The government is to revive long-delayed negotiations on a comprehensive economic partnership agreement (CEPA) with the European Union to boost trade and investment amid a global economic weakening.
The Trade Ministry's director general for international trade cooperation, Bachrul Chairi, said the ministry was currently preparing its newly revised CEPA draft to be proposed in the negotiations as Indonesia aims for a more positive outcome.
"We will start the negotiations with the EU on June 15 in Jakarta as we are required by the President [Joko "Jokowi" Widodo] to complete our reviews of all free trade agreements before the end of this year," Bachrul said recently.
President Jokowi ordered his economic ministers to review and revitalize all existing free trade agreements (FTA) and upcoming negotiations to improve Indonesia's international trade, which often suffers from a deficit because of weak exports.
Among the FTAs and CEPAs in the pipeline include those with Australia, Chile, the EU, India, Iran, South Korea and Turkey that have been ongoing for several years, but have shown no significant progress. Some of the trade talks have been delayed. The launch of the EU-Indonesia CEPA has been delayed since 2012 because of several issues, including tariff reductions, service liberalization and restrictions on foreign ownership.
The EU had concluded 10 CEPA or FTA negotiations with several countries since 2009, including with South Korea and more recently with Singapore and Canada. It has also launched specific investment negotiations with China and Myanmar. Currently, the EU is in the process of negotiating trade agreements with several ASEAN countries, as well as with the US and Japan.
"In the last two and half months we have been trying to set a new paradigm for the CEPA with the EU and have set new targets. If we use the same format as in the previous years, we will go nowhere," Bachrul said.
Indonesia's exports have been stagnant in the last two years amid a global economic slowdown. In the first quarter of the year, exports remained weak and fell 11.67 percent to US$39.13 billion because of weak external demand and low commodity prices, despite a $2.43 billion trade surplus.
"We are in the middle of tight competition with other ASEAN countries because currently they are aggressively opening their markets and exporting goods with higher level of competitiveness compared to Indonesia," Bachrul said. Bachrul said Indonesia's fisheries products, among various exported goods, were currently lacking competitiveness because of high import duties totalling 22.5 percent charged by the EU, while other ASEAN member countries pay zero percent.
Data from the Trade Ministry shows that the total trade between Indonesia and the EU as of last year reached 24 billion ($26.93 billion) in which Indonesia enjoyed a 4.9 billion trade surplus.
Overtaking Japan to become Indonesia's second-largest foreign direct investor after Singapore, the EU invested a realized amount of $3.76 billion last year, according to the Investment Coordinating Board (BKPM). 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 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.