EU seeks to conclude trade negotiation with Indonesia before 2024 elections
20/06/2023 (The Jakarta Post) - Seeking to avoid the fiasco of finalizing negotiations during next year’s elections in Indonesia, the European Union wants to conclude trade negotiations by the end of this year, while its more controversial deforestation policy, which could hammer Indonesia’s palm oil industry, continues to cast a heavy pall in Jakarta.
Significant progress on the long-awaited Indonesia-EU Comprehensive Economic Partnership Agreement (IEU-CEPA) has been reached, but it is paramount that the EU be flexible on some disputed issues, including its climate stance, Indonesia’s top officials said.
Six members of the European Parliament International Trade Committee (INTA) embarked this week on a two-day visit to Jakarta to advance negotiations on the IEU-CEPA. On Tuesday, they met with Coordinating Economic Affairs Minister Airlangga Hartanto, Trade Minister Zulkifli Hasan and Investment Minister Bahlil Lahadalia as well as lawmakers overseeing trade.
The IEU-CEPA, first negotiated in 2016, aims to facilitate and create new market access for both countries, in turn increasing opportunities for trade and direct investment.
Yet seven years of negotiations later, the awaited document remains elusive, with disagreements over the EU’s environmental stance on trade and its impacts on developing countries at the center of the debates. This stance, which seeks to discriminate against the import of products linked to deforestation, has been further cemented by the new EU Deforestation Regulation (EUDR) that will soon impose bans on such products, including Indonesian palm oil commodities.
The continued disagreement between Jakarta and Brussels has started to worry business players, who have urged the government to not let the deforestation issue hamper the ongoing IEU-CEPA talks.
INTA chair Bernd Lange, however, on Tuesday assured that the EU had “intensified” the IEU-CEPA negotiations despite the ongoing disagreements, aiming to conclude the years of talks by the end of the year.
“We are optimistic that a conclusion can be possible this year. [...] Next year we have elections in [Indonesia], and we have an election at the European Parliament, which will be complicated,” Lange said.
Zulkifli later told The Jakarta Post that at the very latest, the talks would be finalized by early next year, but that this needed “flexibility and pragmatism in resolving issues that both sides have not agreed on”.
Meanwhile, Airlangga told the Post that Indonesia had requested more clarity regarding government procurement from the EU to expedite the negotiation process, including “concrete explanations” on technology preferences. An equal standard on the global supply chain, the role of state-owned enterprises and local content in the manufacturing sector were also among Jakarta’s priorities, he added.
The EU is among Indonesia’s top trading partners, with a trade value amounting to US$29 billion in 2021.
Palm talks
Indonesia’s palm oil production, however, remained the elephant in the room, with President Joko “Jokowi” Widodo’s insistence that Europe’s deforestation policy was a form of “discrimination” against developing countries with limited capacity to fully transition despite the EU’s repeated efforts to convince Jakarta that its policies were only meant to address climate change.
Inevitably, palm oil discussions overshadowed the IEU-CEPA talks, including during the INTA members’ meeting with House of Representatives Commission VI, which oversees trade, on Tuesday. At the meeting, Indonesia continued its efforts to soften the EU’s stance on deforestation while INTA members pushed for collaboration on the EUDR’s implementation, sources who attended the meeting told the Post.
According to Zulkifli, Indonesia has consistently conveyed its objection toward the EUDR, which he said “has the potential to hamper trade and negatively impact smallholders”.
Where the two sides agreed, Airlangga said, was the establishment of a task force to help Jakarta adapt to Europe’s new rules.
“A consultation forum or a task force is to be established immediately so that the EUDR’s implementation guidance will not be burdensome to smallholder farmers producing crude palm oil [CPO], coffee, cocoa, rubber or wood products,” Airlangga said.
Previously, Jakarta expressed great concern that the EUDR would lead to onerous paperwork that could exclude smaller farms from entering the EU market.
Before the meeting with lawmakers, INTA member Heidi Hautala said that reciprocity and inclusivity were at the heart of the deforestation negotiations, adding that the EU had recommended Jakarta adopt a national action plan to adapt to its new deforestation policy.
“Instead of going to the World Trade Organization [WTO], I think we should really make this happen with good cooperation,” Hautala said.
The EUDR will scrutinize imports linked to deforestation and human rights abuses that took place after Dec. 31, 2020, restricting products including coffee, soy, palm oil, cocoa and rubber from entering the European market. The policy has rattled the world’s largest CPO producers, Indonesia and Malaysia, which have since then joined hands in what Jokowi described as an effort to defend “every country’s right to development”.