Ambitious project: Jokowi visiting the site in East Kalimantan for his project of building Indonesia’s new capital city to replace Jakarta. Indonesia and the EU began negotiations on a free trade agreement in 2016, but have missed multiple deadlines. — AFP
JAKARTA: Delaying the implementation of the European Union’s (EU) deforestation-free rule for imported products may provide more time for negotiations between Indonesia and the EU on a free trade agreement, but will do little to bridge the remaining divides between the two parties, analysts say.
The proposed Indonesia-EU Comprehensive Economic Partnership Agreement (IEU-CEPA) has yet to be agreed upon, despite commitments from President Joko “Jokowi” Widodo and European Commission President Ursula von der Leyen to finish negotiations.
“Delaying the regulation would definitely solve one issue, but there’s still much more to talk about,” EU-Asean Business Council (EU-ABC) executive director Chris Humphrey told The Jakarta Post on Oct 8.
“Indonesia’s key demand is getting palm oil market access to the EU, so the delay eases some of their concerns, but it’s by no means certain that will be enough to seal the deal.”
The European Commission announced on Oct 2 that it proposed a one-year delay for the introduction of the EU Deforestation-Free Products Regulation (EUDR), following calls from industries and governments including Indonesia’s.
Indonesia had voiced serious concerns over the law banning the import of commodities linked to deforestation after 2020 as well as requiring traceability and geolocation coordinates of commodities subject to the regulation.
Four major points of the EU-Indonesia free trade agreement remain unresolved, according to Humphrey: palm oil market access, total foreign ownership of Indonesian banks, Indonesia’s local content requirements and the World Trade Organisation (WTO) moratorium on customs duties for electronic transmissions.
Indonesia, among other countries, opposes extending the moratorium on customs duties for electronic transmissions beyond March 2026, while the EU wants both sides to commit to its continuation.
Meanwhile, the local content policy set by the Industry Ministry to favour domestically produced goods has drawn flak from EU businesses for disrupting their supply chains. The country only permits 49% foreign ownership of local banks, a cap that the EU would like to see raised.
Coordinating Economic Minister Airlangga Hartarto told the Jakarta Post in an interview on Oct 1 that the EU also took issue with the Agriculture Ministry’s limitations on the entry of EU agricultural products. The EU is Indonesia’s fifth-largest trading partner. In 2023, the total trade between the two was US$30.77bil, with Indonesia enjoying a trade surplus of US$2.5bil.
The two began negotiations on a free trade agreement in 2016, but it has missed multiple deadlines.
President Jokowi asked his aides to conclude the agreement before the end of his administration on Oct 20, but with just over a week before he steps down, that goal appears unlikely.
Humphrey expressed scepticism that the agreement could be finalised in a short time. “I’m not confident at all. It is going to be very difficult unless one or both sides make some concessions.” — The Jakarta Post/ANN
