In spite of a certain degree of disparity between the EU and Indonesia, both sides share common values: a similar motto (“United in Diversity” for the EU and “Unity in Diversity” for Indonesia); a belief in a multicultural and pluralistic society; a commitment to democracy and human rights, and a dedication to multilateralism and regional cooperation.1
The political and economic relations between the EU and Indonesia are generally healthy. Indonesia already enjoys trade preferences with the EU under the Generalized Scheme of Preferences2. In an attempt to deepen the relationship between these two bodies, the EU and Indonesia signed a partnership and cooperation agreement in 2009 (PCA). This partnership agreement came into force on the 1st of May 2014 and will intensify EU-Indonesia relations. Besides confirming and deepening the shared commitment of the two partners, the PCA will act as an instrument of bilateral cooperation in numerous sectors, such as migration, education, climate change, energy and customs cooperation3. The EU-Indonesia PCA is the first agreement of its kind between the EU and a Southeast Asian partner. The importance the EU accords in deepening the relationship with Indonesia has been expressed by Catherine Ashton, the EU High Representative for Foreign Affairs and Security Policy, also the Vice President of the European Commission:
“I warmly welcome the entry into force […] the EU-Indonesia Partnership and Cooperation Agreement (PCA). Indonesia is a key partner in the region of strategic importance for the EU and an increasingly important player on the global scene. We look forward to implementing the PCA together with our Indonesian partners in order to forge a more mature and broad-based relationship4”.
The two partners will also attempt to tap their mutual economic potential. In 2009 Commission President Jose Manuel Barroso and the Indonesian President Susilo Bambang Yudhoyono set up a vision group, tasked to explore and identify how the economic relationship can be deepened5. The vision group consisted of academics, government officials, representatives of business support organizations and government representatives of both Indonesia and the EU.
The vision group concluded that EU-Indonesia economic ties were generally healthy, but offered clear potential for further depth. Their recommendations recommendations were handed over to their respective governments in 2011. Their key conclusions were that an ambitious bilateral agreement between the EU and Indonesia should be established, especially given the strong complimentary nature of the Indonesian and the European economies.
This Comprehensive Economic Partnership Agreement (CEPA) would depict a Free Trade area-plus-plus agreement that would tap the potential of this complementarity based on the following architecture:
Since then, there have been intensive talks between the EU and Indonesia in preparation for a CEPA6.
Trade and Investment
Data for trade given for year 2013, data for FDI given for 2012
Source: European Commission, DG Trade, Countries and Regions – Indonesia, 2014, retrieved from http://ec.europa.eu/trade/policy/countries-and-regions/countries/indonesia/
In 2013, trade between the EU28 and Indonesia almost exceeded its all-time high of 2012 (€25 billion) reaching more than €24 billion. European exports alone increased from €7.4 billion in 2011 to €9.7 billion in 2013, making the EU28 Indonesia’s fourth largest trade partner behind Japan, China and Singapore1. With regards to Foreign Direct Investment (FDI), the EU ranked as the third largest investor in Indonesia in 2012, providing some €1.8 billion revenue, just behind Singapore and Japan.
Even with these record numbers, there is still much trade and investment potential between the EU and Indonesia. Even though Indonesia accounts for around 40% of both the population and GDP of ASEAN, only some 10% of both the total EU FDI and EU exports entering ASEAN are flowing into Indonesia. This shows that, especially when compared with Indonesia’s neighbors such as Singapore, Malaysia and Thailand, the EU-Indonesia relations have great future potential.
A look at the mutual trade flows between Indonesia and EU28 shows that the two economies are strongly complementary. The main products exported from Indonesia into the EU are commodities (e.g. palm oil, rubber), electronic equipment and textiles. Conversely, the main products imported to Indonesia by the EU28 are machinery, aircraft parts and electronic equipment.
Figure 10-11: EU-Indonesia Import/Export product distribution (2013)