The Bangkok Post | 18 April 2016

Indonesia-EU free trade talks take big step forward

By Ismira Lutfia Tisnadibrata

Indonesia and the European Union (EU) are one step closer to realising a free trade agreement after talks to discuss the scope of documents outlining the items they want to include in the negotiations.

“I am very glad that there is a good step toward the start of negotiations for the CEPA (comprehensive economic partnership agreement). Hopefully, Indonesia and the EU will be able to finalise the scope paper as the basis to start the negotiations,” Foreign Minister Retno Marsudi said after a meeting in Jakarta with EU High Representative Federica Mogherini in Jakarta.

Ms Mogherini’s visit came just days after European Commission Trade Commissioner Cecilia Malmström held talks in Brussels with Indonesian Trade Minister Thomas Lembong and Industry Minister Saleh Husin.

Mr Lembong said an FTA would improve Indonesia’s competitiveness in the EU and raise its profile in the global value chain.

According to data from the trade ministry, the EU is Indonesia’s fourth biggest trading partner, with Indonesian exports to the bloc valued at US$2.3 billion last year. That was down from $3.8 billion in 2014 but mainly because of the sharp depreciation of the Indonesian rupiah. EU foreign direct investment (FDI) in Indonesia amounted to 25.8 billion euros in 2014, making Indonesia the bloc’s second-ranked destination in Asean after Singapore.

“From the point of view of the European Union, Indonesia is a key partner in a key region,” Ms Mogherini said. “It was a clear political choice to open a delegation of the European Union to Asean [in Jakarta].”

The EU mission to Asean was inaugurated in Jakarta on Jan 26, following the appointment of the first EU ambassador to Asean, Francisco Fontan Pardo.

The EU is the biggest source of FDI in Asean with an estimated 194 billion euros worth of cumulative investment in the region, almost a quarter of the Asean total. It is also Asean’s second largest trading partner, with bilateral trade in goods worth 201 billion euros in 2015, an 11% increase on 2014, according to EU statistics. Asean enjoyed a trade surplus with the EU of 35 billion euros.

The EU also seeks to deepen its relationship with Asean beyond trade and investment, said Ms Mogherini.

“It is not only the economic agenda that brings us together, even if it is the more relevant and evident for our people,” she said after meeting Asean Secretary General Le Luong Minh at the Asean Secretariat on April 9.

Both regional groups are hoping to resume negotiations for a region-to-region FTA, which were launched in 2007 but paused in 2009 as the focus shifted to securing bilateral pacts with individual Asean states.

The EU is currently negotiating FTAs with Malaysia and the Philippines, an investment protection agreement with Myanmar, and has concluded negotiations for FTA with Vietnam and Singapore. Talks with Thailand have been suspended since the 2014 military coup.

“What we have right now is an understanding with Asean member states that we want to have a region-to-region FTA as the horizon of our trade relations,” said Mr Fontan Pardo. “To get to that goal, we are on the one hand advancing bilateral FTAs, which we call a stepping stone toward a region-to-region FTA.”

The EU would like to see Asean become a significant strategic partner, but it depends to a large extent on Asean coherence and what both regions can do together, said Fraser Cameron, director of the Brussels-based EU-Asia Centre.

The EU launched FTA talks with the Philippines on Dec 22. The Philippines is the EU’s sixth largest trade partner in Asean and the EU is the Philippines’ fourth largest trading partner. EU exports to the Philippines were worth 6.8 billion euros in 2014, and Philippine exports were worth 5.7 billion euros.

After two and a half years of negotiations, the EU and Vietnam in August 2015 reached an agreement in principle for an FTA, the first between the EU and a developing country and the second with an Asean member following a pact with Singapore in 2014.

“An FTA is very useful because it brings about internal reforms in the country,” Mr Cameron told a group of Asian journalists in Brussels. A “quality trade agreement” such as the US-led Trans Pacific Partnership (TPP), he added, would be very helpful to those taking part since it would increase their competitiveness.

Mr Cameron said that FTAs in general tend to open up an economy and make manufacturing and services more competitive, and also provide a lift for tourism.
“Vietnam will stand to gain from the FTA but it won’t happen instantly. It’s going to take a few years to get the benefit partly because it’s going to take a couple of years to get the agreement ratified,” he said.

In Thailand, the EU’s third-largest trading partner in Asean, former premier Yingluck Shinawatra launched FTA negotiations in March 2013. But when the military overthrew her government a year later, the EU backed away.

“The EU doesn’t often suspend agreements but we have simply frozen negotiations with Thailand when there was a coup. We had sanctions against Myanmar until there was a change in the government,” Mr Cameron said.

One reason for the caution, he said, was that any EU trade agreement needs to be ratified by the European Parliament, which is “very sensitive” to issues such as democracy, rule of law and human rights.

Mr Fontan Pardo reiterated that the EU takes human rights matters very seriously.
“The EU is very critical of everybody, including EU member states, when it comes to human rights. We have to remain critical instead of shying away from the issue,” he said.

The EU has been supporting Asean efforts in this direction and was the first dialogue partner to back the establishment of Asean Intergovernmental Commission on Human Rights, said Basil Vasilica Constantinescu, the EU deputy head of mission to Asean.

“We were very supportive of the 2012 Asean Human Rights Declaration, regardless of its shortcomings. We are better placed than anybody to understand how difficult it is to reach a common denominator at a regional level on human rights,” he told Asia Focus.