JAKARTA (TheInsiderStories) - Indonesia will prioritize its policy to establish economic cooperation with the European Union (EU) before focusing on joining the Trans-Pacific Partnership (TPP), Trade Minister Thomas Lembong said on Monday.
The minister said that the partnership with the EU will be established in the form of a regional comprehensive economic partnership agreement (RCEPA).
“President Joko Widodo and Vice President Jusuf Kalla give me two years to complete the economic partnerships [RCEPA and TPP],” he said.
The partnership with the EU is considered to be important because the region is one of Indonesia’s main export destination with its 400 million population and US$19 trillion. Each year, Indonesia managed to gain up to $10 million of trade surplus by trading with the EU.
The launch of RCEPA has been delayed since 2012 because of several issues, including tariff reductions, service liberalization and restrictions on foreign ownership. Currently, the EU is in the process of negotiating trade agreements with several ASEAN countries.
Previously Bachrul Chieri, the director general of international trade cooperation at the Trade Ministry told The Insider Stories when the RCEPA with EU in place is possible to increase Indonesian exports to $7 billion to the region.
In 2014, total export between two countries was recorded at Euro 24 billion ($26.93 billion) in which Indonesia enjoyed a trade surplus of Euro4.9 billion, according to Trade Ministry data.
Bachrul said Indonesia’s fisheries products, among various exported goods, were currently lacking competitiveness because of high import duties of 22.5 percent charged by the EU, while other ASEAN member countries pay zero percent.
He added that the Regional Comprehensive Economic Partnership (RCEP), which would create one of the world’s largest free-trade zones between 10-member ASEAN and its major trading partners such as Japan, China and Australia, will likely close in the middle of next year. Bachrul said. the RCEP would cover 40 percent of annual global trade.
The government has started talks on the FTAs since 2012, but most have been delayed due to disagreements over tariff reductions, limitations on foreign ownership, and service liberalization.
President Joko Widodo has instructed his economic ministers to review and revitalize all existing FTAs and upcoming negotiations to improve Indonesia’s international trade.
Among the FTAs and CEPAs in the pipeline include those with Japan, Australia, Chile, the EU, Pakistan, India, Iran, South Korea and Turkey that have been ongoing for several years. These agreements mean that Indonesia has FTAs with trading partners that account for of 67 percent of its total trade.
Despite having weak exports, Indonesia has the chance to formulate a mutual CEPA with the EU as both economies have complimented each other for years and the 28-member bloc overtook China last year to become Indonesia’s largest export market for non-oil and gas goods, according to the latest report by the Centre for Strategic and International Studies (CSIS).
The CSIS study estimates that a successful comprehensive CEPA with the EU would lead to an increase of Indonesia’s exports by up to $1.1 billion and a continued trade surplus with the EU which would boost investments in the country as well. On the other hand, without a comprehensive CEPA, Indonesia’s exports to the EU could drop by 20 percent or $4 billion, the study reveals. (*)