August 6, 2024
JAKARTA – The clock is ticking for Indonesia and the European Union to conclude their Comprehensive Economic Partnership Agreement (CEPA) if both parties wish to finalize it before President Joko “Jokowi” Widodo leaves office on Oct. 20.
The two parties have only weeks to wrap up the agreement, which has been dragging on for over eight years since negotiations began in 2016.
Indonesia’s assertion that the 19th round of negotiations in July would conclude the pact demonstrated optimism, which deserves acknowledgement. However, as the month of August commences, it remains unclear whether the two parties will ultimately be able to reach an agreement, and the possibility of further discussions being required cannot be dismissed.
The EU side has said in its official documents that “some key outstanding issues have remained inconclusive, including export and import restrictions, as well as investment conditions”, and that negotiating groups will continue to work in coming weeks.
It is our sincere hope that the government will keep its word and complete the agreement by its latest target period of next month.
Indonesia must guarantee this swift conclusion, as any further postponements would result in the loss of invaluable time that could otherwise be invested in enhancing the country’s competitiveness vis-à-vis its neighbors.
Vietnam saw its already significant trade with the EU surge by over 14 percent in 2021 after a free trade agreement between the two took effect the previous year. Last year, Vietnam was the EU’s 17th-largest trading partner, with over US$69.27 billion worth of goods exchanged.
Meanwhile, Indonesia was only the 33rd-largest trading partner of the EU last year, with a bilateral trade value of $32.04 billion.
Furthermore, the financial implications of the delay could be significantly more pronounced if we also consider the potential for investment that would have been directed into the country had the agreement been concluded at an earlier time. This is particularly evident in the context of renewable energy, as evinced by the experience of Vietnam.
Additionally, Indonesia must consider the impending implementation of the EU Deforestation Regulation in December of this year, along with the scheduled conclusion of the EU Carbon Border Adjustment Mechanism’s transition period in 2026.
While a comprehensive trade agreement may not entirely negate the impact of these two factors, it would at least provide Indonesia with a more advantageous trade environment for its goods entering the eurozone.
It would be prudent to conclude the agreement under the Jokowi administration, particularly for the EU, as negotiating with the incoming government would introduce an additional layer of uncertainty.
Notwithstanding the assurances of continuity proffered by the team of president-elect Prabowo Subianto, the outgoing and incoming presidents are distinct personalities, with their respective supporters exerting influence.
The failure to reach an agreement at this time would carry the risk of a more prolonged negotiation process, and it is difficult to know whether the situation will be any more favorable in the next five years than it is now.
Trade is a two-way street. The restriction of Indonesian enterprises’ access to the EU also presents a challenge for EU companies seeking to expand trade relations with Indonesia, the largest economy in the rapidly developing region of Southeast Asia.
By entering into an agreement with the EU, Indonesia would be able to remove its own trade barriers, thus creating a reciprocal relationship.
As the fourth-most-populous country in the world, Indonesia represents a substantial market for the EU. However, if negotiations remain unresolved for an extended period, the EU may lose competitiveness to other countries that have sealed a trade deal with the country.