Indonesia and the European Union signed a new trade and investment agreement on Monday, but a free trade agreement with the EU remains a distant dream.
Martua Sihombing, the Trade Ministry’s director of bilateral cooperation, said an Indonesia EU-FTA is still a long way off. One of the main hurdles is that many domestic exporters have not been able to meet the EU’s export regulations, especially environmental regulations.
Clifford Rees, head of the European Chamber of Commerce in Indonesia, said EU businesses had a number of concerns about trading with Indonesia, especially protectionism.
The two major ones were a decree this year from the Indonesian Trade Ministry restricting iron and steel imports, and limitations on imports of drug and alcohol-related products, he said. “Without support from the EU, Indonesia won’t be able to achieve its five-year economic growth target,” Rees said.
The EU is Indonesia’s second-largest export market, taking 13 percent of its total exports, with a value of 14.49 billion euros ($21.7 billion), in 2008.
Indonesia mainly exports palm oil, coal, and rubber to the EU. Meanwhile, Indonesia imported about 6.7 billion euros of goods and services from the EU last year.
The Partnership and Cooperation Agreement (PCA), signed in Jakarta on Monday, included joint commitments to cooperate closely on a number of issues.
It was negotiated to renew the legal framework for the EU-Indonesia relationship, which prior to the signing was still based on a 1980 agreement between the EU and the Association of South East Asian Nations.
Enhanced cooperation on trade and investment is the main theme of the agreement, which covers issues such as customs cooperation, protectionism, trade facilitation, product-hygiene standards and the protection of intellectual property rights.
Indonesia has signed FTAs with other countries, both bilaterally and through Asean. They include the Asean-China FTA, which comes into effect in 2010, the Asean-Australia-New Zealand FTA, the Asean-India FTA and a bilateral FTA with Japan.