Vision Group Report: Invigorating the Indonesia-EU Partnership

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Relations between Indonesia and the EU are generally good and economic relations are healthy. There are nevertheless qualitative and measurable indications that the status quo is sub-optimal for both partners: in the last few years it has become increasingly clear that this status quo has led to underperformance in terms of mutual benefits and therefore can be improved for the future. A strategic reflection with respect to medium and long run policies of both Indonesia and the EU indicates that the status quo is at best lacking in ambition and fails to exploit the significant potential for further economic development. We live in a dynamic world economy in which global companies, as well as countries or regional groupings, are continuously seeking new opportunities. Companies do this, among other ways, by re-arranging value-chains and the locations of their constituent components, and by acting on the rapid changes in market access and FDI prompted by the persistent impact of unilateral, bilateral and regional opening up of economies all over the world. 14 1 Our Vision: Invigorating the Indonesia-EU Economic Partnership The EU-Indonesian relationship has adapted to this dynamic world to some degree in recent years, both bilaterally and via EU-ASEAN relations. The subsequent deepening of relations is supported by the EU’s Generalized System of Preferences (GSP), and unilateral (applied) tariff reductions by Indonesia alongside its domestic reforms. We can profitably build on this deepening of trade relations, including on the Partnership & Cooperation Agreement (PCA), signed in 2009 and currently being ratified. However, as a policy response to the dynamism of world business and international economic diplomacy, what has been done so far is insufficient. Serving the long run goals of economic development and sustainable growth for the two partners will require a more decisive, non-incremental initiative. Our Vision is that the Indonesia-EU economic partnership has to be invigorated. An ambitious deepening of economic relations between the EU and Indonesia, whilst making them more encompassing, is also the logical sequel to the steady stream of profound political, institutional and economic reforms that Indonesia has undertaken since the late 1990s. It is also a logical follow-up to the EU’s new trade policy since 2006, seeking ‘deep’ and ambitious economic partnerships with countries or groups having significant potential. This report identifies how a new comprehensive agreement can build on what has been achieved so far and what its component parts should be. Since the Vision Group wants to be concrete in its delivery, the report suggests many specific components, without going so far as to pre-judge the eventual bilateral negotiations which political leaders may well decide to open.
2 Rationales for an Ambitious New Economic Partnership Both Indonesia and the EU favour a finalisation of the Doha Round. Even so, the EU and Indonesia believe that active bilateral and regional economic agreements are an unavoidable necessity while the Doha Round is uncompleted. Every concluded FTA or Comprehensive Economic Partnership Agreement (CEPA) is likely to induce, in turn, one or more new FTAs with other trading partners in response to the first one. This highly dynamic process alters market access and opportunities all the time. It has grown into a decentralized alternative to the Doha Round. For Indonesia and the EU, taking no initiative to team up for their mutual benefit is therefore a potentially costly option. After all, ‘doing nothing’ does not mean that market access and other opportunities will remain the same: they cannot as other countries and groups are signing new FTAs and CEPAs. The costs of such inertia increase over time as bilateral market shares in goods and services are likely to decline as a result of the newly emerging bilateral status quo amidst continuous FTA activity by other trading nations or groups. This then leaves the choice between a relatively unambitious, “shallow” FTA as a defensive response and a much deeper and more encompassing CEPA (Comprehensive Economic Partnership Agreement, a kind of FTA-plus-plus) as an offensive strategy. This constitutes the first rational for a CEPA. A second powerful rationale for a comprehensive agreement between Indonesia and the EU is also found in the recent internal and external economic policies of the two partners, irrespective of the economic diplomacy initiatives of other trading nations and groups. Having suffered from a deep negative growth in 1998 following the Asian financial crisis of 1997-1998, Indonesia engaged subsequently in comprehensive domestic reforms and returned, to relatively high growth rates in recent years 15
Page 1 and 2: Invigorating The Indonesia-EU Partn
Page 3: Abbreviations ACP Africa, Caribbean
Page 6 and 7: SUMMARY OF THE TERMS OF REFERENCE F
Page 9 and 10: CONCLUSIONS AND RECOMMENDATIONS 7
Page 11 and 12: often be accentuated by the combina
Page 13: 20. Furthermore, in order to increa
Page 18 and 19: eaching almost 7% in the last quart
Page 20 and 21: The existing EU and Indonesia allia
Page 22 and 23: Architecture of the CEPA 20 4 The V
Page 24 and 25: Market Access in Goods 22 5
Page 26 and 27: 24 Members have an effective opport
Page 28 and 29: Services are of increasing importan
Page 30 and 31: manufacturing and services (banking
Page 32 and 33: trade will bring to bear considerab
Page 34 and 35: poor management 5 . As a result the
Page 36 and 37: Competition policy is a necessary m
Page 38 and 39: increasingly demanding “environme
Page 40 and 41: 38 14 Communication strategy
Page 43 and 44: PRODUCT SECTORS OF SPECIAL IMPORTAN
Page 45 and 46: are concerns in Indonesia over poss
Page 47 and 48: nature of complex and fairly aggreg
Page 49 and 50: to exploit potentially beneficial c
Page 51 and 52: In the political cooperation area,
Page 55 and 56: BACKGROUND NOTES 53
Page 57 and 58: 2. DEVELOPMENTS Even though the tra
Page 59 and 60: 1. to complete its ambitious negoti
Page 61 and 62: Data collected from an investment s
Page 63 and 64: direct recourse to international ar
Page 65 and 66: 2.2. EU Member States EU Member Sta
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- Component 2 (implemented by UNICE
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7. Indonesia to improve the investm
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Indonesia is the largest timber exp
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3. TECHNICAL COOPERATION The REACH
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The implementation of National Indo
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Cooperation and coordination betwee
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The proposal also puts forward a ne
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The EU’s objectives are to secure
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82 1. INTRODUCTION Indonesia and th
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In the last decade, the expansion o
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Indonesia’s automotives industry
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88 Rapidly expanding services secto
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There is remarkable scope for coope
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In Indonesia the processed foods in
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Electronics is Indonesia’s larges
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One of the fastest growing segments
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The textile, clothing and footwear
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100
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Delegation of the European Union In
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Vision Group Report: Invigorating the Indonesia-EU Partnership

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