Indonesia, as the largest economy of ASEAN, has charted impressive economic growth since overcoming the Asian financial crisis in the late 1990s and reached the upper-middle income status for the first time in 2019. Despite the COVID-19 crisis and other global uncertainties that will most likely cause a recession this year, there is a potential for continuous long-term growth driven by strong domestic demand and the demographic dividend.
We expect the Indonesian Government under the second term of President Joko Widodo to continue to focus on infrastructure development, regulatory reform and improving the business climate, and to structurally transform the economy from natural-resources dependency to a more competitive and modern manufacturing and service powerhouse. Therefore, the EU welcomes the spirit of the Omnibus Law on Job Creation, signed by the President on 2 November, which fundamentally addresses regulatory overlap and conflicts deriving from many layers of laws and regulations. The Omnibus Law may help to address the long-standing issue of burdensome import licensing requirements and procedures and improve market access for services and investment. The EU looks forward to see this ambition being translated in the forthcoming implementing regulations.
The EU and Indonesia share a long history of economic cooperation. The entry into force of the Partnership and Cooperation Agreement in May 2014 created the legal framework for this cooperation, with the joint objectives of increasing trade, investment and business opportunities, and pursuing poverty alleviation through sustainable economic development.
More recently, the launch of the EU-Indonesia trade negotiations in July 2016 showed the common resolve to expand bilateral trade and investment relations and modernize the economy through structural reforms.
Bilateral trade in goods between the EU and Indonesia amounted to €26.2 billion in 2019, with EU exports worth €10.2 billion and Indonesia’s exports worth €16 billion. This makes the EU the third largest trading partner for Indonesia, while Indonesia was the 31st global trading partner for the EU and fifth largest partner for the EU in ASEAN.
EU investments continued to grow steadily and the EU remains the top non-Asian investor in Indonesia. FDI stocks more than doubled since 2008, reaching €33 billion in 2018.
We commend Indonesia for its improved WTO commitments by ratifying the WTO Trade Facilitation Agreement in 2017.
However, despite all the positive economic developments, the EU would like to convey its concerns about some trade policy trends in Indonesia since the last Trade Policy Review, and especially after the passing of the Trade Law in 2014, regarding the increasing number of laws and regulations that are having systemic consequences for foreign operators’ access to Indonesia’s market and impact on Indonesia’s ability to fulfill its WTO commitments.
In particular, we register the introduction of import licensing requirements, port of entry restrictions, trading rights limitations, pre-shipment inspection requirements, local content and domestic manufacturing requirements as well as export restrictions (including taxes and prohibitions). All together, these measures create a complex web of approvals and unjustified requirements that are disruptive for trade flows and threaten to make Indonesia’s market impenetrable.
Among the most important obstacles affecting trade and investment flows, I would like to stress the following measures that have also been subject of the EU advanced questions:
These measures have also been subject of the EU advanced questions and we regret that we have not yet received replies by Indonesia.
We would also invite Indonesia to submit without delay outstanding notifications in areas such as Trade-Related Investment Measures, and quantitative restrictions.
Mr. Chairman, in conclusion, the EU appreciates Indonesia’s development challenges but also its vast potential as one of the growing powers in Asia and on the world stage. The EU encourages Indonesia to meet its natural desire to grow its economy by moving up the added value chain while supporting the multilateral trading system. On behalf of the EU, I wish Indonesia a very productive and successful review. Thank you.