talks with EFTA and
Turkey) and this process is already showing an impact on the export shares in
the countries where the EU is loosing ground (from 14% to 8%) to the advantage
of China and Japan (and other ASEAN countries).
Still, Indonesia already benefits of a rather open access to the EU market
(around 12 billion exports per year) thanks to the structure of its trade and the
benefit of the GSP scheme. Meanwhile, the domestic industry is struggling with
the implementation of other agreements signed by ASEAN with regional partners
(especially China) and is asking the Government for further delays and
increased protection.
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Working Lunch with Delhaize Group
EU-Indonesia Vision Group and CEPA negotiations
During the last bilateral meeting with President Yudhoyono in December 2009,
both sides agreed that trade and investment is an area where the bilateral
relationship had great potential to develop and that there was need to explore
ways to strengthen these ties. The leaders therefore decided to set up a "Vision
Group" tasked to examine how to increase trade and investment between
Indonesia and the EU. This project was in line with the positive political climate
created by the partial resolution of the air ban and the consequent signing of the
PCA, and had the objective of maintaining the momentum in the bilateral
relations while buying some time to deal with the pressures of some sectors of
the domestic industry, which is very much concerned about recent opening to
other regional partners (especially China).
The main recommendation of the Group, presented to the Trade Ministers in
May 2011, was to launch negotiations for an ambitious agreement denominated
Comprehensive Economic Partnership Agreement (CEPA). The proposed
agreement would be a comprehensive one, constructed like a pyramid based on
three main pillars: Market access, Facilitation of trade and investment and
Capacity building. This is very much similar to the Indonesia-Japan EPA.
From the EU perspective, an agreement with Indonesia would be of high interest
given to its size and our declining market share in the country. However it will
also be challenging in terms of substance. In this respect, the reaction of the
Indonesian Government to the recommendations of the Vision Group which
called for the launch of CEPA negotiations is encouraging.
The Indonesian Government is currently consulting the main stakeholders on
these recommendations, but also on the more detailed contents of a possible
agreement ("socialisation campaign"). This will pave the way in Indonesia to the
formal decision (by the President) to open negotiations. So far the reaction from
the local industry (Chamber of commerce KADIN and employers' Association
APINDO) and, surprisingly, from trade unions has been positive, highlighting in
particular the complementarities between the two economies and the importance
of closer bilateral ties. Negotiations can start only after an in-depth discussion on
key aspects of the agreement in order to evaluate their readiness to take
commitments on critical aspects of services, market access and procurement.
This will be reflected in the so-called "scoping paper" to be presented to the
Member States ahead the formal start of the negotiations.
An offer to start this preliminary "scoping" exercise has been presented to
Indonesia in occasion of the last bilateral working group on trade and investment
before the summer. However, no official answer has been received so far and
unofficial signals are showing the need for Indonesia to take some additional
time to consult internally all the stakeholders before engaging with the EU.
In a recent bilateral meeting, the new Trade Minister Gita Wirjawan confirmed
the need for more stakeholders' consultations and promised to send a feedback
on the scoping paper by May 2012.
Contact: art 4.1 (b)
- DG Trade C3
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